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5 Tax-Smart Strategies for Retirees to Consider Before the Year End Thumbnail

5 Tax-Smart Strategies for Retirees to Consider Before the Year End

As the end of the year approaches, retirees are gearing up for the annual tax season.  However, waiting until April to address your tax situation may mean missed opportunities for savings.  To make the most of your financial situation, it’s crucial to consider tax-smart strategies before the year comes to a close.  Here are five strategies for retirees to consider to help you optimize your tax position and potentially reduce your tax liability.

1)  Roth conversions in lower-income years  

As some folks enter retirement, they experience a few years of lower taxable income as they are no longer receiving their salary and they may have delayed Social Security and not subject to Required Minimum Distributions yet.

This period creates an opportunity for some strategic tax planning.   This can include Roth conversions and/or realizing capital gains.  If your income is low enough you can move money from your pre-tax retirement account into Roth IRA accounts and pay tax at your current rate.  You may also be able to recognize gains at a lower tax level than in future years.  It is important to consult a tax professional to discuss both strategies and how they may apply to your tax situation.

2) Evaluate Medicare Thresholds  

Individuals who are enrolled in Medicare Part B pay a premium each month for that coverage.  What many folks do not realize is that the premium they pay is based on income.  If you cross certain income thresholds, you may pay more each month in Medicare premiums.  It is important to be aware of these income thresholds and if you can stay below the income thresholds you should consider it.

 3) Satisfy all Required Minimum Distributions (RMDs)


Once you reach a certain age, you are required to take distributions from your qualified retirement accounts.  It is required that these distributions take place by December 31st of that year.  In your first year, you may be able to extend the distribution to April 1 of the following year but that would lead to multiple RMDs that would need to be satisfied so it is rarely recommended.

One note I make is that many clients have IRA CDs at a local bank.   These are the types of accounts where the RMDs will get missed so be sure to be aware of all Retirement accounts you may own.

4) Harvest Investment Losses

Before the year ends, review your investment portfolio and consider tax-loss harvesting. This strategy involves selling investments that have experienced a loss to offset capital gains and potentially reduce your taxable income. If your capital losses exceed your capital gains, you can use the excess losses to offset ordinary income, up to $3,000 per year.

Keep in mind the "wash-sale" rule, which prevents you from claiming a loss on a security if you repurchase the same or a substantially identical security within 30 days. Be strategic in your approach and consult with a tax professional.

5) Consider Qualified Charitable Distributions (QCDs)


The holidays are a time for giving and one way to take advantage of potential tax benefits of charitable contributions is through the use of a Qualified Charitable Distribution.  These are distributions that are made from your IRA directly to a charity.  A Qualified Charitable Distribution is not taxed, nor is it included in your taxable income.  If conditions are met, QCDs can also count towards Required Minimum Distributions.  This allows you to potentially reduce your taxable income and maybe even your Medicare Premiums if you are near income thresholds.


As the year draws to a close, proactive tax planning can make a significant difference in your financial outlook.  By considering the strategies outlined above you may be able to save significant money in taxes.  As always, be sure to consult with a tax or financial professional to tailor these strategies to your specific situation.  Don’t wait until the last minute – take action now to secure a tax-smart future in retirement.

Author: James (JT) Cox

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