Tax-Efficient Retirement: Why Timing Beats Allocation

Why Timing Beats Almost Everything In Retirement Taxes

So, here’s the thing: in retirement, when you pay taxes often matters more than what you own. I know that sounds upside-down, every headline is about the hottest fund or the “right” allocation, but taxes are the quiet line item that compounds against you. Actually, wait, let me clarify that: tax drag compounds just like returns. A little leak, year after year, turns into a flood over decades.

Quick example. Suppose a $1,000,000 taxable portfolio earns 6% a year before taxes. If you lose 1% each year to ongoing taxes on dividends, interest, and turnover, call it a 1% tax drag, you net 5%. After 30 years, 6% grows to about $5.74 million. At 5%, you end up near $4.32 million. That’s about $1.4 million less, or roughly a 25% haircut, from what looks like “just” 1% a year. And this isn’t exotic modeling; it’s basic compounding. The same dynamic hits smaller accounts too; it just scales down, but it still stings, it still stings.

Why bring this up right now, in 2025? Because the clock is loud. This year matters. Under current law, many individual income tax cuts from the 2017 Tax Cuts and Jobs Act are scheduled to sunset after December 31, 2025. If nothing changes in Washington, the top marginal rate likely moves back to 39.6% (from 37%), the 22% and 24% brackets could shift back toward 25% and 28%, the larger standard deduction shrinks while personal exemptions return, and the $10,000 SALT cap sunsets. Capital gains rates (0%/15%/20%) aren’t slated to change directly, but the income thresholds tied to ordinary brackets will, meaning more households may see a bigger slice of gains taxed at 15% or 20% starting in 2026. You don’t need a crystal ball; you just need a calendar.

Market-wise, yields are still higher than the pre-2022 era, which is great for cash and bonds but also means more taxable interest if you hold the wrong stuff in the wrong accounts. Equities have had their fits this year, tech’s been strong, defensives less so, but the real point is: returns are uncertain, taxes are scheduled. That scheduling is your cue.

What you’ll learn here is simple and practical, the stuff I wish more people did in their 50s and early 60s, not when RMDs show up:

• Tax drag 101: How recurring taxes on dividends, interest, and turnover chip away at compounding, with plain-English math you can actually use.
• Why 2025 is a now-or-never window: The TCJA provisions expiring after 2025 create a two-year runway, really one and a half at this point, to accelerate certain moves at today’s lower rates.
• Stacking timing decisions, this is the heart of tax-efficient-retirement-investment-strategies:
  • When to contribute: Pre-tax vs. Roth in a changing bracket landscape.
  • When to convert: Roth conversions while the 22%/24% brackets still exist; giving yourself more tax-free room later.
  • When to harvest: Use 0%/15% gain bands in low-income years; harvest losses to offset high-income years.
  • When to withdraw: Coordinate taxable, tax-deferred, and Roth buckets to manage IRMAA, NIIT, and future RMDs.

Look, I’ve been doing this a long time, and timing isn’t everything; but for retirement taxes, it’s almost everything. The good strategy isn’t flashy. It’s picking your spots, this month vs. next year, 2025 vs. 2026, based on real brackets you face. Anyway, the calendar is giving you a rare gift right now. Use 2025 to pull income into lower brackets, clean up embedded gains, and prep your accounts so that later this year and next year you’re ready, because after 2025, the math may get tougher, the math may get tougher.

The 2025 Tax Reality You’re Actually Investing In

So, here’s the thing, your portfolio lives inside the tax code. Not the other way around. The good news this year is the playbook is pretty clear if you know which rules matter.

Brackets run the show. Ordinary income still stacks into marginal bands, and long-term capital gains live in their own 0% / 15% / 20% lanes. That split decides a lot: Roth vs. traditional contributions, when to do Roth conversions, and when to harvest gains. If your taxable income sits in a spot where an extra $1 of income still lands in the 22% or 24% bracket, a 2025 Roth conversion can make sense. Why? Because under current law the TCJA cuts are scheduled to sunset after 2025, 22% likely reverts to 25%, 24% to 28%, and the standard deduction shrinks, which drags more income back into taxable range. Does a 24% conversion today beat a 28% RMD tomorrow? Usually, yeah.

