Keeping More of What You’ve Earned: Why Tax Planning Matters in Retirement
Presented by Retirement GPS – Navigated by Zynergy
Most people assume taxes go down once they stop working. But for many retirees, the opposite happens. Social Security, pensions, and required withdrawals from retirement accounts can all combine to push you into higher brackets than expected.
That’s why tax planning isn’t just an add-on—it’s a core part of a confident retirement strategy. At Zynergy, we’ve seen time and again that the difference between simply retiring and retiring with peace of mind often comes down to one thing: how much you keep after taxes.
Four Key Tax Strategies
1. Bracket Management
Think of the tax bracket system like a row of buckets. Each bucket can hold a certain amount of income, and each has its own tax rate. If you overfill one bucket, the overflow spills into the next at a higher rate. Smart retirees manage withdrawals carefully to avoid paying more than necessary.
2. Tax Diversification
Just as you diversify investments, you also want to diversify taxes. Ideally, retirement savings are spread across three account types:
- Taxable accounts (brokerage, savings, CDs)
- Tax-deferred accounts (IRAs, 401(k)s)
- Tax-free accounts (Roth IRAs, Roth 401(k)s)
Having multiple “buckets” gives you the flexibility to draw from the right source at the right time.
3. Roth Conversions
A Roth conversion moves money from a traditional IRA into a Roth IRA. You pay taxes on the conversion now, but the account grows tax-free and withdrawals are tax-free later.
Here’s the metaphor we use with our Members: a Roth conversion is like paying the toll on a bridge. You can pay now while rates are historically low, or you can wait and risk paying more when rates increase. Either way, you have to cross the bridge—most people prefer to lock in today’s rate.
4. Withdrawal Sequencing
Which accounts should you tap first in retirement? The general order is:
- Taxable accounts
- Tax-deferred accounts
- Roth accounts
But the best sequence depends on your goals, healthcare costs, and tax bracket. Done well, sequencing can save thousands in lifetime taxes and stretch retirement dollars further.
Action Steps to Take Today
Here’s how to get started on your tax planning journey:
- Download the Tax Bracket Chart to see where you stand.
- Listen to Episode 9 of the Retirement GPS Podcast for a deeper dive into these strategies.
- Follow Zynergy Retirement on Instagram, Facebook, and LinkedIn for ongoing tax and retirement planning insights.
At the end of the day, retirement success isn’t about what you make. It’s about what you keep.