Tax Planning Strategies for Retirees with $1-5 Million in Investable Assets
The Hidden Risk (and Cost) in Retirement Portfolios
If you have between $1 million and $5 million in investable assets, and you are approaching or already in retirement, congratulations!
I would argue you’ve done the hard part. That is, you’ve worked tirelessly building up your nest egg to prepare for retirement.
In effect, you’ve put yourself in a position to allow your investments to create your paychecks for you, and depending upon your retirement expenses, you may be able to live off of your portfolio income forever!
That said, your work isn’t done yet. The next step is ensuring that your wealth lasts through your retirement and beyond, and that means managing one of your largest expenses in retirement: taxes.
Tax planning is often overlooked, even by affluent retirees. Yet thoughtful tax strategies can add hundreds of thousands or even millions of dollars or in lifetime after-tax wealth.
Sure, you need to pay your fair share of taxes to the IRS, but I joke with my clients that I don’t think they deserve a tip from you.
This comprehensive guide breaks down the most effective tax strategies that I use with clients with $1–5 million in investable assets.
1. Coordinate Withdrawals Across Account Types (Tax Diversification)
Many retirees have a nice mix of account types from a tax standpoint, including:
Traditional IRAs and 401(k)s (tax-deferred)
Roth IRAs and 401(k)s (tax-free)
Taxable brokerage accounts (dividends taxable each year, and capital gains taxable when selling investments)
Coordinating withdrawals across these accounts in a tax-efficient order is essential to minimizing your lifetime tax burden.
Here is a general rule of thumb:
Withdraw from taxable accounts first (to use up lower capital-gains brackets)
Then tap tax-deferred (Traditional) accounts (to maximize your lower tax brackets)
Save after-tax (Roth) withdrawals for last (to stay in lower tax brackets and maximize tax-free retirement growth)
This allows you to withdraw from the least tax-efficient accounts first, when your taxable income is likely in a relatively low bracket.
Meanwhile, it allows you to pull from your after-tax accounts last when you might otherwise breach into a new, higher tax bracket by otherwise pulling from tax-deferred accounts which are added to your taxable income.
The optimal withdrawal strategy should account for your current year and future tax rates, expected Required Minimum Distributions (RMDs), Social Security timing, and Medicare IRMAA thresholds, among other things.
2. Roth Conversions: Pay Taxes on Your Terms
Roth conversions allow you to move money from a tax-deferred account (like a Traditional IRA) into a Roth IRA. You pay taxes on the conversion amount now, but future withdrawals are tax-free.
For retirees in the early years of their retirement, before RMDs and full Social Security benefits kick in, taxable income is often lower, and so too is their marginal tax bracket.
This creates a "sweet spot" for strategic Roth conversions:
Fill up the lower 12%, 22%, or even 24% tax brackets through Roth conversions
Avoid future RMDs by shifting assets into a Roth IRA, which are not subject to RMDs
Reduce the size of your taxable estate
Create more tax-free income in later retirement
Roth conversions can be a bit temperamental, since they increase your taxable income in the year(s) you complete them.
That said, they should be carefully planned and projected to avoid bumping into higher brackets or triggering Medicare premium surcharges or potential missed deductions and credits that could outweigh the benefits of converting.
Check out our video on How Roth Conversions Work to learn more!
3. Manage Required Minimum Distributions (RMDs) Proactively
Once you turn age 73 (as of 2025), you must begin taking Required Minimum Distributions (RMDs) from your tax-deferred (Traditional) retirement accounts.
These accounts include:
Traditional IRAs
SIMPLE and SEP IRAs
Traditional 401(k)s
Traditional 403(b)s
457(b) plans
Profit-sharing plans
RMDs are fully taxable and can cause other issues during retirement years, such as:
Pushing you into higher tax brackets
Triggering Medicare IRMAA surcharges
Increasing taxes on Social Security benefits
Strategies to manage RMD impacts include:
Roth conversions before RMD age
Qualified charitable distributions (QCDs)
Delaying Social Security to create space for conversions
Consolidating smaller IRAs to streamline distributions
4. Use Qualified Charitable Distributions (QCDs) to Reduce Taxable Income
If you’re charitably inclined and over age 70½, Qualified Charitable Distributions are one of the most tax-efficient ways to give.
A QCD allows you to donate up to $100,000 annually directly from your IRA to a qualified charity.
The benefits of QCDs include:
Count towards your RMD each year
Excluded from taxable income (not just a deduction)
Helps lower adjusted-gross income (AGI), potentially reducing taxes on other things like Social Security and Medicare premiums
QCDs are far more tax-efficient than simply donating cash from a taxable account, especially since many retirees no longer itemize deductions under the current tax law.
5. Harvest Capital Gains and Losses Intentionally
With taxable investment accounts, managing capital gains and losses becomes critical in retirement.
