How to Minimize Taxes When Retiring: Timing Your Income

Wall Street’s not-so-secret retirement tax edge

isn’t a hot stock tip, it’s timing. The biggest retirement wins usually come from how you sequence income across accounts and years, not from squeezing an extra 50 bps out of a dividend ETF. Sounds boring until you realize the difference between paying 0%, 15%, or 22% on the next dollar can be a five-figure swing over a decade. And right now, Q4 2025, timing matters because the calendar is doing half the work for you or against you.

Here’s the plain-English setup. 2025 is the last full year before many individual tax cuts from the 2017 Tax Cuts and Jobs Act are scheduled to sunset after December 31, 2025 (unless Congress changes it). That means lower marginal brackets and the larger standard deduction we’ve been enjoying could revert in 2026, while the 3.8% Net Investment Income Tax still sits there for higher earners at $200,000 AGI for single filers and $250,000 for married filing jointly (those thresholds are not indexed). Long-term capital gains still sit in the 0% / 15% / 20% structure, which creates real room to “fill” lower brackets with capital gains or Roth conversions on purpose. And for retirees, Required Minimum Distributions kick in at age 73 under SECURE 2.0, which means you’ve got a pre-RMD window that can be incredibly tax-efficient if you use it. Yeah, that’s the edge.

Markets this year? Cash yields are still very real, T-bills and high-yield savings hanging in the 4-5% neighborhood, so the temptation is to chase yield and call it a day. But that’s not where most of the retirement alpha shows up. It’s usually: which account funds which expense, in which month, and which bracket you aim to fill, while you keep an eye on healthcare thresholds. I’ve watched more portfolios get “beaten” by Medicare premium surcharges or an avoidable capital gains spike than by owning the wrong mid-cap fund for a quarter, and yes that still bugs me.

We’ll keep this practical, because I’m a fellow learner too, I’ve sat with families where the portfolio was fine but the tax map was a maze. We’ll start with the foundations: the three tax buckets (taxable, tax-deferred, tax-free) and the simple but sneaky idea of withdrawal sequencing. Then we’ll move to advanced plays that are timely for 2025: partial Roth conversions while rates are potentially lower, harvesting 0% capital gains where eligible, managing healthcare thresholds that can spike costs (think MAGI-linked Medicare surcharges), and charitable moves like giving appreciated stock or using the standard deduction strategically so you’re not donating in a way that wastes deductions. And yes, we’ll hit the coordination problem, how Social Security taxation interacts with IRA withdrawals, because that “tax torpedo” is still a thing.

Simple version (I’m over-explaining on purpose): the order you tap accounts can change your tax bracket, which changes how much you keep, which changes how long your money lasts. That’s it.

A few numbers to anchor what we’ll work with in 2025, and this matters for anyone searching how-to-minimize-taxes-when-retiring:

• Key TCJA individual provisions are set to expire after 2025, including lower marginal rates and the larger standard deduction.
• Long-term capital gains rates remain tiered at 0%, 15%, and 20% (plus the 3.8% NIIT above $200,000 single / $250,000 MFJ AGI).
• RMD age: 73. Your pre-RMD years can be prime time for bracket-filling Roth conversions.
• Up to 85% of Social Security benefits can be taxable, with thresholds that start at $25,000 provisional income for single and $32,000 for married filing jointly, those base amounts haven’t been indexed for decades.

If you’re thinking, okay, that’s a lot, yeah, it is, but it’s manageable. We’ll map the buckets, pick the brackets, and line up the calendar. The point isn’t to outsmart the market; it’s to stop tipping the IRS unnecessarily when a little sequencing could have done the job.

Build your "tax map": what gets taxed, when, and how

Build your “tax map”: what gets taxed, when, and how

Before you touch conversions or decide which account to tap first, you want a one-page view of your income sources by tax type and timing. I call it the tax map. It’s not fancy, just brutally clear. When clients see it, the “ohhh” moment happens because the levers finally sit in one place instead of scattered across statements. Here’s the base layer.

