Taxes & Tax Planning
Tax-Efficient Strategies for Summer Adventures and Beyond
For many retirees, the idea of retirement is synonymous with freedom. You can exercise that freedom by choosing to spend your days traveling, spending summers with the grandkids, or simply relaxing and taking it day by day without a harried schedule. However, the transition from a steady paycheck to a reliance on your own savings can be daunting. Without a clear strategy, the lifestyle you envisioned and saved for could be hard to maintain.
To help keep your summer plans and long-term financial health intact, it’s important to approach your retirement spending with tax efficiency in mind.
A Quick Look at the Standard Withdrawal Options
The standard advice can often look like this: spend your taxable brokerage accounts first, then your tax-deferred accounts (like traditional IRAs), and finally your tax-free Roth accounts. However, if you haven’t made any withdrawals from your traditional IRA by age 73, Required Minimum Distributions could unintentionally push you into a significantly higher tax bracket. This could also affect your Medicare costs or increase taxes on your Social Security. Another drawback is that if you’d like to move your money into a new vehicle earlier in your retirement (when you still have taxable accounts you’re pulling from), this could also add to your tax burden, so drawing from tax-free sources that year could help balance that income.
The other piece of standard advice is the 4% rule. This classic retirement rule of thumb is designed to help you determine how much you can withdraw from your portfolio each year without running out of money over a 30-year period.
The rule is straightforward in its execution*:
- Year One: You withdraw 4% of your total retirement nest egg. For example, if you have $1,000,000, you take out $40,000.
- Subsequent Years: You don’t take 4% of the remaining balance. Instead, you take the same dollar amount from the previous year and increase it by the rate of inflation, with the idea that the market will continue to make up for your withdrawals.
It’s important to be able to tailor your income to your specific needs from year to year, as you never know what the future holds, for the market or for you personally. And while these options are great starting points, they can lack flexibility and don’t account for years with larger spending (like when you want to go on that big European vacation!).
Strategies for Your Summer Travels and Beyond
When planning for seasonal spikes in spending, such as a summer vacation, an option that might appeal is a bucket strategy.** This involves dividing your assets into distinct buckets. An example of this looks like:
- The Immediate Bucket (Years 1-2): This bucket should hold enough cash in high-yield savings or money market accounts to cover your lifestyle needs, including that big summer trip.
- The Intermediate Bucket (Years 3-10): This consists of more stable investments like bonds or CDs that can replenish your cash bucket.
- The Long-Term Bucket (Years 11+): These funds remain in assets geared towards long-term growth, with the goal of allowing your future wealth to continue to compound.
This is just one of the many ways to start thinking about how to construct your own tailored bucket strategy. You can also utilize a dynamic withdrawal strategy within this framework that allows for larger withdrawals when the market is performing well and uses those better-performing years to fund lifestyle changes or vacations.
However, moving assets between buckets can trigger unintended tax consequences if not coordinated with your overall strategy, so it’s important to consult with your financial professional about your goals and plans.
Why Planning Ahead in Pre-Retirement Matters
Thinking about where your income will come from once you stop receiving paychecks is something to consider sooner rather than later. Building your income plan out as many as five or ten years ahead of retirement can help you make some potentially impactful moves, such as:
- Roth Conversions: Moving money from a traditional IRA to a Roth IRA during lower-income years can create a pool of tax-efficient wealth.
- Tax Diversification: Ensuring you have a mix of taxable, tax-deferred, and tax-free accounts so you can choose the most appropriate source of income each year for your specific goals.
- Avoiding the 59½ Trap: If you intend to retire early, making a liquidity plan can help you avoid the 10% early withdrawal penalty of most retirement accounts.
Your Summer, Simplified
We can help you focus on your retirement goals and navigate the complexities of tax planning. By coordinating your withdrawals, managing your tax brackets, and maintaining a cash buffer for your lifestyle goals, you can confidently enjoy your summer plans.
Successful retirees plan for both building and utilizing their savings, so if you haven’t yet mapped out your retirement income plan, now is the time to consult with a financial professional. Let us help you tailor your financial situation to both your short and long-term goals for a happy summer and beyond.
Sources:
https://www.journalofaccountancy.com/issues/2026/jan/tax-efficient-drawdown-strategies-in-retirement/
https://www.usbank.com/retirement-planning/financial-perspectives/retirement-withdrawal-strategies.html
https://www.usbank.com/retirement-planning/financial-perspectives/managing-retirement-during-market-downturns.html
*No strategy can guarantee a profit or protect against loss.
