5 Tax-Efficient Strategies for Retirement

By Brett Gottlieb

When you picture your ideal retirement, taxes probably aren’t the first thing that comes to mind. Most people only think about taxes once a year around filing season, and then set them aside until the next deadline rolls around.

But if your goal is to reduce your lifetime tax burden, a more proactive approach is essential to your retirement strategy. As you begin withdrawing from retirement accounts rather than contributing to them, your tax decisions matter more than ever.

That’s why we’re sharing 5 tax-efficient retirement strategies to help you make the most of your income and keep more of what you’ve worked so hard to save.

1. Limit Your Exposure to the 3.8% Medicare Surcharge Tax

If you have a higher income and have investment income, you should be aware of the 3.8% Medicare surcharge tax. This tax applies to individuals and couples whose earnings exceed certain limits, meaning they contribute more to Medicare and help support the healthcare system for everyone. Here’s how it works:

If you’re single and make more than $200,000, or if you’re married and together make more than $250,000, this 3.8% tax may apply to you. These income limits are based on your Modified Adjusted Gross Income (MAGI)—that’s your usual income with some deductions added back in, such as tax-free foreign income, IRA contributions, and student loan interest.

The surcharge tax affects what you earn from investments such as stocks, bonds, and real estate (which includes interest, dividends, annuities, gains, passive income, and royalties). The IRS calculates this tax on whichever is less: your total net investment income or the amount by which your income goes over those $200,000 or $250,000 thresholds.

If your MAGI is near or above the thresholds, there are steps you can take to limit your exposure. First, you will want to review the tax efficiency of your investment holdings. It may be worthwhile to move less efficient investments into tax-deferred accounts and capitalize on tax-loss harvesting. Other moves you can make include investing in municipal bonds, which have tax-free interest, and taking capital losses to offset gains. Installment sales can spread out large gains and minimize your adjusted gross income, and real estate like-kind exchanges can also defer gains and their taxability.

2. Utilize Roth IRA Conversions

Distributions from Roth IRAs are tax-free, so they are a great tool to have in retirement. However, many people cannot contribute directly to a Roth IRA because of income limitations. Instead, you have to convert traditional IRA funds to a Roth account by paying the related income taxes. You can take advantage of low-income years, such as when you have stopped working but are not yet collecting Social Security, to convert your funds to a Roth IRA so you’ll have tax-free income later.

It is important to be mindful of tax brackets when you do conversions so you don’t inadvertently push yourself into higher tax rates. As we mentioned above, be sure to consider the impact of that 3.8% Medicare surcharge tax. Another crucial item to be aware of is the Income-Related Monthly Adjustment Amount (IRMAA), which increases your Medicare premiums if your income is above a certain limit. For 2025, if your Modified Adjusted Gross Income (MAGI) from 2023 is over $106,000 as an individual filer or $212,000 as a couple filing jointly, your premiums will increase. The higher your income, the higher the premium. This is where careful planning can help you manage these additional costs and make the most of your IRA conversions—without unexpected expenses.

3. Take Advantage of the 0% Rate on Long-Term Capital Gains

If the Medicare surcharge tax is irrelevant to you because your income is lower, then you may be able to take advantage of the 0% long-term capital gains rate. Profits on the sales of assets owned over a year are tax-free if your 2025 taxable income is below $48,350 for singles or $96,700 for married couples filing jointly. Once you exceed those thresholds, long-term capital gains are taxed at 15% until your taxable income for 2025 gets above $533,400 for singles or 600,050 for couples, at which point the tax rate goes up to 20%.

Claiming more deductions or making deductible IRA contributions can help keep your taxable income within the 0% capital gains tax range while also providing their usual tax benefits. However, you will want to be strategic about taking tax-free gains as they can raise your adjusted gross income and affect the taxability of your Social Security benefits. Also, taking those gains may incur state tax liabilities as well.

