Taxes in Retirement Can Take a Big Bite Out of Your Nest Egg

Tax Smart Retiree makes it easy, convenient and very affordable to get a tax efficient plan done right for retirement.

Smart Alec | Tax Smart RetireeBy being tax smart & tax efficient in retirement, you can make your portfolio last 5 or 10 years longer.

Taxes don’t stop when your paycheck does. In fact, tapping your retirement nest egg comes with all sorts of new rules and opportunities. Many pre- and post-retirees significantly under-estimate the impact of taxes on their retirement (or they don’t really give it any thought at all). Bad News. Good News. The bad news is that taxes can take way more of your portfolio than is necessary. The good news is with the right tax advice, tax efficient strategies and plan, you can potentially save yourself thousands in taxes and increase the amount or life of your portfolio…without adding a single penny to it.

Unique to Retirement Tax Efficient Strategies

Our team works with pre- and post-retirees everyday matching goals to sophisticated tax strategies based on your unique needs. Most financial advisors, CPAs and CFPs DON’T do retirement tax planning. We do. We are experts in:

Roth Conversions

Tax Loss Harvesting


Tax-Free Investments

Tax Optimized Income Withdrawal Strategy

Asset Location

Social Security Taxation


Tax planning for retirement (like other retirement planning) is completely different than the accumulation phase of life. Our team-based model of CPAs and CFPs means there’s no stone left unturned in your tax plan. There’s NO reason to retire without a tax plan.


Whether you manage the other aspects of your retirement/financial plan, or another advisor does, our team will help keep everything and everyone on your team coordinated and in sync.


With our online model, we make effective and efficient tax planning affordable. We leverage technology and proven processes so that you pay less in taxes AND fees.


We provide access to a number of Resources: libraryblogcalculators, tools, tips and info to help those people who want to up their knowledge of taxes and understand what their specialist is recommending. Knowledge is power.

What If? Report

Let Us Show You HOW MUCH We Could Have SAVED You on Your Tax Return

WHAT IF we could save you MONEY with some BRIGHT IDEAS? Find out NOW!

It’s easy. We just need a copy of your most recent tax return. We’ll then address the question, “What If you did things differently on your return?”  We’ll show you how you could have been more tax efficient and set you up to pay less taxes next year.

Tax Smart Planning Fees

Tax Smart Plan


Our team will prepare a comprehensive tax plan customized to your situation. After a brief intro call we’ll be able to give you an exact fee to complete your plan. Why pay more in taxes than you need to?* Add-on tax prep for a basic 1040 return for only $100.

Tax Smart Plan Annual Review


Life changes so we review your tax plan each year to make sure your whatever has changed in your life isn’t making you tax inefficient. Why pay more in taxes than you need to? *Add-on tax prep for a basic 1040 return for only $100.

Know More & Have More

We believe knowledge is power and we want you to learn as much as you’d like about taxes in retirement. You don’t need to become an expert (that’s what we’re here for), but we prefer to work with people that have a solid understanding of basic concepts and strategies. To this end, here’s a few things you’ll need to keep in mind as you head toward your retirement.

Test Your Tax I.Q. Here

Grab your copy of our TSR Tax Guide Here

Request a Copy of Our Roth Conversion Guide

Watch Our Most Recent Tax Webinar Here


Retirement Tax Basics

What to Do with Your 401(k)

One of the first decisions you’ll have to make is what to do with the savings you have accumulated in your 401(k) or similar workplace-based retirement plan. As long as you have a balance of $5,000 or more, you can keep it with your former employer until the plan’s normal retirement age (often 65) or, in some cases, until you reach age 70 1/2. You might want to do that if you like the investment choices and the low fees of your employer’s plan.

And if you are at least 55 by the end of the year in which you leave your job, you can start tapping your 401(k) funds penalty free — although you’ll still owe income taxes on your withdrawals. If you roll the money over to an IRA, where you will have more investment choices, you must be at least 59½ to avoid early withdrawal penalties when taking money out of the account.

Rollover to a Traditional IRA

If you decide to roll over some or all of your 401(k) money to an IRA, you can preserve your tax deferral by transferring the funds directly to the new custodian, such as a broker, mutual fund or life insurance company.

Don’t make the mistake of having a check made out to you. If you do, your employer will be required to withhold 20% of the balance for taxes even if you plan to complete a rollover to an IRA within 60 days. Any money that’s not in an IRA within that time period — including any part of that 20% withheld from the IRS that you aren’t able to come up with elsewhere — will be treated as a distribution and subject to income taxes plus a 10% penalty if you are younger than 55. You avoid this potential problem by having the money sent directly to your IRA or having the check written to your IRA account.

Company Stock

If you own highly appreciated company stock, special rules for what’s called net unrealized appreciation (NUA) can result in significant tax savings. When you take a lump-sum distribution from your 401(k), you can move the stock to a taxable account and roll over the rest of the assets to an IRA. You’ll pay ordinary income taxes on your basis (what you paid for the stock), but the remaining NUA (the appreciation while the stock was in your retirement plan) will be taxed only when the stock is sold.

And, here’s the kicker: At that point, the profit will qualify for the favorable long-term capital-gain rate. In contrast, if you roll over your entire balance to an IRA, all of your withdrawals, including that which comes from the profit on your company stock, will be taxed at your top tax rate. This pays off best for company stock that has appreciated smartly inside your 401(k).

