Taxes don’t disappear when you retire—they just change form. From Social Security benefits and retirement account withdrawals to investment income and required minimum distributions (RMDs), many sources of retirement income come with tax consequences. Implementing thoughtful tax-smart retirement planning strategies can help you preserve more of your income and structure a plan that supports your long-term goals. 

At Cornerstone Wealth Management, we help clients navigate the often-overlooked tax implications of retirement planning. By coordinating investment decisions, withdrawal timing, and account types, you can work toward a strategy that aims to balance income needs with tax efficiency. 

Understanding Your Retirement Tax Landscape 

Before developing a strategy, it’s important to understand where taxes may come into play in retirement. Common sources of taxable income include: 

• Distributions from traditional IRAs, 401(k)s, and other tax-deferred accounts 

• Pension and annuity income 

• Social Security benefits (which may be partially taxable depending on your income) 

• Dividends, capital gains, and interest from investments held in taxable accounts 

Even if your spending needs stay the same, your tax bracket can fluctuate based on the sources and timing of your withdrawals. Taking a proactive approach to these decisions is a key part of building a sustainable plan. 

Diversifying Across Tax Categories 

One way to add flexibility to your retirement strategy is to diversify your savings across different types of tax treatments: 

• Tax-deferred accounts (e.g., traditional IRA, 401(k)): Contributions may be deductible, and earnings grow tax-deferred until withdrawal. 

• Tax-free accounts (e.g., Roth IRA, Roth 401(k)): Contributions are made after-tax, but qualified withdrawals are tax-free. 

• Taxable accounts (e.g., brokerage accounts): No special tax treatment, but may offer lower capital gains tax rates and flexible withdrawal options. 

By holding a mix of these account types, you can draw income from different sources in retirement to better manage your overall tax exposure. 

Planning for Required Minimum Distributions (RMDs) 

Once you reach a certain age—currently 73 as of 2025—you are required to begin taking RMDs from traditional retirement accounts. These distributions are generally taxed as ordinary income and can increase your taxable income significantly if not accounted for in advance. 

Some individuals may consider withdrawing strategically from these accounts earlier in retirement to spread out the tax impact, while others explore Roth conversions as a way to shift assets into accounts that won’t be subject to RMDs in the future. 

Roth Conversions: Timing Is Key 

A Roth conversion involves moving money from a traditional IRA or 401(k) into a Roth account, paying taxes on the converted amount now in exchange for future tax-free growth and withdrawals. 

This strategy can be helpful when you’re in a lower tax bracket—often in the years between retirement and the start of RMDs or Social Security benefits. However, it’s not a one-size-fits-all decision. Careful analysis is needed to weigh the immediate tax cost against long-term potential benefits. 

Managing Social Security Taxation 

Depending on your total income in retirement, up to 85% of your Social Security benefits may be subject to federal income tax. This is determined by your “combined income,” which includes: 

• Adjusted gross income 

• Nontaxable interest 

• Half of your Social Security benefits 

By adjusting the order and size of withdrawals from other income sources, it may be possible to reduce the portion of benefits that are taxed in a given year. 

Capital Gains and Investment Income 

Taxable investment accounts come with their own tax considerations. Long-term capital gains (from assets held more than one year) are typically taxed at a lower rate than ordinary income, while interest and short-term gains are taxed at higher rates. 

Tax-smart strategies may include: 

• Harvesting capital gains or losses 

• Holding investments longer to qualify for favorable rates 

• Using municipal bonds for tax-free interest income 

• Choosing tax-efficient investment funds or ETFs 

All of these strategies depend on your personal financial goals and your overall tax situation. 

Applying Tax-Smart Retirement Planning Strategies to Your Plan 

There’s no single method that works for everyone, but taking the time to explore tax-smart retirement planning strategies can make a meaningful difference over time. Your financial plan should integrate tax planning with investment, income, and healthcare strategies to support your overall vision for retirement. 

At Cornerstone Wealth Management, we believe that being intentional with tax planning helps retirees better manage income across a variety of scenarios. Whether you’re transitioning into retirement or fine-tuning your current plan, understanding the tax impact of your decisions can help you move forward with greater clarity.