Bucket everything by account type

• Taxable (brokerage): dividends and interest show up annually; realized capital gains only when you sell. You control timing on sales. Qualified dividends and long-term capital gains (LTCG) have their own brackets.
• Tax-deferred (401(k), traditional IRA, 403(b), 457): no tax until withdrawal, then taxed as ordinary income. Required minimum distributions (RMDs) kick in at age 73 under SECURE 2.0 (enacted 2022, effective 2023) and are scheduled to move to 75 in 2033 under current law.
• Tax-free (Roth IRA/401(k)): qualified withdrawals are tax-free and don’t count in provisional income for Social Security or toward RMDs (Roth IRAs don’t have RMDs during your life; Roth 401(k)s no RMDs starting 2024 under SECURE 2.0).
• Guaranteed income: Social Security, pensions, income annuities. These are semi-fixed and can create bracket “drag.” You often can’t dial them down later, so plan around them early.

Know the tax character

• Ordinary income: wages, IRA/401(k) withdrawals, pension income, short-term gains, non-qualified dividends, interest. Affects Medicare IRMAA, NIIT thresholds, and ACA credits.
• Qualified dividends & long-term capital gains: taxed at 0%, 15%, or 20% depending on taxable income. The 3.8% NIIT applies above $200,000 (single) / $250,000 (MFJ) of modified AGI under current law. Quick reference: the 0% LTCG band for 2024 ran up to $94,050 (MFJ) and $47,025 (single); 2025 bands are a bit higher due to inflation, but the rate structure is the same.
• Tax-exempt interest: not taxed federally but does count in Social Security provisional income and may trigger state tax or AMT quirks. Muni funds can still bump your SS taxation, yep, annoying.

Social Security’s oddball math

Social Security uses “provisional income” = AGI (before SS) + tax-exempt interest + 50% of SS benefits. Those thresholds haven’t been indexed since the 1980s: $25,000 (single) and $32,000 (MFJ). Up to 85% of benefits can be taxable under current law. Translation: even moderate portfolio withdrawals can pull SS into taxation. And it sneaks up on you, one extra IRA distribution can make an extra chunk of SS taxable, which then lifts AGI, which may hit IRMAA.. you get the picture.

RMD timing

SECURE 2.0 shifted the first RMD age to 73 starting in 2023, with a scheduled move to 75 in 2033. Your pre-RMD window is prime territory for filling lower brackets with planned withdrawals or Roth conversions. If you wait, the account grows, the divisor shrinks, and, boom, larger forced income later. I’ve watched this play out more than once with engineers who loved deferring everything forever; it worked… until it didn’t.

Set target brackets and mark the cliff items

• Brackets you’ll “fill” each year: decide, for example, “We’re willing to fill the 12% or 22% bracket” while the TCJA rates are still in place through 2025. That can mean realizing LTCG intentionally or converting to Roth to top off the bracket ceiling.
• IRMAA (Medicare Part B/D surcharges): cliffy and two-year lookback. For reference, the first IRMAA tier in 2024 started at MAGI above $103,000 (single) / $206,000 (MFJ) per CMS. 2025 thresholds are indexed, but the point stands: $1 over can raise premiums for the entire year. Put a bright red line on your map.
• ACA premium tax credits (if you’re pre-65): enhanced credits run through 2025 with no hard 400% FPL cliff; the expected contribution is capped (generally up to 8.5% of income). Still, a small Roth conversion can change your net premium by thousands. Model it before year-end.
• NIIT 3.8%: kicks in at modified AGI above $200,000 (single) / $250,000 (MFJ). Capital gains you “thought” were at 15% can quietly become 18.8% after NIIT.

How to assemble the map (quick workflow)

1. List each account with current balance, estimated yield/dividends, and whether you control the timing (e.g., brokerage sales) or it’s forced (pension, RMD).
2. Project “baseline” income for each year from now through age 75: guaranteed sources first, then the minimum distributions once RMDs start.
3. Layer in optional items: planned capital gains harvesting, Roth conversions, large purchases. Put them in pencil; you’ll move them around.
4. Overlay your target bracket ceilings, IRMAA lines (by filing status), NIIT threshold, and if applicable, ACA income bands.
5. Note any state-specific gotchas (state tax on SS, muni treatment, pension exclusions). State lines change the map more than people expect.