RMDs start at 73. That’s the law now. Required Minimum Distributions pull money out whether you want it or not, pushing up taxable income and potentially clipping benefits elsewhere. Planning before 73 gives you room to convert to Roth, spend down high-basis lots, or use Qualified Charitable Distributions (QCDs) at 70½ to keep AGI lower. I’ve watched plenty of people wait and then get shoved into higher brackets; it’s not fun.

Stealth taxes are real costs. The 3.8% Net Investment Income Tax (NIIT) still kicks in above $200,000 MAGI for single filers and $250,000 for joint filers, those thresholds aren’t indexed, which is its own quiet tax hike. Medicare IRMAA surcharges ride off your MAGI from two years earlier; cross a tier and your Part B and D premiums jump. We’re talking roughly tens to hundreds per month per person, first tier is around an extra ~$70-$80/month, top tiers can add $400+/month. Miss a threshold by $1 and you pay the whole tier; I know, it’s a bit brutal. That’s why I harp on sequencing withdrawals to thread those lines.

SECURE 2.0 changed your toolkit, and it actually helps. Catch-up contributions for ages 60-63 are set to be higher (150% of the regular catch-up, capped by statute), QLACs now allow up to $200,000 inside IRAs/401(k)s to defer income to very old age, and the rule that high earners (w-2 comp above ~$145,000, indexed) must make catch-ups as Roth was delayed to 2026. Translation: in 2025 you can still do pre-tax catch-ups even if you’re a high earner; in 2026 that likely flips to Roth-only for that group. I’m still figuring this out myself for a couple clients with variable bonuses, but the direction is clear.

2026 sunset risk is the clock on the wall. If the TCJA provisions expire, we get higher marginal rates, a smaller standard deduction, the 0%/15%/20% gains bands shift unfavorably, and estate exemptions drop about in half. Planning in 2025 lets you “lock in” conversions and capital-gain realizations at today’s potentially lower rates. Will Congress extend parts of it? Maybe. But do you want your retirement plan to depend on a late-December vote? I wouldn’t.

Practical current-year plays:

• Use the 0%/15% capital-gains space in low-income years to harvest gains; in high-income years, bank losses to offset gains and up to $3,000 of ordinary income.
• Stage Roth conversions to fill (not blow past) your current bracket, watch NIIT and IRMAA cliffs while you do it.
• Consider a QLAC up to $200,000 if longevity risk is a concern and you want to shrink future RMDs.
• If you’re 60-63, map the bigger catch-up window now; if you’re a high earner, remember the Roth-only catch-up rule starts in 2026.

Markets matter here too. With cash still paying decent yields and the 10-year Treasury hovering in the mid-4s earlier this year, it’s tempting to sit in T-bills. Just remember: interest is fully taxable at ordinary rates; qualified dividends and long-term gains can be cheaper. The tax tail shouldn’t wag the investment dog, but it definitely nips at your heels.. but that’s just my take on it.

Quick recap: 3.8% NIIT above $200k/$250k MAGI, RMDs at 73, IRMAA tiers can cost $70 to $400+ per month, QLAC cap $200k, higher 60-63 catch-ups, Roth catch-up mandate for high earners delayed to 2026, and 2025 may be your last clean shot at 22%/24% conversions before 25%/28% come back.

Look, none of this is perfect; the code shifts, Congress… Congress. Anyway, set the plan by the brackets you have, not the ones you wish you had, and adjust as we get new info.