When done appropriately, you could save thousands in taxes for many years to come.
Strategies include:
Harvesting long-term capital gains when your income is in the 0% capital gains bracket (e.g., early retirement years)
Harvesting losses to offset gains elsewhere or carry forward into future years
Avoiding short-term gains taxed at higher ordinary income rates
Donating appreciated securities to charity (or into a Donor Advised Fund) for a double-tax benefit
Reducing your ongoing tax drag through harvesting gains and losses in an optimal way can save you thousands in taxes over many years.
6. Delay Social Security Strategically
Delaying Social Security can be a powerful tax strategy:
Benefits grow 8% per year from your Full Retirement Age to age 70
This is known as the “delayed retirement credit” and based on your birth year
Creates space for low-tax Roth conversions
Reduces the number of years Social Security is taxable
Coordinating your withdrawal plan so you live on your taxable accounts or Traditional IRA first, while delaying Social Security to age 70, can reduce your lifetime taxes and increase your after-tax retirement income.
7. Watch Out for Medicare IRMAA Brackets
Medicare premiums are based on your income. Higher-income retirees face Income-Related Monthly Adjustment Amount (IRMAA) surcharges that can significantly raise the cost of Medicare Part B and D.
Basically, if you earn to much, the government forces you to pay more in health-insurance premiums offered by Medicare.
In 2025, IRMAA thresholds start at $106,000 for individuals and $212,000 for couples (based on modified-adjusted gross income).
Strategies to manage IRMAA:
Keep taxable income below key thresholds through income timing (and coordination of retirement withdrawals)
Use QCDs to reduce adjusted-gross income
Spread Roth conversions over multiple years
Utilize tax-free investments such as municipal bonds in your taxable fixed-income portfolio to reduce your taxable income
Avoiding IRMAA can save thousands in healthcare costs over the course of your retirement.
8. Leverage Donor-Advised Funds (DAFs) for Charitable Giving
A Donor-Advised Fund (DAF) is a charitable giving tool that allows you to:
Make a large charitable contribution in a high-income year (for a tax deduction)
Invest (and grow) your personal charitable fund
Distribute grants to your favorite charities over time
Donate appreciated securities to avoid capital gains
DAFs are especially powerful in retirement if you have concentrated stock positions or are experiencing a one-time liquidity event such as a property sale or a business exit.
For high-net-worth retirees, DAFs can support both philanthropic and tax-planning goals.
9. Create a Tax-Aware Estate Plan
Estate planning isn’t just about who gets what when you pass away. It's really about how your legacy is taxed before assets are transferred to your heirs.
A sound estate plan should:
Maximize the step-up in cost basis at death for taxable accounts
Minimize income taxes on inherited IRAs (through Roth conversions or trusts)
Consider tax-efficient gifting strategies during life (annual exclusion gifts, 529 plans, etc.)
Use trusts to manage control, taxes and timing
With federal estate tax thresholds at historically high levels, now is the time to revisit your estate strategy.
10. Utilize Health Savings Accounts (HSAs) for Tax-Free Healthcare Costs
While contributions to Health Savings Accounts (HSAs) must be made before enrolling in Medicare, retirees who previously contributed can still use these funds strategically.
HSAs are one of the few accounts to offer triple-tax advantages:
Contributions are tax-deductible (when applicable)
Growth is tax-deferred
Withdrawals for qualified medical expenses are tax-free
For retirees, HSA funds can be used to pay for:
Medicare premiums (excluding Medigap)
Out-of-pocket medical costs
Long-term care services and insurance premiums (up to IRS limits)
Using HSA funds to cover rising healthcare costs in retirement preserves other assets and enhances your tax efficiency.
It can also keep you in relatively low tax brackets and supplement the other strategies explained above.
Small Moves, Big Tax Savings
Tax planning for retirement isn’t just about saving money today.
It’s about re-creating your paychecks in a sustainable way that supports your retirement lifestyle and legacy.
It’s never too late to create a coordinated tax strategy for your retirement!
For more on retirement planning, check out our article on Spending Habits in Retirement.
Are you looking for a tax-focused financial plan and investment strategy?
Email Ben directly at Ben@coveplanning.com or schedule a free consultation call.
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Ben Smith is a fee-only financial advisor and CERTIFIED FINANCIAL PLANNER™ (CFP®) Professional with offices in Milwaukee, WI, Evanston, IL and Wayzata, MN, serving clients virtually across the country. Cove Financial Planning provides comprehensive financial planning and investment management services to individuals and families, regardless of location, with a focus on Socially Responsible Investing (SRI).
Ben acts as a fiduciary for his clients. He does not sell financial products or take commissions. Simply put, he sits on your side of the table and always works in your best interest. Learn more how we can help you Do Well While Doing Good!
Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Ben Smith, and all rights are reserved. Read the full Disclaimer.