Reality check against markets

With yields still elevated versus the pre-2020 era, “safe” cash and bond interest can push ordinary income higher than you’re used to. Dividend hikes have been steady this year in a lot of core equity funds, too. That’s good news, but if your brokerage throws off more qualified dividends, it might crowd out 0% LTCG room you were counting on. I caught myself doing this exact thing in my own account earlier this year, reinvested into a higher-yield fund and, yeah, it narrowed my tax headroom. Small thing, but it matters.

Pro tip: keep a running estimate of year-to-date AGI and provisional income. Waiting for the 1099s in February is how people miss the window. A simple spreadsheet or your custodian’s tax dashboard works fine.

If parts of this feel like juggling, that’s normal. You don’t need perfect precision, just enough clarity to decide, “We’ll realize $X of gains” or “We’ll convert up to the IRMAA line and stop.” The tax map turns that from a guess into a plan. And if I start talking about the standard deduction interaction with qualified dividends and, well, I’ll spare you, but it’s on the map, too.

Timing Social Security and pensions so they don’t blow up your bracket

Coordinating guaranteed income with withdrawals is where a lot of retirement tax plans either sing or squeak. My take: if you can afford it, delaying Social Security can do more than raise the check; it can clear space for lower-tax moves early on. From Full Retirement Age to 70, Social Security grows by about 8% per year (that delayed retirement credit is set in law). But the sneaky win is tax timing: no benefit at 62-69 means less provisional income, which gives you room for Roth conversions before Required Minimum Distributions start.

Quick refresher on Social Security taxation rules (these haven’t been inflation-adjusted since the 1980s): up to 50% of your benefit becomes taxable once provisional income tops $25,000 (single) or $32,000 (married filing jointly), and up to 85% becomes taxable once you cross $34,000 (single) or $44,000 (MFJ). Those thresholds are fixed in statute. So even a modest IRA withdrawal can drag more of your benefit into taxable income. Sequence matters a lot.

Example, and yes, I’ve sketched this on a napkin: say your provisional income is hovering just under the 85% threshold. A $10,000 traditional IRA withdrawal can make up to $8,500 more of your Social Security taxable (that’s the 85% cap). Your marginal tax on that $10k isn’t just your bracket, it’s that bracket applied to the IRA withdrawal plus the newly taxable benefit. That’s the “tax torpedo” everyone grumbles about.

On RMDs: the SECURE 2.0 law raised the RMD age to 73 starting in 2023, and it rises to 75 in 2033 (generally for those born in 1960 or later). Translation for planning this year: if you’re in your 60s in 2025, you likely have a window to convert pre-tax IRA dollars to Roth while your bracket is relatively low and before Social Security + RMDs + dividends stack up.

Pensions add another wrinkle. Some plans let you pick the start date; many allow an annuity or a lump sum. Different tax footprints:

• Lump sum: usually rollable to an IRA (no tax on rollover). If not rolled, it’s fully taxable that year. Note: higher interest rates generally reduce lump sum values. With rates still elevated in 2025 compared with 2020-2021, I’m seeing smaller lump sums than folks expected.
• Annuity: steady ordinary income each year, good for stability, but it can crowd out the tax space you wanted for Roth conversions.

Healthcare thresholds are the other guardrail. Two to watch:

• IRMAA for Medicare: 2024 MAGI thresholds start at $103,000 (single) and $206,000 (MFJ) for the first surcharge tier (used for 2026 premiums because of the two-year lookback). The exact 2025 thresholds exist, but use the published year when you model. Point is: conversions that tip you over can add real premium cost.
• ACA marketplace (pre-Medicare): enhanced subsidies are still in place for 2025, and credits phase based on household MAGI. Keep conversions within your target % of FPL if you’re managing premiums before 65.

How I’d stress-test it, simple, not fancy:

1. Model claiming Social Security at 62, 67, and 70. Use your actual benefit estimates.
2. Layer in a Roth conversion plan for each path until either RMD age or your “enough Roth” point.
3. Check annual AGI against the Social Security provisional-income thresholds ($25k/$32k and $34k/$44k) and IRMAA tiers for the right year.
4. Run the pension two ways: annuity starting now vs. later, and lump sum rolled to IRA. Watch how each affects conversion space.