Build Your Account Stack: Where Each Dollar Should Go First

So, order matters. You can put the same total dollars into different buckets and end up with very different after-tax outcomes in retirement. The typical 2025 stack looks like this because, you know, taxes and flexibility don’t always line up neatly:

1. Grab the full employer match in your 401(k)/403(b). It’s the fastest, cleanest return you’ll ever “earn.” If the plan matches 50% up to 6%, that’s an instant 50% on those dollars. Don’t leave free comp on the table.
2. Max your HSA if you’re HSA-eligible. HSAs are still the only triple-tax-advantaged account: pre-tax in, tax-free growth, and tax-free qualified withdrawals. For 2025, the IRS set the HSA contribution limits at $4,300 self-only and $8,550 family (plus the $1,000 catch-up at 55). Salary deferral contributions also avoid the 7.65% employee payroll tax, which is a quiet, real boost. Treat it like a stealth retirement account: invest it, pay current medical costs from cash if you can, and keep receipts.
3. Max the workplace plan. After the match, keep filling the 401(k)/403(b). Traditional vs. Roth here depends on your bracket today and what you expect later. If your plan allows after-tax contributions with in-plan Roth rollovers (the so-called mega backdoor), that can be a powerful step after you’ve secured the pre-tax/Roth deferrals. Just be mindful of plan rules and distribution mechanics.
4. Backdoor Roth IRA (if eligible). If your income blocks direct Roth IRA contributions, the contribute-then-convert routine still works in 2025. Watch the pro-rata rule, existing pre-tax IRA dollars can make the conversion partly taxable. Keep a clean Form 8606 trail. And remember the Roth-only catch-up rule starts in 2026 for high earners, different issue, but it’s all connected.
5. Taxable brokerage. Once the tax-advantaged buckets are full, add to a plain brokerage account. This buys you flexibility for early retirement: you can harvest gains, control income, and avoid early withdrawal penalties. Long-term capital gains still sit at 0%/15%/20% federally for most investors, and high earners may also face the 3.8% NIIT, which we recapped earlier.

Roth vs. Traditional: a quick gut-check for 2025

• Today’s bracket vs. tomorrow’s: If you’re in a lower bracket now or expect higher rates after the 2025 sunsets (where the 22%/24% brackets are slated to revert toward 25%/28% in 2026), Roth contributions and partial conversions this year can make sense. If you’re at a peak-earnings 32%+ bracket today and expect a lower retirement bracket, traditional may be the better near-term play.
• RMD management: Traditional balances create future required distributions at 73. Large RMDs can bump you into IRMAA tiers, those can raise Medicare Part B/D premiums by roughly $70 to $400+ per month. Roth IRAs don’t have lifetime RMDs, which gives you, basically, more control.
• Bracket smoothing: Many households do a mix, traditional at work, Roth via backdoor, and opportunistic Roth conversions in the 22%/24% band this year before expected higher brackets in 2026. I might be oversimplifying, but the idea is to fill your middle tax buckets, not overflow your top one later.

Why taxable still matters

Taxable accounts give you knobs to turn. You can fund early retirement years before 59½, set your own “paycheck” by realizing gains or harvesting losses, and manage qualified dividends that are often taxed at the same 0%/15%/20% long-term rate. With cash and T-bills still paying around 5% earlier this year and the 10-year Treasury hanging in the mid-4s, it’s tempting to camp out in yield. Just remember: interest is ordinary income, while long-term gains and qualified dividends usually get the cheaper capital gains treatment. The tax tail shouldn’t wag the investment dog.. but it does nip, and I’ve got the bite marks to prove it.

Look, here’s the thing: perfect is not the goal. The goal is a durable order of operations that cuts lifetime taxes and keeps options open. If you want the TL;DR stack for most folks this year, it’s the one below, then tweak for your bracket, state taxes, and whether your plan supports after-tax to Roth flows.

Priority 2025: Employer match → HSA (max) → Max 401(k)/403(b) (traditional or Roth) → Backdoor Roth (if eligible) → Taxable brokerage. If available, layer mega backdoor Roth after maxing standard deferrals.