4. Be Strategic About Inherited IRAs

The IRS clarified rules for inherited IRAs in July 2024, addressing concerns about the 10-year rule introduced in 2020. Non-spousal beneficiaries must now take required minimum distributions (RMDs) annually if the decedent had already started RMDs. Additionally, the inherited IRA must be completely depleted by the end of the 10th year following the account holder’s death.

Key exceptions to the 10-year rule remain unchanged. These include surviving spouses, minor children, disabled or chronically ill beneficiaries, and those less than 10 years younger than the deceased. These groups can continue to use the stretch IRA approach, taking distributions over their life expectancy.

For beneficiaries of account holders who passed away before their RMD age (currently 73), there is more flexibility. In these cases, beneficiaries are not required to take RMDs in years 1 through 9, allowing for strategic tax planning during the 10-year period.

Being strategic about timing withdrawals is crucial to managing tax implications and minimizing overall tax liability.

5. Donate Effectively

If you are charitably inclined, one of the best ways to save on taxes is through donations. You may be able to get a tax deduction on donations up to 60% of your adjusted gross income. If you have appreciated assets, the tax break could be even greater. When you donate an appreciated asset that you have owned for over a year, such as stocks, to a charity, you do not have to pay capital gains taxes on the appreciation, but you still get to claim the full value for your deduction. This may allow you to avoid the capital gains tax altogether. If your assets have declined in value, it is best to sell them yourself and donate the proceeds so you can claim the loss when filing your taxes.

Another strategy to consider is the use of a charitable lead annuity trust or a donor-advised fund, which allow you to take an up-front write-off that can help offset other income, such as from a Roth IRA conversion or withdrawal from an inherited IRA.

Your Partner in Tax-Efficient Retirement Strategies

There are smart, tax-efficient retirement strategies that can help reduce your overall tax burden in retirement. But, like most things involving taxes, the details matter. These strategies often depend on your unique income sources, timing, and long-term goals, making personalized guidance essential.

The good news? You don’t have to figure it all out on your own. If you’re exploring ways to make your retirement more tax-efficient, working with an experienced financial advisor can help you navigate the complexities with clarity and confidence.

And if you don’t already have a trusted advisor, I’d love to connect. Let’s talk about how our team at Comprehensive Advisor can support you in building a tax-savvy retirement plan that aligns with your vision for the future.

Take the first step toward your ideal retirement by scheduling a consultation today. Email us at info@ComprehensiveAdvisor.com or call (760) 813-2125.

About Our Advisors

Brett Gottlieb is the founder of Comprehensive Advisor and a financial advisor with nearly two decades of industry experience. He graduated from California State University-Chico with two bachelor’s degrees, in business administration and economics, and is Life Insurance licensed in several states. He is passionate about guiding his clients on retirement income planning, helping each client pursue their specific retirement goals, and defending the assets his clients have worked so hard to achieve. Brett is a California native and currently resides in San Elijo Hills with his beautiful wife and three children.

Our team of qualified professionals have experience in the financial service industry, and our advisors hail from some of the largest independent broker/dealers and banking institutions in the country. They have dedicated their professional careers to creating personalized financial strategies for individuals and families who seek successful retirement planning and currently offer investment advisory services through AE Wealth Management, LLC. Our advisors take a common-sense approach to the planning process and work with clients to create a comprehensive retirement roadmap to help ensure their assets are preserved and they receive the income needed to enjoy their future. Based in Carlsbad, California, they work with clients throughout San Diego County and beyond. Learn more by connecting with Brett on LinkedIn or email them at info@ComprehensiveAdvisor.com.

Investment advisory products and services made available through AE Wealth Management, LLC (AEWM), a Registered Investment Advisor. Insurance products are offered through the insurance business C.A. Financial & Insurance Services.Comprehensive Advisor, LLC is an Investment Advisory practice that offers products and services through AE Wealth Management LLC (AEWM), a Registered Investment Advisor. AEWM does not offer insurance products. The insurance products offered by C.A. Financial & Insurance Services are not subject to investment Advisor requirements. CA Ins. Lic. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions.  3220394-8/25