Pro tip: do a one-page year-by-year grid for 2025-2035: benefit start year, conversion amount, expected dividends, standard/itemized, IRMAA flag, and ACA flag if relevant. I keep mine in Google Sheets; I changed the pension start by 6 months earlier this year and it freed ~$30k of extra conversion room before RMDs. Tiny tweak, real impact.

And look, no plan survives first contact with markets. Rates shift, dividends jump, Congress tinkers. But coordinating start dates with conversion windows, especially delaying Social Security to open low-tax years, tends to lower lifetime taxes in my experience. Keep it flexible, verify thresholds for the exact filing year, and don’t be shy about running a second pass if markets move. I’d rather adjust mid-year than apologize to myself in April.

The Roth conversion ‘gap years’: your most valuable window

The Roth conversion “gap years”: your most valuable window

Your prime conversion window is the weird, quiet stretch after you stop full-time work and before Required Minimum Distributions (RMDs) kick in at 73, and ideally before you start Social Security. Income is low, you control the bracket, and you can move dollars from tax-deferred to tax-free without tripping every surtax landmine on the map. The goal isn’t zero tax; it’s lowest lifetime tax. I still see folks freeze at the idea of paying any tax now, then end up paying more later when RMDs, Social Security taxes, and Medicare surcharges stack up at the same time.

Why there’s urgency in 2025: today’s lower brackets and larger standard deduction under the Tax Cuts and Jobs Act are scheduled to sunset after 2025. If Congress does nothing, 2026+ conversions could cost more because rates go up and the standard deduction shrinks relative to today’s regime (personal exemptions return in some form, different mechanics). That makes this year and, frankly, December of this year, a live opportunity to top off the bracket you actually want.

Pick your bracket intentionally. For many households the “fill to 22% or 24%” target makes sense, but it’s personal. Watch the tripwires:

• IRMAA (Medicare Part B/D surcharges): For 2024, the first bracket starts at modified AGI above $103,000 (single) / $206,000 (MFJ). 2025 uses your 2023 MAGI for premium setting. Stay under a bracket if the surcharge exceeds the tax benefit of a bigger conversion.
• NIIT 3.8% surtax: Kicks in at MAGI over $200,000 (single) / $250,000 (MFJ), same thresholds since 2013. Conversions increase MAGI.
• ACA subsidies (if pre-Medicare): The 8.5% premium cap is in place through 2025 under the Inflation Reduction Act. One extra dollar of MAGI can still reduce credits, so model it.
• Social Security taxation: Once benefits start, up to 85% becomes taxable above $25,000/$34,000 (single) or $32,000/$44,000 (MFJ), those thresholds are not indexed and they’re from the 1980s, which is wild.

On capital gains coordination, mind the 0% bracket. In 2024, the 0% long-term capital gains band topped out at $47,025 (single) / $94,050 (MFJ). Conversions eat the ordinary-income space and can push gains into the 15% or 20% zones. I’ll often harvest gains in one year and convert in another, not both, unless the numbers still pencil.

Order matters. Qualified Charitable Distributions (QCDs) can start at age 70½ and count toward RMDs once those begin at 73. So if you’re charitably inclined, consider QCDs first to reduce pre-tax balances, then convert what’s left, because QCDs are better than deductions for many folks who don’t itemize. And if you’re between 70½ and 73 this year, you can do QCDs now and still convert; just keep the records clean.

And yes, heirs. The SECURE Act (2019) replaced the “stretch IRA” for most non-spouse heirs with a 10-year empty-the-account rule, and the IRS’s 2022 guidance layered in that annual RMDs may apply within those 10 years if the decedent died after their required beginning date. Translation: traditional IRAs can force your kids into big taxable distributions during peak earning years. A Roth, inherited under the same 10-year clock, pays out tax-free. That tilt alone often moves me toward larger conversions in the gap years, especially if the heirs are high earners.