Actually, let me rephrase that, your life will change, Congress will, well, Congress, and markets will zig. But this order has held up across cycles. Revisit it every open enrollment and every time your tax bracket moves. And don’t forget to save the HSA receipts; you’ll thank yourself later.

Asset Location That Actually Moves The Needle

Same portfolio, smarter placement. Here’s the thing: you don’t have to change your risk to cut your tax drag; you just decide which account holds what. Asset location is boring-good, like rebalancing and flossing. But it compounds. Vanguard’s research pegs the benefit at roughly 0.20%-0.60% per year in after-tax return for balanced investors when you put the right assets in the right buckets. Morningstar’s tax-cost ratio data shows the tax drag on active stock funds often runs ~0.9% annually versus ~0.5% for broad index funds, which is real money over 20-30 years. I know, it doesn’t feel exciting today, but it adds up.

Rules of thumb (that actually hold up in 2025):

• Tax-inefficient stuff → tax-deferred (traditional 401(k)/IRA). Taxable bonds, REITs, and high-turnover funds kick off ordinary income and short-term gains. Ordinary income is still taxed at your marginal rate (22%, 24%, 32%, 35%, 37%), plus 3.8% NIIT for high earners. Parking these in traditional accounts defers that bite. Bond interest, taxed every year, hurts; deferral helps.
• Roth space is precious → save it for your highest expected growth. Small-cap/value tilts, emerging markets, concentrated innovation, even private growth sleeves if your plan allows, let those compound tax-free. You want the assets with the fattest right tail in the Roth. And yes, that can mean holding the same equity exposure but locating more of it in Roth than in taxable. Actually, let me rephrase that: put your high-upside stuff where compounding isn’t taxed, period.
• Broad equity ETFs → taxable. They’re built to be tax-efficient via in-kind redemptions, and qualified dividends are taxed at 0%/15%/20% (plus NIIT for some). Last year, many broad-market ETFs kept capital gains distributions near zero again, even with 2024 volatility. In a year like 2025, where markets have been choppy but not chaotic, that structure still shines.
• Munis vs Treasuries in taxable. If you’re in a high bracket, municipals can win. A 3.8% national muni today can be a ~5.0% tax-equivalent yield for a 24% federal bracket (3.8% ÷ (1 − 0.24) ≈ 5.0%). But compare to Treasuries, which are exempt from state tax; with the 10-year hovering around the low-4% range recently, state-tax-free Treasuries can beat munis for mid-bracket investors, especially in no-income-tax states. It depends; it really depends.
• International index funds in taxable for potential foreign tax credits. Many broad international funds report foreign taxes paid on your 1099 (often around 0.07%-0.20% of assets). For example, big flagship international index funds showed roughly ~0.11% foreign taxes paid last year, which many investors can credit against U.S. tax. Check your specific fund’s 1099 history; don’t guess.

A quick placement map (not perfect, just solid):

• Traditional 401(k)/IRA: Core taxable bonds, REITs, high-turnover active funds, leveraged income strategies.
• Roth IRA/401(k): Highest expected growth equities, small-cap/value tilts, emerging markets. If you must hold something spicy, hold it here. Yes, I said that twice.
• Taxable brokerage: Broad equity ETFs (US and international), Treasuries if your state tax is high, munis if your federal bracket is high, I-bonds (outside brokerage), and low-turnover factor ETFs.

2025 reality check. Cash and short-term Treasuries still yield ~4-5% in many accounts earlier this year, drifting a bit as the Fed has inched toward cuts. If you need bonds in taxable for liquidity, favor Treasuries over corporates to avoid state tax, and keep your corporate bond income sheltered in tax-deferred. REIT distributions are mostly non-qualified; some years you’ll get a 199A deduction on REIT income (up to 20%), but it’s inconsistent and doesn’t fix the ordinary income problem, so, again, they prefer shelter.