**This strategy may utilize annuity contracts, which are long-term insurance products.
All investing involves risk, including the potential loss of principal. No investment strategy, including tax diversification or withdrawal “rules of thumb,” can guarantee a profit or protect against loss in periods of declining market values. Past performance is not indicative of future results.
This material was prepared for general informational purposes only. It is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. A Roth IRA conversion is a taxable event and may have several tax implications. You should consult your own tax, legal, and accounting professionals before engaging in any transaction.
If this strategy utilizes insurance products, such as annuities: Annuities are long-term insurance products designed for retirement. They are subject to fees, expenses, and surrender charges. All guarantees and protections are backed solely by the financial strength and claims-paying ability of the issuing insurance company.
Withdrawals are subject to ordinary income tax and, if taken before age 59 ½, a 10% federal penalty may apply.
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Components of Long-Term Tax Strategy
Many people may view taxes as a seasonal hurdle or a frantic scramble every spring to satisfy the IRS. But if you only think about taxes once a year, you may expose more of your hard-earned dollars to taxes than is necessary. A true long-term tax strategy goes beyond the annual filing ritual; it’s about the additional return you may earn simply by being efficient with how, when and where you hold your money. Mastering this requires shifting your focus from “how much I owe this year” to “how much I keep over my lifetime.”
Let’s examine how the components of a comprehensive strategy fit together.
Interest, Dividends, and Equity
To help build a tax-efficient portfolio, you must understand the “tax DNA” of your investments. Not all growth is created equal in the eyes of the IRS.
- Interest: This is the least tax-efficient form of income. Whether it comes from a high-yield savings account or a corporate bond, interest is typically taxed as ordinary income (up to 37%). It is paid out regularly, meaning you can’t choose when to take the tax hit.
- Dividends: These are a middle ground. If a dividend is “qualified” (meaning you held the stock for a specific period), it is taxed at more favorable long-term capital gains rates. If it isn’t qualified, it’s taxed like interest—at your highest marginal rate.
- Equity (Growth): Buying a stock that doubles in value doesn’t trigger a tax bill until you sell it. This gives you the ultimate power: timing. By holding an asset for more than a year, you may qualify for long-term capital gains rates, which are significantly lower than ordinary income brackets. Of course, gains aren’t always guaranteed; you may be tempted to sell a stock before it loses value, which would trigger a taxable event.
The takeaway: Consider holding your equities or high-interest, “tax-inefficient” assets (like bonds) inside qualified tax-advantaged accounts like a Traditional IRA. This may provide the capital gains and annual payouts from taxes, allowing them to compound fully until withdrawal.
Roth vs. Traditional: Managing the Bracket
Traditional IRAs and 401(k)s can help improve tax efficiency by enabling your contributions to reduce your taxable income. While there are contribution limits to these retirement accounts, you can benefit from favorable long-term capital gains taxes when you hold your portfolio assets long term. These retirement savings vehicles are designed to help you retain more of your lifetime earnings, and regular assessments of your financial situation can help make sure you’re evaluating your opportunities.
If you want to pay taxes first, both IRAs and 401(k)s offer Roth options. When comparing qualified Roth IRA withdrawals to qualified Traditional IRA contributions, you are essentially weighing the opportunity costs of current tax savings against future tax-free income. The decision ultimately comes down to your current tax bracket versus your expected tax bracket in retirement.
- Qualified Traditional IRA Contributions: Maybe you have a high-earning job and want the up-front tax deduction that a Traditional account provides. The risk here is that you may be deferring taxes into an uncertain future where rates or your personal income may be much higher.
- Qualified Roth IRA Withdrawals: The goal here is to be able to qualify for a tax-free withdrawal, even if you’re in a higher tax bracket as you approach retirement. But the primary risk with this is that you may pay taxes upfront at a rate higher than you anticipated because you settled into a lower tax bracket at the time of withdrawal.
In either case, proper planning and flexibility may help you manage your tax liability throughout your life. That’s why it’s important to not only plan early but stick to it as well.
The decision between a Roth or Traditional IRA isn’t a one-time choice; it’s an ongoing management task that you can be flexible with. And it’s not a task you have to handle by yourself. Tax and finance experts exist to help you make sense of your options so you can mitigate the uncertainty. So, ask yourself how much money you’re potentially losing by not taking advantage of the services available to you.