Here’s how I actually run it, and I mean on paper first because it keeps me honest when markets jump in Q4 and those big mutual fund capital gain distributions hit in November/December:

1. Set a bracket ceiling for this year (e.g., top of 24%).
2. Subtract known income: part-time wages, dividends, interest, and any capital gains you’re already realizing.
3. Plug in standard vs. itemized (for reference, 2024’s standard deduction was $14,600 single / $29,200 MFJ, check the IRS tables for 2025 when you file).
4. Add a safe buffer ($2k-$5k) for surprises. Then convert up to that ceiling. Stop. Don’t creep.

One more thing, don’t chase zero tax. Use a multi-year plan. Sketch 2025-2032 with expected Social Security start, first RMD at 73, and any big one-offs (home sale, ESPP, business exit). Front-load conversions into your lowest-income years, watch the ACA cliff if you’re pre-65, then taper once benefits start. I’ve nudged conversions mid-December more than once because a fund threw a surprise 8% capital gain distribution; not elegant, but it saved a bracket jump, and yes, I slept better.

Withdrawal order and asset location: quiet compounding of tax savings

Here’s the boring stuff that wins, year after year. Start with a baseline sequence and adjust to your bracket plan, your Medicare/ACA situation, and the year’s quirks (fund distributions, one-off income, you name it). The common baseline I use with clients is: taxable first, then tax-deferred (traditional IRA/401(k)), and finally Roth. Why? You get capital gains rates in taxable, you give your tax-deferred time to be whittled down with bracket management before RMDs at 73, and you let Roth compound tax-free for as long as possible. But we don’t do this blindly.

• Harvest gains in the 0% bracket when available. In 2024, the 0% long-term capital gains band ran up to taxable income of $94,050 MFJ and $47,025 single (IRS). 2025 will be inflation-adjusted, so check the IRS tables when you file. If you can realize gains in that 0% pocket, without tripping other taxes, you reset basis for free. Well, free-ish.
• Watch the 3.8% NIIT. The Net Investment Income Tax, effective since 2013, hits when MAGI exceeds $200,000 single or $250,000 MFJ (thresholds have not been indexed). If you’re near those lines, consider pausing gain realizations, bunching deductions, or swapping to growth assets that defer income.

Asset location is the other quiet engine. Put tax-inefficient assets, think taxable bonds, high-turnover funds, REITs, inside tax-deferred accounts when you can. Keep high-growth equities (small-cap, emerging, innovation-y stuff) in your Roth to compound tax free for decades. Then use taxable for broad-market equity ETFs and muni bonds if you need fixed income there. With Treasury and high-grade yields hovering around the mid-4s this fall, call it roughly 4-5% for intermediate maturity, bleeding that out annually in a taxable account is an avoidable drag if you have IRA space.

Now, the nuance. I like what I call tax-budgeted rebalancing. You set an annual capital-gains “budget,” e.g., the top of the 0% or 15% bracket, then:

1. Sell in taxable up to your cap gains target (harvest losses where available to offset).
2. Finish the rebalance inside IRAs and Roths, where trades are tax-sheltered.

That keeps you invested correctly without surprise tax bills. And, small correction to what I almost wrote earlier, you don’t always lead with taxable. If you’re purposely filling the 12% or 22% ordinary bracket with Roth conversions earlier this year, you might spend some living expenses from traditional IRA to make room for those conversions without pushing MAGI over the NIIT threshold. Same logic if ACA subsidies matter: the enhanced subsidies are still in place for 2025, so keep MAGI inside your planned range or your premium jumps can dwarf any clever harvesting.

One more thing I should have said sooner: qualified dividends and long-term gains stack on top of ordinary income. Which means your 0% gains can vanish if you first load your return with conversions, pension starts, or that late-year mutual fund distribution that always shows up when you’ve already hit your target. I’ve moved rebalancing trades forward into October more than once because December capital gain distributions surprised to the upside, last year a couple of active funds threw 6-10% payouts, which is.. not friendly.

Quick guardrails: NIIT at $200k/$250k MAGI (law since 2013). 0% LTCG band based on taxable income, $47,025 single / $94,050 MFJ in 2024; check 2025 tables. RMDs still begin at age 73. Keep those three in your head while you plan.

