Year-Round Tax Planning: From Working Years through Retirement

As you are planning for retirement and in those first years in retirement, several key factors must be considered, including where you’ll retire, how to maintain social engagement, and travel or a passion project. Thinking about taxes may be at the bottom of your priority list. However, understanding your tax liability — and how to manage and reduce it — is essential to securing long-term wealth. You can take several tax planning steps today, not just at tax time, to help fulfill your tax requirements and manage your future tax liability. We encourage you to start now, in collaboration with your financial advisor and CPA, so you can ensure you have ample time to implement strategies and make any necessary adjustments. Let’s review year-round tax planning strategies we recommend when working with clients.

Review Your W-2 Withholdings

Understanding how your withholdings affect your overall cash flow can help you avoid IRS penalties, anticipate how much tax you may owe, and ensure you’re maximizing your take-home pay while you’re still working. We recommend reviewing and making necessary adjustments at the beginning of the year and again in October.

• Do you often get a large refund? You’re likely over-withholding and could be missing out on opportunities to put your excess cash flow toward your retirement savings, investments, emergency fund, or debt. 
• Do you usually have a big tax bill? If you’re under-withholding (or taking home a bigger paycheck), you may potentially owe taxes at the end of the year and mistakenly think you need more retirement income than you do. You might also be exposed to underpayment penalties.
• How do you know if your withholdings are on track? You typically want to “break-even” or receive a small refund to see if you’re not under or over-withholding.

Consider a Roth Conversion

Consider converting a portion of your traditional IRA (a deferred tax account) to a tax-free Roth account. While you’ll pay taxes on the converted portion at the time of the conversion, the strategy can help reduce your future liability later and allow for tax-free withdrawals in retirement.

• Timing Matters: It’s essential to evaluate a conversion annually and ideally execute it during a low-income or low-tax-bracket year, so you can avoid a larger payment later if your income is higher. October is an opportune time to assess your income and allow sufficient time for adjustments.
• Partner With a Professional: Work with CCMI’s CERTIFIED FINANCIAL PLANNER™ professionals or your accountant to make sure you understand the tax consequences and convert the appropriate amount.

Maximize Your 401(k) Contributions

If you have stable or excess income, take advantage of contributing to an employer-sponsored 401(k) program, especially if your employer offers a match. 

• Reduce Taxable Income: A 401(k) is a tax-deferred account, so you will pay taxes on withdrawals in retirement, but contributions today will reduce your taxable income, effectively lowering your current tax liability. 
• Compound Growth: Early contributions enable investments to grow for a longer period, increasing the benefits of compound interest.

Mark Your Calendar for Estimated Payments

While many may think quarterly estimated payments are only for business owners, they actually apply to any income you receive that doesn’t have automatic withholdings, such as income from a side gig, rental property, after-tax brokerage accounts, or even some retirement sources. To avoid a hefty penalty or tax bill later, ensure you’re staying current with the taxes you owe throughout the year.

• Avoid Penalties: To avoid any surprise tax penalties for underpayment throughout the year, be sure to calculate the total taxes you owe and submit your payment every quarter (for 2025):
  • April 15
  • June 16
  • September 15
  • January 15 (2026)
• Automatic Withholdings in Retirement: Paying the IRS doesn’t stop at retirement, as many retirement sources are considered taxable income. Before drawing on your IRA or pension, consider coordinating automatic withholdings on your distributions.

Make a Year-End Charitable Donation

The last quarter of the year is typically your final chance to make income adjustments for tax purposes, and a charitable donation can provide an effective deduction. In addition to fulfilling your philanthropic goals, there are several benefits to donating at year-end, including lowering your tax bill and avoiding a higher Medicare premium or income-related monthly adjustment amount (IRMAA).

• Reduce Your Income: Your adjusted gross income (AGI) is significant in determining tax brackets and Medicare premium thresholds as you approach retirement. A donation can help reduce your AGI if you’re on the cusp of moving into a higher tax or IRMAA bracket.
• Qualified Charitable Distribution (QCD): QCDs are another strategy for retirees subject to required minimum distributions (RMDs) to reduce taxable income. RMDs count toward taxable income, so if you don’t need the income or risk greater tax liability in a higher tax bracket, you can consider a QCD, which allows you to donate up to $100,000 directly from an IRA to an eligible charity. 

“Smooth Out” Taxes with Early IRA Withdrawals

Strategically taking early IRA withdrawals in retirement is another way to help manage your tax brackets and reduce your future tax liability. Here’s what to consider:

• Withdraw Before RMD Age: Withdrawing money from your IRAs during low-income years and before RMDs start can effectively level your liability over the years and lower your taxes in the long run. Learn more about when RMDs begin based on when you were born.
• Take More Than You Need: If you’ve already reached RMD age, you may also take more than your calculated amount for various reasons, such as aligning your withdrawal with a lower expected tax bracket, e.g., withdrawing more when your income is lower.

Year-Round Tax Strategies: How CCMI Helps

Whether you’re still working or looking forward to retiring in San Diego, one thing is constant: taxes. However, with thoughtful, year-round tax planning, you can avoid surprises while making the most of every dollar.  

Our team specializes in helping clients proactively manage taxes with tax-efficient withdrawal strategies, asset allocation, and flexible planning to help keep more of their wealth. We also regularly partner with CPAs to provide clients with a coordinated and aligned strategy that covers all essential areas and addresses gaps. Want to know if your tax planning is on track? Contact us today.