by Lauren Foley, Supervisor and Robert Knight, CPA, Manager

As you approach retirement, there are many essential tax and financial planning considerations. It is vital to identify these key planning opportunities by reviewing your finances, understanding your investment and retirement accounts, and examining your future income streams. Through gaining this knowledge, you will be able to make better informed decisions to maintain financial security and organization throughout retirement. 

You should consider discussing the following topics with your financial and tax advisor: 

Required Minimum Distributions 

Required Minimum Distributions (“RMDs”) are mandatory taxable withdrawals from retirement accounts such as Traditional IRAs, SEP IRAs, and 401(k)s. Once you turn age 59 ½, you can withdraw from these accounts penalty free. However, the first mandatory distribution must occur by April 1st in the year after you turn 73. Note that if you wait until April 1st, you will need to make the next distribution by December 31st of that same year. 

The required distribution is calculated by taking your year-end retirement balance and dividing it by the life expectancy factor as determined by IRS. Any required minimum distribution is a taxable event and will be reported as ordinary income. There is an exception to this rule: if you are still working at 73 years old, you may be able to delay withdrawing from your active 401(k). 

Qualified Charitable Distributions (QCDs) are available to IRA owners age 70 ½ and older. QCDs allow you to distribute money from an IRA directly to a charitable organization, thus avoiding any tax (the maximum charitable distribution is $111,000 per taxpayer for 2026) and must be made to a public 501(c)(3) charity. Additionally, to ensure proper compliance, the transaction must be reported and labeled in a specific manner on your tax return. 

Roth Conversions 

Traditional and Roth IRAs are two common retirement savings vehicles that are taxed differently. Traditional IRA contributions generally grow tax-deferred, with withdrawals taxed as ordinary income. Roth IRAs are funded with after-tax dollars, so that qualified withdrawals can be tax-free and are not subject to lifetime required minimum distributions. This flexibility can make Roth accounts especially valuable in both retirement and as part of an estate plan. 

Not everyone is able to contribute directly to a Roth IRA during their working years, particularly when income limits apply. However, the early years of retirement can create a valuable planning opportunity through a Roth conversion. By paying tax now on a portion of a traditional IRA and moving those funds into a Roth account, you may reduce future taxable income. This strategy is often most effective before social security and RMDs begin and when lower tax brackets are more favorable. On top of the flexibility a Roth can offer during retirement, it is also a great legacy asset to pass down to heirs. 

Cash Flow Management / Tax Planning 

Retirement poses a challenging shift from living off working income to living off retirement assets. There are various categories of assets to draw upon to fund your lifestyle. For example, common cash flow sources can include social security, pensions, retirement funds, and investment income. You may wonder, “Where should I draw my money from” or “At what age should I take Social Security?” These questions cannot be answered generically and require specific knowledge of your circumstances. 

One way to identify your options is to look closely at different types of expenses; everyday living costs, long-term care expenditures, and any one-time large cash outlays. This information can help build financial plans to better manage cash flow and increase tax efficiency. While it may make sense for one retiree to start drawing on their Social Security at age 70, it may not make sense for someone else. For another person, generating a capital gain in a brokerage account to fund a vacation can make more financial sense than increasing an IRA distribution. Staying organized and understanding how your accounts can work together will help you get the most out of your assets. 

It is crucial to have a clear understanding of how your cash flow and income will affect your  tax return. Many retirees are surprised to discover that, unlike during their working years, taxes are not automatically withheld from most types of retirement income. This means you will need to be intentional about how and when you pay your taxes. As you plan your withdrawals, it is important to evaluate your income sources and decide whether setting up tax withholding or quarterly estimated tax payments makes sense for you. By being proactive, you can avoid interest and penalties from the IRS. 

These are just a few of the many retirement topics to start thinking about. While it is never too late, the sooner you can start executing a plan, the larger the potential benefit in the long term. 

Please remember that this article is intended to serve only as a general guideline. Your personal circumstances will likely require careful examination. You should schedule a meeting with your adviser to assist with all your tax planning needs.