Putting it all together for withdrawals in retirement this year: spend from taxable first while using tax-budgeted rebalancing, keep MAGI below NIIT and any health insurance cliffs when feasible, do measured conversions from tax-deferred near year-end once you see your real income, and treat Roth as your “last resort” plus your high-octane growth sleeve. It’s not flashy, but year after year it compacts fee-free in your favor, and that compounding is the point.

Frequently Asked Questions

Q: How do I use the rest of 2025 to lower my taxes in retirement?

A: Quick hits for Q4 2025, based on the article’s point about timing being the edge: 1) Fill your current bracket on purpose. Estimate your 2025 taxable income, then do a Roth conversion or realize long-term gains up to the top of the 12% or 22% bracket (whichever you’re aiming for) while staying clear of Medicare/NIIT thresholds. 2) Use the bigger 2017-TCJA standard deduction while we still have it this year; bunch charitable gifts into 2025 if you’re itemizing. 3) If you’re pre-RMD (under 73), that window is gold, convert IRA dollars to Roth now so future RMDs don’t shove you into higher brackets after 2025 sunsets. 4) Realize 0% long-term capital gains if your taxable income allows, “fill” the 0% bucket and reset basis. 5) Watch MAGI-sensitive cliffs: the 3.8% NIIT kicks in at $200k single/$250k MFJ, and IRMAA uses a two-year lookback. A little spreadsheet now beats a big tax bill later.

Q: What’s the difference between doing Roth conversions vs. harvesting capital gains this year?

A: Per the article’s setup: both are bracket-filling tools, but they hit the tax return differently. Roth conversions push ordinary income into 2025 (at today’s lower brackets before potential 2026 changes), shrinking future RMDs and future taxable income. Capital-gains harvesting realizes long-term gains that may qualify for the 0%/15%/20% rates; if you can keep taxable income in the 0% LTGC band, you can step up basis at a 0% rate, nice. Conversions raise MAGI and can trigger IRMAA or NIIT; gains also raise MAGI, but the tax rate on them may be lower. If your ordinary bracket is cheap this year, prioritize conversions; if you’re in the 0% LTGC zone, harvest gains. Sometimes you do both, just to different ceilings.

Q: Is it better to take cash from my IRA or my taxable account for living expenses right now?

A: Short answer: it depends on your 2025 bracket plan. If you’re pre-RMD and trying to convert IRA dollars, you might fund spending from your taxable account (cash, maturing T‑bills) and use your “income space” for a Roth conversion instead of an IRA withdrawal. If you’re near IRMAA or NIIT limits, it can be cleaner to spend taxable to avoid pushing MAGI up. Flip side: if taxable has big embedded gains you don’t want to realize yet, a small IRA withdrawal could be fine, especially if you’re still in a low ordinary bracket this year. One practical move: raise cash in taxable with losses or low-gain lots, and do a modest conversion up to your target bracket line. Keep an eye on state taxes, too, those can swing the answer.

Q: Should I worry about ACA premium subsidies if I’m not on Medicare yet and I do Roth conversions?

A: Yes, very. ACA subsidies are based on annual MAGI, and conversions count. The enhanced subsidies (extended through 2025) mean even higher earners can get help, but every extra conversion dollar can shrink your credit or create a repayment at tax time. Tactics: 1) Set a MAGI target tied to your household size and the percent of FPL that keeps your net premiums acceptable. 2) If you want to convert, spread it across years or wait until after you transition to Medicare to ramp up. 3) Use tax-efficient cash for living expenses (high-yield savings/T‑bills) so you don’t need to realize extra income. 4) If you’re charitably inclined and 70½+, use Qualified Charitable Distributions from IRAs, they lower MAGI and don’t hurt subsidies. Bottom line: model the subsidy impact before you click convert.

@article{how-to-minimize-taxes-when-retiring-timing-your-income,
    title   = {How to Minimize Taxes When Retiring: Timing Your Income},
    author  = {Beeri Sparks},
    year    = {2025},
    journal = {Bankpointe},
    url     = {https://bankpointe.com/articles/minimize-taxes-retirement/}
}