Retirement tax planning looks ahead at how your savings, withdrawals, and major decisions will be taxed, and aims to reduce what you pay over your whole retirement, not just in one year. It covers which accounts you save in, when Roth conversions may make sense, which accounts to draw from, and how to handle one-time events like selling a home or land. At Priority Financial Planning in Hutchinson, Kansas, it's built into the planning I do for people within 10 years of retirement or already retired.
Tax preparation looks back. It reports the income you already had and calculates what you owe. Tax planning looks ahead and shapes that income before the year ends: which accounts you draw from, whether to convert to Roth, when to sell an asset. By the time a year is over, most of the decisions that set your tax bill have already been made. Preparation records the result. Planning is where you can still change it.
Tax diversification means having savings in more than one kind of account: pre-tax accounts like a traditional 401(k), Roth accounts, and taxable brokerage accounts. Each is taxed differently when you withdraw. Having a mix gives you choices in retirement, so each year you can decide which account to draw from based on your tax picture. Someone with everything in pre-tax accounts has fewer options, because every dollar they withdraw is taxable income.
A Roth conversion moves money from a pre-tax account, like a traditional IRA, into a Roth IRA. You pay income tax on the amount converted in the year you convert. In exchange, qualified withdrawals later, including any growth, are tax-free, and Roth IRAs have no required minimum distributions during your lifetime. You can convert any amount, so many people convert a portion each year instead of all at once. Once done, a conversion can't be reversed.
Usually when your tax rate today is lower than the rate you expect to pay later. That's often true in the years between retiring and starting Social Security or required distributions, when income can be unusually low. Conversions can also make sense if large pre-tax balances are likely to push you into higher brackets later, or if you'd rather leave heirs Roth money than taxable IRA dollars. Because a conversion adds to your income that year, it can affect Medicare premiums and how much of your Social Security is taxed, so the amount matters as much as the timing.
IRMAA, the income-related monthly adjustment amount, is a surcharge added to Medicare Part B and Part D premiums when your income passes certain thresholds. It's based on your tax return from two years earlier, so a Roth conversion or land sale at 63 can raise your premiums at 65. The thresholds work like cliffs: going a dollar over can raise premiums for the full year. If your income dropped because you stopped working, you can ask Social Security to use your more recent income instead.
A qualified charitable distribution, or QCD, lets you give directly from your IRA to a charity once you're 70½ or older. The gift isn't counted as taxable income, and once required distributions begin, it can count toward your RMD. For people who give regularly and take the standard deduction, a QCD is often a more tax-efficient way to give than writing a check. There's an annual limit, which is adjusted for inflation.
Yes, for now. From 2025 through 2028, people 65 and older can claim an extra $6,000 deduction, or $12,000 for a married couple when both qualify. It phases out as modified adjusted gross income rises above $75,000 for single filers or $150,000 for joint filers. It comes on top of the existing additional standard deduction for seniors, and married couples must file jointly to claim it. Because it's temporary and tied to income, it can affect when Roth conversions or large sales make the most sense.
Often, no. If you've owned and lived in the home as your main residence for at least two of the five years before the sale, you can exclude up to $250,000 of gain, or $500,000 if married filing jointly. The exclusion applies to your profit, not the sale price, and records of improvements you've made can raise your cost basis and shrink the gain. Those limits haven't been adjusted for inflation since 1997, so people who've owned a home for decades are more likely to go over. Any gain above the limit is added to your income for the year, which can affect your bracket and Medicare premiums.
Land you've owned for more than a year is generally taxed as a long-term capital gain on the difference between the sale price and your cost basis. Unlike a home, most land doesn't qualify for a special exclusion. Inherited land works differently: its basis is usually stepped up to its value when the previous owner died, so selling soon after inheriting may create little taxable gain. For a large gain, an installment sale that spreads payments over several years can spread the tax as well. Kansas taxes capital gains as regular income, so the state bill matters too.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
Priority Financial Planning and LPL Financial do not provide tax advice or services. Please consult your qualified tax advisor regarding your specific situation.
