10 tips to help build tax-efficient retirement income plans

1

Diversify location of retirement savings

Review how much they've saved in tax-deferred accounts compared to tax-free accounts. If a client's marginal income tax rate today is lower than what it might be in retirement, encourage saving more in Roth accounts now to provide tax-free income later.

2

Roth conversion

Roth conversions could help provide greater income flexibility in retirement, lower future required minimum distributions (RMDs), avoid costly Medicare premium surcharges and more. Consider the years after retirement (when clients may be in a lower marginal tax bracket) and before age 73 as an ideal time for conversions.

3

Net unrealized appreciation (NUA)

Special rules may allow plan participants to avoid paying ordinary income tax on gains from employer stock that's held in their qualified plan.

4

Social Security

If your client has the financial flexibility, delaying Social Security benefits until later in retirement may generate a greater lifetime benefit. It may also reduce the likelihood of those benefits being taxed, especially if your client continues working in retirement.

5

Life insurance

While the primary purpose of life insurance is death benefit protection, it can also create supplemental tax-free income, which may reduce the death benefit amount; withdrawals to basis and loans are tax free if the policy isn't a modified endowment contract (MEC).

6

Optimize health savings accounts (HSAs)

If a client has a high-deductible health plan, they have access to an HSA. Contributions are tax deductible and withdrawals for qualified medical expenses are tax free. But many overlook the opportunity to invest HSA dollars for the long term. Consider shoeboxing medical expenses incurred now to allow savings to grow.

7

Avoid Medicare surcharges

The higher their retirement income, the more your clients may pay for Medicare premiums. Those seeking higher levels of income in retirement should consider utilizing income sources that aren't included in their modified adjusted gross income (MAGI), such as life insurance, Roth IRAs or a health savings account (HSA).

8

Income from long-term capital gains may be tax-free

Selling capital assets to generate retirement income may result in less tax owed versus an investment product with ordinary income taxation. In 2024, married couples filing jointly with a taxable income amount of $94,050 or less will have a capital gains tax rate of 0%.

9

Qualified charitable deduction (QCD)

For clients who don't have a financial need to take their RMDs, donating to a favorite charity directly from an IRA account could help reduce income taxes. In 2024, individuals who are 70½ years old or older may use a QCD to donate up to $105,000 to qualified charities directly from an IRA.

10

Tax Cuts and Jobs Act

At the end of 2025, several time-limited provisions of the Tax Cuts and Job Acts of 2017 will sunset, including the higher standard deduction and lower marginal tax brackets in place today. Consider any benefits of making tax-efficient changes prior to this expiration.