Look, I get it: accounts get messy over time, rollovers, old 401(k)s, side accounts. The thing is, you can rebalance toward this structure gradually with new contributions and occassional tax-aware sales. No heroics. Just steady, boring, needle-moving asset location. And save your confirmations; you’ll thank yourself later, again.

Withdrawal Order, Roth Conversions, and the Gap Years Playbook

Withdrawal Order, Roth Conversions, and the Gap Years Playbook. Here’s how I’d sequence withdrawals in 2025 if the goal is fewer tax surprises and more control. Actually, wait, let me clarify that: it’s a framework, not a religion. You adjust as markets, brackets, and your life move around.

1. Use what shows up anyway: dividends and interest in taxable. Reinvest if you don’t need the cash, but if you do, start here. No extra tax drag for taking what already hit your 1099.
2. Long-term capital gains up to your 0%/15% room: harvest gains while staying under the 0% LTCG threshold when possible, or at least inside the 15% band. This resets basis and can reduce future taxes. Watch the 3.8% Net Investment Income Tax (NIIT), it kicks in at $200,000 MAGI for single and $250,000 for MFJ, not indexed, so it sneaks up on folks.
3. Traditional accounts (IRAs/401(k)s): pull what you need next from tax-deferred, especially in years when your ordinary bracket is temporarily low. This is the “fill the bracket” idea.
4. Roth last: Roth IRA is your most flexible and tax-free bucket; save it for late-retirement needs, shocks, or legacy goals.

The gap years matter. If you retire before Required Minimum Distributions begin, you’ve got a window, the pre-RMD “gap years.” RMDs now start at age 73 for most (and age 75 if you were born in 1960 or later). In these years, consider Roth conversions to shrink future RMDs and keep Medicare premiums saner. IRMAA surcharges for Medicare Part B/D use a tiered system tied to your MAGI from two years prior; the first tier has sat a bit above $100,000 single and $200,000 MFJ in recent tables, with annual inflation bumps. Staying under a tier can avoid hundreds to thousands per year in extra premiums. I’ve watched clients accidentally tip $1 over a tier and, yeah, it stings.

2025 tax reality you can use. We’re still living with TCJA-era brackets this year, and they’re scheduled to sunset in 2026. Translation: ordinary income rates may be the lowest you’ll see for a while. That makes 2025 a reasonable year to convert traditional IRA dollars to Roth, on purpose, up to the top of your target bracket. Pair that with markets that, you know, occassionally wobble; a down quarter sometimes lets you convert more shares at a lower valuation for the same tax bill. And remember the 0%/15%/20% long-term capital gains structure plus the 3.8% NIIT above $200k/$250k thresholds. Those are concrete levers.

Tax-gain harvesting, but carefully. Real question: is tax-gain harvesting worth it? Short answer: yes, in low-bracket years. Resetting basis at a 0% LTCG rate can save real money later. Just mind the Affordable Care Act subsidy math before Medicare: for 2025, the enhanced subsidies remain, and the benchmark silver premium is capped at about 8.5% of household income on the exchange. Accidentally pushing MAGI higher can increase your net premiums. After 65, the focus shifts to Medicare IRMAA tiers. Different programs, different cliffs, coordinate.

Social Security timing changes your taxes. If you delay benefits, you create more space for conversions now, because Social Security adds to “provisional income,” which can make up to 85% of benefits taxable once provisional income exceeds $34,000 single / $44,000 MFJ (the 50% inclusion starts at $25,000 / $32,000). Delaying can keep that stuff out of your return while you convert. But, and this is where planning gets real, if you need the benefit for cash flow, take it. I’m not here to win a spreadsheet contest at your expense.

A conversational aside while we’re here. Look, I used to think “just spend taxable, then tax-deferred, then Roth” was enough. Honestly, I wasn’t sure about this either until I saw how ACA subsidies and IRMAA can blow up a tidy plan. Now I run the numbers like a grumpy air-traffic controller: keep MAGI below NIIT if possible, below an IRMAA tier if premiums matter, and below an ACA threshold if you’re not on Medicare yet. Not perfect, but better than winging it.