Mandatory Distributions

Tax-deferrals on retirement savings don’t last forever. You must start taking taxable withdrawals from your traditional IRA or 401(k) by the April 1 following the year you turn 70½. Subsequent annual withdrawals are due by December 31 of each year. Each year’s required minimum distribution (RMD) is based on your account balance at the end of the previous year divided by a life expectancy factor set by the IRS.

If you don’t take your full RMD each year, there’s a stiff penalty — 50% of the amount you failed to withdraw. You can always take out more than the minimum required amount and pay taxes at your regular rate on all the withdrawals. You can ask your retirement account custodian to withhold taxes from your distributions, or you can file quarterly estimated tax payments.


If you purchase an annuity with non-qualified funds (money not inside a retirement account), the payments you receive will be partially tax free. The portion of each payment that represents a return of your investment is tax-free; the portion that represents investment earnings is taxable. Again, you should receive a 1099-R from the insurance company showing the taxable amount.

Health Savings Accounts

Any distribution from an HSA used to pay for medical expenses is tax free. Once you reach 65, HSA distributions used to pay for non-medical expenses are subject to income taxes but avoid the 20% penalty that applies to those under age 65 who use the money for non-medical reasons.

Roth 401(k) Plans

If you contribute to the latest innovation in retirement savings — the Roth 401(k) — you can also benefit from tax-free distributions once you’re 59½. But the Roth 401(k) does have mandatory distribution rules, like traditional 401(k) plans, starting at 70½. It’s easy to get around that, though. Simply roll over the Roth 401(k) portion of the account to a Roth IRA when you retire. There will be no tax consequences, and you never have to tap the account.

Convert to a Roth

Anyone can convert a traditional IRA or 401(k) to a Roth IRA to enjoy tax-free withdrawals in retirement. The rule that used to ban such conversions if your adjusted gross income was more than $100,000 has been abolished. There’s a high price of admission to a Roth, however. You must pay tax on any as yet untaxed money that you convert — and for most taxpayers that means 100% of the converted amount. Request our Roth Conversion Guide.

Roth IRAs

There is a great deal of confusion about how withdrawals from Roth IRAs are taxed. There’s a widespread belief, for example, that money comes out of a Roth tax free only after age 59 ½ and then only if the account has been open for at least five years.

It is true that to withdraw earnings from a Roth tax-free, you must be at least 59 ½ and the account must have been opened for at least five years. But earnings are the last thing to come out of a Roth. The IRS assumes that the first money withdrawn comes from any annual contributions you made (and this money can be tapped tax- and penalty-free at any time). Next, you dip into funds that went into the Roth via a conversion from a traditional IRA or 401(k) and these amounts are always tax-free, and penalty-free, too, if you are over age 59 ½ or the account has been open for at least five years. Only after you retrieve all of your contributions and converted amounts do you touch earnings . . . and if at least five years have passed and you’re over age 59 ½, the earnings are tax- and penalty-free.

So, if you convert $100,000 today, you can withdraw it all tomorrow tax-free (but not penalty-free unless you’re at least 59 ½). Unlike traditional IRAs, there are no mandatory distribution rules with Roth IRAs, so you never have to touch the money if you don’t need it, allowing the money to grow tax-free for years. Your heirs will thank you because they, too, can take distributions from an inherited Roth IRA tax-free. (Money in an inherited traditional IRA is taxed in the heir’s top tax bracket.)


Pension and annuity payments from employer-sponsored retirement plans are fully taxable. You can elect to have federal income taxes withheld from your pension or annuity check, or you can file quarterly estimated tax payments. State tax laws vary. Some exempt certain types of pensions, such as military or government pensions, from state income taxes. Others allow a portion of any type of pension income to escape state income taxes. A few fully tax pension income. You should get a Form 1099-R from the payer each year showing how much taxable income you received.

Social Security

Another big decision is when to start taking your Social Security benefits. You can start as early as 62, but your retirement benefits will be reduced by 25% or more for the rest of your life. Or you can wait to collect your full benefits when you reach your normal retirement age, which is 66 for those born between 1943 and 1954. Or you can wait longer. For each year you delay collecting benefits after your normal retirement date up until age 70, you qualify for an even bigger retirement benefit. Delayed-retirement credits add 8% a year to your benefit, so your benefit at age 70 would be 32% higher than what you’d get if you claim benefits at age 66. As you consider when to take your Social Security, factor in how your benefits will be taxed.

Also, consider whether you plan to continue working once you start collecting Social Security benefits. If you are younger than your normal retirement age, you will lose $1 in retirement benefits for every $2 you earn over the earnings cap, which is $16,920 for 2017. There’s a more generous limit for the year you reach normal retirement age and there is no restriction after you reach age 66.

A portion of your benefits may be taxed depending on your income which, for this test, includes your adjusted gross income, plus any tax-free interest income, plus half of your Social Security benefits. If your income is less than $25,000 on a single return or $32,000 on a joint return, your Social Security benefits are tax-free.

Individuals with incomes between $25,000 and $34,000 pay tax on up to 50% of their benefits. Individuals with incomes over $34,000 pay income tax on up to 85% of their benefits. Married couples filing a joint return with incomes between $32,000 and $44,000 pay tax on up to 50% of their Social Security retirement benefits. Those couples with incomes over $44,000 pay taxes on up to 85% of their benefits.

You can ask the Social Security Administration to withhold federal income taxes from your retirement benefits, or you can pay quarterly estimated taxes. To start, stop or change your withholding, file a form W-4V with your local Social Security Administration office. State tax laws vary. Some state exempt some or all of Social Security benefits from income taxes.

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