One of the most valuable conversations you can have with clients approaching retirement is this: the money sitting in their 401(k) or IRA isn't entirely theirs. Not yet. Every dollar in a tax-deferred account carries an embedded tax liability, and the IRS will collect its share when distributions begin. The question isn't whether your client will pay, it's how much and when.
Many retirees assume their taxes will drop once they stop working. For disciplined savers with large tax-deferred balances, the opposite is often true. Required minimum distributions, pension income, Social Security taxation, and IRMAA surcharges can push clients into higher brackets later in retirement than they ever experienced while employed. Add the complexity of widowhood, which eliminates the married filing jointly bracket, and the problem compounds.
The good news is that the window between retirement and RMD age is often a golden planning opportunity, and many practitioners underutilize it.
The Standard Deduction as a Planning Tool
For clients without significant pension income, it's possible to structure retirement income so that little or no federal income tax is owed. The strategy centers on using the standard deduction as a target, not a fallback.
By layering tax-free Roth distributions with modest traditional IRA withdrawals and Social Security income, calibrated to stay below the taxable threshold, some clients with seven-figure net worths can achieve an effective federal tax rate of zero. This isn't a loophole. It's the tax code working as designed for those who plan ahead.
A Tale of Two Households
Consider two households each needing $100,000 in annual income:
Household A takes Social Security early at 62 ($30,000), withdraws $70,000 from a traditional IRA, and owes approximately $7,000 in federal taxes, keeping $93,000.
Household B delays Social Security to age 70 ($55,000), withdraws $22,500 from a Roth IRA and $22,500 from a traditional IRA, keeping provisional income low enough that Social Security is largely untaxed and taxable income stays under the standard deduction. Federal taxes: $0. They keep the full $100,000.
The difference isn't luck, it's sequencing and structure.
Roth Conversions: The Proactive Play
For clients still accumulating or in the early retirement transition years, Roth conversions deserve serious attention. Converting traditional IRA balances during lower-income years reduces future RMDs, decreases exposure to Social Security taxation, and creates a pool of tax-free funds for large expenses or legacy planning.
The key message for clients: every year they delay this planning, the IRS' claim on their retirement accounts grows. Proactive conversion now, on their terms, is far preferable to forced distributions later at rates they can't control.
The Practitioner's Role
Your job isn't just to file returns. It's to help clients understand that retirement tax planning is an ongoing process, not a one-time event. The difference between a well-structured retirement income plan and an unplanned one can easily total hundreds of thousands of dollars over a 20-to-30-year retirement. That conversation starts now, especially as you’re seeing your clients throughout busy season.
Christine Gervais is a licensed CPA, using her skills to help businesses grow and achieve their fullest potential. Christine has a Master’s degree in accounting from Southern New Hampshire University in addition to holding her CPA license for over a decade. Notably, Christine is a nationally recognized speaker providing education to other CPAs on how to best serve clients as well as instruction on a wide variety of topics for business owners on how to maximize success. Christine prides herself on the value she can bring to clients with her extensive tax knowledge and provides strategic, forward-thinking financial strategies to help clients grow. When not behind her desk, you can find Christine spending quality time with her daughter and stepson or tending to the family’s excessively loved farm animals.
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