How to reduce retiree income taxes

Hi. I am retired with minimal earned income, but pretty good pension, Social Security, and investment income. I am in the RMD age group. MAGI is above the amount to contribute to Roth.

Any ideas to reduce my income taxes? Serious replies, please.

I’m in same situation, and main suggestion is to INCREASE your income taxes by Roth conversions. If you keep your marginal rate the same, you’re in effect guarding against increased RMDs moving you into a higher bracket and/or protecting some money against increased income tax rates or the automatic expiration of current tax rates. (And I am in favor of increased rates and expiration of the current ones.)

If you adopt that strategy and happen to be in a rate where the next marginal rate is only a little higher, you don’t need to worry about going a little into the next bracket (very little taxed at that rate) or very far into the next bracket (rate difference now, potentially significant savings later.)

[One caution: consider also the breakpoints for additional medicare premiums. You really don’t want to go only a little over one of those, and might not want to go over at all.]

This strategy is even better for new retirees, not yet taking social security or reaching RMD age. Unfortunately, I did not take advantage of it.

One immediate thing: if you are taking the standard deduction, or would take the standard deduction in the absence of charitable contributions, then you should make charitable contributions as Qualified Charitable Donations directly from your IRA.

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I wonder if an irrevocable trust instrument could be useful . . .

Putting money in a place that can still be used to provide future care and/or meet future necessary expenses while reducing the amount of taxable “income”.

JT, do you have much in muni bonds?

I have been investigating them recently and have bought some.

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Move to a state without state income taxes.
Once there, do not ask us how to reduce the other taxes that are higher because of the no-state-income tax thing.

not an expert.

what @SteveWhite is what I have read. If you can itemize and get the deduction for a qualified donation with a qualified direct donation from the RMD. and/or make sure you are withdrawing enough from the taxable to get to the top of the marginal bracket, paying taxes on that, and converting any excess amounts to Roth (so pay taxes now to fatten the tax-free roth for later).

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My understanding is with minimal earned income, at the age where I am taking RMD, and a nice amount of MAGI, that I no longer have ability to move to Roth. Is this correct?

I don’t think so. I have moved some from my traditional IRA to my Roth IRA each of the last 3 years. It’s a conversion. It is taxable income when withdrawn, and doesn’t count toward your RMD. Also, you must have taken all of your RMD for the year before you do any conversion.

Perhaps there’s a MAGI limit for conversions, but if so I’m below it


Wouldn’t affect you now, but did affect me the first year I did a conversion, which was also the first year I “had” to take an RMD. I could make the conversion first, because I could take that RMD in the next calendar year instead (normally not a good idea, as then paying taxes in two RMDs in the second year. And I did take the RMD the first year, but after the conversion.)

So in the second year I was surprised to learn I had to wait for the conversion, but not a big deal.

I am far removed from US income tax now but some Canadian strategies might equally apply in the US.

  • Manage the amount of your required withdrawals from retirement vehicles in a smart manner,

  • Maximize dividend income in your investment income (assuming dividends are taxed more lightly than interest income).

  • Donate equities rather than cash to charities.

You could consider a qualified charitable distribution from your IRA instead of taking the RMD.

Consider voting to help promote a national tax policy that is not so progressive against successful, working level white collar wage earners.


Even better idea: help promote a national tax policy that is even more progressive, but is slightly lower at our tax level (yours assumed to be comparable to mine). That would reduce your taxes (and mine).

Best idea: help promote a national tax policy that is even more progressive, even though (or even if) it includes some increase at our tax level (yours assumed to be comparable to mine).

Since usually the intent is strategies to include after-tax income, that’s a strategy primarily for charitable contributions you would make anyway. But that you can make them and lower your taxes it might be a reason for making contributions you would not otherwise make. Some net cost to you from the additional contribution, but additional good done by it. Similarly the contributions you were going to make in any case have some net cost to you.

There is a $100,000 annual limit on QCDs, which might mean you cannot avoid some taxable distribution, depending on the size of your IRA and your age. (My charitable contributions in 2023 were all QCDs, and were below that limit.)(Actually I think also one contribution below $100 where I didn’t worry with the QCD.)

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I see this argument made all the time. Everybody says “raise taxes, as long as you don’t raise them on me!” That just does not work.

I find it terribly frustrating that the people whose net worth are in the 75th to 90th percentiles are taxed enormously on income than those who are in the top 10%.

But I understand that income is income and net worth is net worth and while they are somewhat positively correlated, they are not the same thing. I think that I/you/we legit make more money than Elon Musk. Wasn’t he famously only paid like 50k a year or something? His worth comes from the assets he owns & thus capital games, not W2 income. How do you tax him? Well, for starters, when he borrows money from a commercial bank to have 20 or 30 million is spending money per year, make that 30 million taxable income to him. Currently, it is not.

Isn’t Biden proposing just increasing taxes on incomes over 400K? Whether it can pass is questionable, and there may be some questions as to what mechanically that means, but in principle it sounds like a good idea. And would be a good idea even if it were incomes over 200K, conceivably even over 100K.

Personally I’m OK with capital gains being taxed at a lower rate, even think it’s theoretically right. Or tax them somewhat more progressively than at present.

As to the ultra-weathly, they are probably benefitting from poor definitions of taxable income. I wouldn’t tax Elon Must on bank loans, but if he just paid 20% capital gains tax on increases in the value of his assets, that would be a very big tax bill. He doesn’t, possible because they are structured as unrealized gains, or perhaps because he had other shelters, some of which should probably be eliminated.

If he doesn’t sell anything, his bill is $0.

There is NO TAX on capital gains until they are realized.

If the value of his assets go up by a billion and he doesn’t sell any, the tax is 0.

If the value of his assets go up by a billion and he spends 50 million that he borrowed from the bank using his assets as collateral, he pays no tax. His net worth is up 950 million and he is happy as a clam after paying no tax. I suggest the bank loan gets taxed like income.

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A better alternative would be to tax those unrealized gains.

I see far bigger problems trying to tax bank loans as income.

They do this in Switzerland. They have a small wealth tax (0.1% to 1%), but they also have a very generous capital regime.