Practical checklist for 2025:

• Project MAGI for the year with and without conversions. Bracket-fill intentionally.
• Harvest capital gains up to the 0% or within the 15% band; avoid tripping NIIT ($200k/$250k).
• Use capital losses strategically; remember you can offset up to $3,000 of ordinary income if losses exceed gains.
• If pre-65, check ACA premium caps (~8.5% of income for the benchmark). Don’t “accidentally” raise MAGI.
• If 65+, map your MAGI two years ahead for IRMAA. Stay under a tier when you can.
• Time Social Security to create conversion room before RMDs hit at 73. Re-evaluate annually.

Anyway, the playbook is simple, and I’ll use more words than necessary here on purpose: spend what you’re already taxed on, then use your low-tax space to realize gains or convert IRA dollars, then tap traditional accounts when it makes sense, and keep Roth as your last flexible lever. The order changes if a cliff or surcharge is lurking, so re-check midyear. And save your confirmations, again.

Tactics For 2025: Cash Yields, ETFs, QLACs, and Clean-Up Trades

Here’s the thing: cash still pays. As of September 2025, most top-tier online savings and government money market funds are yielding in the mid‑4s to low‑5s, and 3-12 month Treasuries are hovering roughly in that 4.4%-5.0% range, give or take a Fed meeting. If your emergency fund is still sitting at 0.01% out of inertia, that’s real money left on the table. In taxable accounts, short T‑Bills and Treasury money market funds are doubly useful because the interest is exempt from state income tax. On $100,000 at ~4.6%, that state-tax break alone can be 20-50 bps of after‑tax lift depending on your state. Keep your 3-6 months of expenses liquid, but be tax‑smart about where you park it.

Favor ETFs in taxable. Look, I get it, your favorite active mutual fund has a star manager. But in taxable accounts, ETFs usually distribute far fewer capital gains thanks to in‑kind redemptions. Last year many active equity mutual funds kicked out capital gains distributions in the ~5% of NAV neighborhood (some higher), which is brutal if you didn’t sell. Broad-market ETFs often showed near‑zero capital gains distributions while delivering the same exposure. If you want tax-efficient retirement investment strategies that don’t require heroics, this is one of the simplest switches.

Tax‑loss harvesting still matters. Volatility hasn’t left the building, and TLH remains a core tool. The mechanics are old-school: harvest losses to offset gains, and if your losses exceed gains, you can still offset up to $3,000 of ordinary income each year, carrying the rest forward. Just avoid a wash sale, don’t rebuy a “substantially identical” security within 30 days before or after the sale. Practical swaps? S&P 500 fund A to a total-market fund, or a growth ETF to a different issuer’s growth ETF with a distinct index. Same for bond funds: short-term Treasury index to short-term government/agency, close, not identical. I’ve messed this up before by getting cute with ticker timing; don’t do that.

QLACs for RMD control. For IRA owners who want to manage future Required Minimum Distributions, Qualified Longevity Annuity Contracts can help. The current IRS dollar cap is $215,000 for 2025 (indexed; SECURE 2.0 removed the old 25% account limit). Money allocated to a QLAC inside a traditional IRA defers income until later (often age 80-85), which can reduce RMDs at age 73 and smooth your tax profile. Does it fit everyone? No. But for folks with large IRAs who don’t need all the income right away, it’s a real lever.

QCDs: charity with no tax friction. From age 70½, you can send dollars directly from an IRA to a qualified charity as a Qualified Charitable Distribution. Those dollars avoid your AGI entirely and can satisfy RMDs. The annual QCD limit is indexed for inflation (it was $105,000 last year per person). If you give anyway, this is usually better than cash or appreciated‑stock gifts when the standard deduction means you won’t itemize. As I mentioned earlier, lowering AGI can also help avoid NIIT and IRMAA cliffs, two birds, one wire.