That said, there’s more to portfolio construction than your tax level. For example, if you chose an asset with the intention of saving on taxability instead of an asset that saw a large return, you could be leaving money on the table. We can work with you to determine strategies that fit with your unique situation and risk capacity to help you be aligned with your financial objectives.
A long-term tax strategy is a marathon, not a sprint. It’s about recognizing that every dollar saved from the IRS is a dollar that continues to work for you. By treating taxes as a year-round pillar of your financial life rather than an April annoyance, you aren’t just filing forms—you’re protecting a legacy. The money you save on taxes could make it easier for your heirs to purchase a home, to start a family, or to attend their school of choice.
You can’t do long-term tax strategy last minute. One way to make the best use of these strategies is to start as early as possible. So, call us today—we’ll work with you to implement a long-term tax strategy that helps you reach your retirement goals without sacrificing more to taxes than you absolutely need to.
Sources:
https://www.investopedia.com/terms/t/tax-planning.asp
https://www.im.natixis.com/en-us/insights/tax-management/2025/tax-alpha-definition-enhance-returns
https://www.irs.gov/taxtopics/tc409
This information is provided as general information and is not intended to be specific financial guidance This information is not intended as tax advice. Tax laws are subject to change and individual circumstances vary. Please consult a qualified tax professional before making any decisions based on this information. The source(s) used to prepare this material is/are believed to be true, accurate and reliable, but is/are not guaranteed. SWG 5227135-0226
Tax Season Alert! A Less-Stress Tax Filing Checklist
Tax season can sometimes bring a mix of anxiety and a long list of action items, but it doesn’t have to! And you don’t have to be an expert on the tax code or a senior accountant to have a smooth filing experience. The secret ingredient is organization. By gathering your documents early, you can help avoid last-minute scrambles, reduce the risk of errors, and potentially speed up your refund.
Why Organization Matters
The IRS processes millions of returns every year. Errors, even small ones like a transposed digit in a Social Security number or a missing 1099, may lead to processing delays or potentially an audit. Having a clear picture of your annual income and expenses allows you or your tax preparer to help identify tax-saving opportunities and may avoid the headache of mistakes that require more paperwork.
Your Tax Prep Checklist
To help you get started, we’ve compiled this checklist based on the latest IRS guidelines. Use this to create a tax folder (either physical or digital) to house everything as it arrives in your mailbox or email this month.
1. Personal Identification & Information
- [ ] Social Security Numbers: Required for you, your spouse, and all dependents.
- [ ] Bank Account Info: Routing and account numbers for direct deposit (the fastest way to get your refund).
- [ ] Last Year’s Return: Your Adjusted Gross Income (AGI) from last year is often needed to verify your identity for e-filing.
2. Income Statements
- [ ] Form W-2: From every employer you worked for during the year.
- [ ] 1099-INT / 1099-DIV: For interest and dividends earned on your investments.
- [ ] 1099-B: Details the proceeds from the sale of stocks or bonds.
- [ ] 1099-NEC / 1099-K: If you did freelance work or participated in the gig economy.
- [ ] 1099-R: For distributions from IRAs, 401(k)s, or pensions.
- [ ] SSA-1099: If you received Social Security benefits.
3. Adjustments & Deductions
- [ ] Form 1098: Mortgage interest statement and property tax records.
- [ ] Charitable Contributions: Receipts for cash donations and acknowledgments for donated goods.
- [ ] Education Expenses: Form 1098-T for tuition and receipts for books or supplies.
- [ ] HSA/FSA Contributions: Records of your health savings account activity.
- [ ] Medical Expenses: If you plan to itemize, keep a log of unreimbursed medical costs.
4. The Digital Frontier
- [ ] Cryptocurrency & Digital Assets: Records of any sales, exchanges, or “airdropped” tokens.
- [ ] IP PIN: If the IRS issued you an Identity Protection PIN, you must have this to file.
How We Can Help
While gathering documents is the first step, the real strategy comes into play when we assess how these numbers fit into your long-term wealth plan. Are you taking full advantage of tax-advantaged accounts? Is your portfolio balanced to minimize future tax liabilities?
Don’t wait until April 14th. Reach out to our office today to schedule a pre-tax review. Let’s make this tax season an opportunity to review your financial health, maximize your deductions, and set the stage for a prosperous year ahead.