Editor’s Note: Sign up for Debbie’s free webinar “3 Keys for Profitable Client Tax Planning,” being held Tuesday, May 6.
The following is the first in a two-part series about how you can help your clients save on taxes in retirement.
A strong retirement income plan requires the discussion of several areas to ensure that the critical aspects of your client’s financial health are protected. Some of the components may seem obvious, such as making sure your client plans for large expenses, while some may not be as obvious, like aggressively managing taxes.
Understanding key tax considerations can make a significant difference in a client’s retirement finances, potentially saving thousands of dollars each year.
This first section of our two-part guide reveals four essential strategies that can dramatically improve your clients’ retirement outcomes through proactive tax planning.
By implementing these approaches well before retirement begins, you’ll help clients capture the “golden window” of opportunity that, once closed, cannot be recovered.
Read the first four tax planning considerations for pre-retirees below.
1. Take control of RMDs while you still can
Advisors must prepare well in advance for required minimum distributions (RMDs) which start at age 73 (for those born between 1951–1959, and 75 for those born in and after 1960) and only increase from there. RMDs grow based on the IRA account size and they also increase as your clients age.
These withdrawals are fully taxable and failing to take them triggers a substantial 25% penalty. And there are few ways to avoid RMDs once they start.
Distribution planning for clients should begin well in advance of age 73 to position accounts and institute the proper tax planning before it is too late. The “golden window” to do this distribution planning is typically once retirement begins and income is low (before Social Security and RMD income kicks in).
As part of your financial planning process, you need to create a lifetime tax minimization plan, optimizing the client’s wealth.
For example, we have a client (a couple) in their mid 60s who recently retired with a tax-deferred account balance of $2.5 million. Without tax planning, this account could grow to over $5 million in 15 years (assuming a moderate annual rate of return of 7%). At this time, RMDs will total close to $200,000 (and could grow to over $500,000 in their 90s)! With this, they will likely be pushed into the highest tax bracket. Per 2025 tax rates, a single filer already enters the 35% marginal tax bracket after $250,525 in taxable income.
Don’t forget Qualified Charitable Distributions (QCDs). Once your client reaches RMD age, they can make a QCD directly from their IRA to a qualified charity, which counts towards satisfying their RMD for the year (up to $108,000 for 2025). This is a great tax-efficient strategy to consider for individuals who are charitably inclined and do not need their full RMD to cover their living expenses because the amount transferred via QCD is excluded from gross income (unlike a regular RMD withdrawal which is typically taxable).
Pro tip: Build out your firm’s tax planning process and incorporate it into your current financial planning process. Make sure that each client has a tax minimization plan. And be mindful of legislative changes coming ahead.
2. Time Social Security right
Many clients are surprised to learn that their Social Security benefits can be subject to federal taxes depending on their income. In fact, The Social Security Administration reports that about 40% of people who receive Social Security must pay taxes on their benefits.
Married couples filing jointly with income between $32,000 and $44,000 may owe taxes on up to 50% of Social Security benefits. When income exceeds $44,000, the taxable portion increases to as much as 85% of benefits.
Pro tip: A robust retirement plan considers every change to income, even seemingly small changes, as those can still significantly affect taxes.
3. Unlock tax savings with a smart withdrawal strategy
When clients have multiple retirement accounts, you need to create a plan of which accounts to draw from and when. Here, the right distribution strategy can potentially save clients hundreds of thousands of dollars or millions in unnecessary taxes while also providing lifetime income, and sometimes both.
Typically, most people withdraw from taxable accounts first, then tax-deferred accounts (such as a traditional IRA or 401(k)), then tax-free accounts (Roth IRA). However, there are situations where a different withdrawal sequence could make sense.
For example, if you have a single client in their early 60s with low income, a large traditional IRA balance, and no children, it could make sense to withdraw from the traditional IRAs instead of taxable accounts to start drawing down the tax-deferred balance while income is low and before RMDs begin.
Pro tip: Too many advisors wait until the end of the year to engage in tax planning, whether it is tax-loss trading, capital gain harvesting or Roth conversions. However, this thinking is unnecessarily limiting, and may cost your clients millions of dollars.
4. Make investment taxes work for you
Not all investments are taxed the same! Understanding the varying tax treatment of different investment vehicles is essential for optimizing retirement income strategy. No one wants to be stuck with an unnecessary and unexpected tax bill.
Withdrawals from a traditional IRA or 401(k) are taxed as ordinary income, while profits from selling stock or real estate are taxed based on the lower capital gains tax rates (typically 15% or 20% for most retirees). Then we have Roth IRAs where qualified distributions are completely tax-free when you’re at least 59½ years old and have held the account for at least five years.
Pro tip: For investors in lower tax brackets, capital gains harvesting can be a powerful strategy—deliberately selling appreciated assets when you’re in the 0% capital gains bracket (income under $48,350 for individuals or $96,700 for married couples in 2025) to reset your client’s cost basis without incurring federal taxes.
Tax-efficient retirement planning represents one of the most powerful ways advisors can deliver measurable value to clients.
Remember that tax planning isn’t a one-time event but an ongoing process that should be revisited regularly as tax laws and personal circumstances evolve. By addressing these areas years before retirement begins, advisors can potentially add hundreds of thousands of dollars to their clients’ retirement resources without requiring additional savings or investment risk.
In Part Two, we’ll explore additional considerations around health care costs, geographical planning, estate planning, and spousal transitions that complete the tax planning picture for pre-retirees.