Clean-up trades before year-end. I’m still figuring this out myself every year, but the checklist doesn’t change: prune active funds in taxable that are signaling big distributions (many shops pre‑announce in November), harvest losses in laggards, shift cash buckets into Treasuries for the state-tax edge, and rebalance using ETFs where you can. If you’re going to do Roth conversions, align them with your capital gains harvesting so you don’t accidentally blow through a tax bracket or ACA/IRMAA threshold. And please, keep confirmations, you’ll need them when you actually file and when you, you know, forget what you did in April.

Anyway, the theme is simple: earn 4-5% on your safe money after taxes where possible, prefer ETF wrappers in taxable to avoid surprise distributions, use TLH without triggering wash sales, and consider QLACs and QCDs to tame RMDs and AGI. Small moves, less tax, fewer surprises later this year.

Keep More, Worry Less: Your One-Page 2025 Checklist

So, here’s the quick-and-dirty wrap. Rates are still decent on the front-end, ETFs keep taxes quieter in taxable, and the 2026 tax sunset is the big wild card. You don’t need a PhD, just a calendar and 30 minutes. Do these before year-end and, you know, actually set reminders.

• Max your match, then push toward 2025 limits. At a minimum, capture the full employer match in your 401(k)/403(b). After the match, aim to fill tax-advantaged buckets. HSA limits for 2025 are $4,300 self-only and $8,550 family (catch-up is $1,000 if you’re 55+). IRA rules are indexed, confirm your personal cap and phase-outs and try to hit them. If you’re 50+, don’t forget catch-ups in workplace plans (still $7,500 for most 401(k)s right now).
• Right-size Roth vs traditional for this year’s bracket, and the 2026 risk. With the TCJA rates scheduled to sunset in 2026, many households will face higher brackets and a smaller standard deduction. If you’re in a relatively low bracket this year, skew contributions and conversions Roth-ward. If you’re in a high bracket, traditional may still win… but run the math. I like to map 2025 taxable income to a “fill the bracket” target and convert up to that ceiling.
• Place assets where they’re taxed least. Keep bond income and REITs in tax-deferred accounts when possible; stash broad equity index ETFs in taxable. Compare muni vs Treasury based on your bracket and state. Treasuries are state-tax free; munis are federal-tax free. Use tax-equivalent yield: TEY = muni yield / (1, tax rate). Example: 4.0% muni at a 37% marginal rate ≈ 6.35% TEY. If your state tax is 0%, Treasuries at ~5% on the front end can still be the better after-tax carry this month, but that’s just my take on it.
• Plan 2025 Roth conversion and harvesting windows around IRMAA/NIIT. The NIIT kicks in at $200k single / $250k MFJ of MAGI; keep that cliff in view when realizing gains or converting. Medicare IRMAA looks back two years, your 2025 premiums are based on 2023 MAGI. For late-2025 moves, model how they’ll hit your 2027 premiums. Space conversions and capital gains so you don’t trip a higher IRMAA bracket for no good reason.
• Set your year-end reminders now.
  • Q4 tax-loss harvesting: harvest losses, avoid wash sales, use ETFs for maintenance exposure.
  • QCDs: if you’re 70½+, send Qualified Charitable Distributions directly from IRAs to charities to keep them out of AGI. Great for people who don’t itemize.
  • RMDs: if you’re 73+ this year, complete Required Minimum Distributions by 12/31 (first-timer exception aside). Missed RMD penalties are no fun.

Look, the market’s been choppy and front-end yields are still hovering near 5%, which is fine, so basically don’t leave easy tax wins on the table. Confirm contribution limits, watch the NIIT line, and be intentional with where each asset lives. I still keep a simple spreadsheet and, yes, I occassionally forget to update it… but the act of listing these makes you money.

Bottom line: Max what your employer matches, fund the HSA, favor Roth when your 2025 bracket is friendly (and 2026 looks worse), put tax-ugly stuff in tax-deferred accounts, and time conversions/harvesting around NIIT and IRMAA. Then check Q4: TLH, QCDs, and RMDs by year-end. Small steps, lower taxes, fewer headaches.

Frequently Asked Questions

Q: Should I worry about the 2025 tax sunset for my retirement withdrawals right now?

A: Yes, act in 2025. Map your expected 2026 bracket, then consider pulling income into 2025: partial Roth conversions, realizing long-term gains up to your 0%/15% threshold, and bunching deductions. Run a quick tax projection before year-end. Small moves now can save you a real chunk later.

Q: How do I reduce tax drag in my taxable account in retirement?

A: Think “low-leak” investing. Use broad, low-turnover index ETFs for equities; they’re tax-efficient and don’t spit out gains every December. Park bonds that pay ordinary interest in tax-deferred accounts when possible; in taxable, favor municipal bonds if you’re in a higher bracket. Turn off automatic reinvestment for distributions and let them land in cash so you can direct them tax-smart. Harvest losses to offset gains (mind the wash-sale rules). Prefer qualified-dividend payers over high-turnover funds, and keep an eye on embedded capital gains before you buy a fund late in the year. Also, sequence withdrawals: spend from taxable first (harvesting basis), then tax-deferred, then Roth, unless filling a low bracket with Roth conversions this year makes more sense. It’s not flashy, but cutting that 1% annual drag can mean six figures over time.

Q: What’s the difference between doing Roth conversions this year versus waiting until 2026?

A: This year you’re likely converting at lower ordinary income rates thanks to the 2017 cuts still in place. In 2026, brackets are set to widen upward, think 22%/24% drifting toward 25%/28%, so each $1 converted could cost more tax. Converting in 2025 lets you “fill” your current bracket intentionally (e.g., up to the top of 24%) and cap the tax bill. Waiting could make sense if 2026 income will be unusually low, or if a big one-time deduction is coming. Don’t ignore Medicare IRMAA surcharges, crossing those cliffs can hike premiums two years later. Same for Social Security taxation and state taxes. Have cash outside retirement accounts to pay the tax; don’t withhold from the conversion if you can avoid it. Run a bracket-fill calculator for 2025 now, then revisit in early December before the window closes.

Q: Is it better to hold bonds in my IRA and stocks in taxable, or the other way around?

A: Short answer: usually bonds in tax-deferred (IRA/401k) and broad equities in taxable, but 2025’s higher yields make the placement more important than usual. Here’s the thing: bond interest is taxed every year at ordinary rates if it sits in taxable. Equity ETFs in taxable can defer gains for decades and distribute mostly qualified dividends at 15%/20% (or 0% for some). So, shelter the “tax-ugly” income and let the “tax-okay” stuff compound in the open. Example A: $500k bonds yielding 5% in taxable at a 24% bracket = ~$6,000 tax per year. Over 10 years, that recurring tax drag seriously dents compounding. Put that same bond sleeve in an IRA and you defer the annual tax entirely. Example B: $500k in a total-market ETF in taxable with a 2% qualified dividend yield taxed at 15% = ~$1,500 tax per year, and you control when you realize capital gains. Keep that in taxable and place the equities with higher turnover (or REITs) in tax-deferred. Exceptions: If you’re in a very low bracket now (temporarily), holding some bonds in taxable might be fine. High earners in high-tax states may prefer in-state munis in taxable and still keep taxable bonds in IRAs. And if you’re planning near-term withdrawals, match account location to cash needs so you don’t trigger avoidable gains at a bad time. Anyway, the rule of thumb stands: tax-inefficient income goes inside; tax-efficient growth outside. I know, not sexy, but it works.

@article{tax-efficient-retirement-why-timing-beats-allocation,
    title   = {Tax-Efficient Retirement: Why Timing Beats Allocation},
    author  = {Beeri Sparks},
    year    = {2025},
    journal = {Bankpointe},
    url     = {https://bankpointe.com/articles/tax-efficient-retirement-strategies/}
}