By Daniel Korleski, MBA
When most people picture retirement, they imagine more freedom, fewer obligations, and time to enjoy what they’ve worked so hard for. Taxes rarely make the vision board. In fact, for many, taxes are something to think about once a year: file the return, move on, and forget about it.
The challenge is that in retirement, taxes don’t quietly go away. They can become more complicated, especially when you begin withdrawing from retirement accounts, coordinating Social Security, or managing investment income. Without a clear plan, it’s easy to trigger higher taxes than expected or reduce the income you thought would last longer.
Being strategic about taxes throughout the year (not just during filing season) can make a meaningful difference in how much you keep and how confident you feel about your retirement income. Below, I walk through five practical ways to help manage and potentially reduce taxes in retirement.
1. Limit Your Exposure to the 3.8% Medicare Surcharge Tax
If you have a higher income and have investment income, you should be aware of the 3.8% Medicare surcharge tax. This tax applies to individuals and couples whose earnings exceed certain limits, meaning they contribute more to Medicare and help support the healthcare system for everyone. Here’s how it works:
If you’re single and make more than $200,000, or if you’re married and together make more than $250,000, this 3.8% tax may apply to you. These income limits are based on your Modified Adjusted Gross Income (MAGI)—that’s your usual income with some deductions added back in, such as tax-free foreign income, IRA contributions, and student loan interest.
The surcharge tax affects what you earn from investments such as stocks, bonds, and real estate (which includes interest, dividends, annuities, gains, passive income, and royalties). The IRS calculates this tax on whichever is less: your total net investment income or the amount by which your income goes over those $200,000 or $250,000 thresholds.
If your MAGI is near or above the thresholds, there are steps you can take to limit your exposure. First, you will want to review the tax efficiency of your investment holdings. It may be worthwhile to move less efficient investments into tax-deferred accounts and capitalize on tax-loss harvesting. Other moves you can make include investing in municipal bonds, which have tax-free interest, and taking capital losses to offset gains. Installment sales can spread out large gains and minimize your adjusted gross income, and real estate like-kind exchanges can also defer gains and their taxability.
2. Utilize Roth IRA Conversions
Distributions from Roth IRAs are tax-free, so they are a great tool to have in retirement. However, many people cannot contribute directly to a Roth IRA because of income limitations. Instead, you have to convert traditional IRA funds to a Roth account by paying the related income taxes. You can take advantage of low-income years, such as when you have stopped working but are not yet collecting Social Security, to convert your funds to a Roth IRA so you’ll have tax-free income later.
It is important to be mindful of tax brackets when you do conversions so you don’t inadvertently push yourself into higher tax rates. As we mentioned above, be sure to consider the impact of that 3.8% Medicare surcharge tax. Another crucial item to be aware of is the Income Related Monthly Adjustment Amount (IRMAA) which increases your Medicare premiums if your income is above a certain limit. For 2026, if your Modified Adjusted Gross Income (MAGI) from 2024 is over $109,000 as an individual filer or $218,000 as a couple filing jointly, your premiums will increase. The higher your income, the higher the premium. This is where careful planning can help you manage these additional costs and make the most of your IRA conversions—without unexpected expenses.
3. Take Advantage of the 0% Rate on Long-Term Capital Gains
If the Medicare surcharge tax is irrelevant to you because your income is lower, then you may be able to take advantage of the 0% long-term capital gains rate. Profits on the sales of assets owned over a year are tax-free if your 2026 taxable income is below $49,450 for singles or $98,900 for married couples filing jointly. Once you exceed those thresholds, long-term capital gains are taxed at 15% until your taxable income for 2026 gets above $545,400 for singles or $613,700 for couples, at which point the tax rate goes up to 20%.
Claiming more deductions or making deductible IRA contributions can help keep your taxable income within the 0% capital gains tax range while also providing their usual tax benefits. However, you will want to be strategic about taking tax-free gains as they can raise your adjusted gross income and affect the taxability of your Social Security benefits. Also, taking those gains may incur state tax liabilities as well.
4. Be Strategic About Inherited IRAs
The IRS clarified rules for inherited IRAs in July 2024, addressing concerns about the 10-year rule introduced in 2020. Non-spousal beneficiaries must now take required minimum distributions (RMDs) annually if the decedent had already started RMDs. Additionally, the inherited IRA must be completely depleted by the end of the 10th year following the account holder’s death.
Key exceptions to the 10-year rule remain unchanged. These include surviving spouses, minor children, disabled or chronically ill beneficiaries, and those less than 10 years younger than the deceased. These groups can continue to use the stretch IRA approach, taking distributions over their life expectancy.
For beneficiaries of account holders who passed away before their RMD age (currently 73), there is more flexibility. In these cases, beneficiaries are not required to take RMDs in years 1 through 9, allowing for strategic tax planning during the 10-year period.
Being strategic about timing withdrawals is crucial to managing tax implications and minimizing overall tax liability.
5. Donate Effectively
If you are charitably inclined, one of the best ways to save on taxes is through donations. Bear in mind that rules regarding deductibility of charitable contributions have changed significantly.
Starting in 2026, due to the One Big Beautiful Bill Act (OBBBA), charitable contributions that are less than 0.5% of your adjusted gross income (AGI) are no longer deductible as itemized deductions, though any excess over this floor level will be deductible. Non-itemizers may deduct up to $1,000 in cash contributions (married couples filing jointly may deduct up to $2,000).
High-income donors who itemize are capped at 35% for charitable deductions, even if the taxpayer(s) is in a high federal tax bracket.
Another strategy to consider is the use of a charitable lead annuity trust or a donor-advised fund, which allow you to take an up-front write-off that can help offset other income, such as from a Roth IRA conversion or withdrawal from an inherited IRA. Qualified charitable distributions (QCDs) may also be effective tools to offset required minimum distributions from IRA accounts.
Supporting You With Tax-Efficient Retirement Strategies
There are several ways to help manage and potentially reduce taxes in retirement, but the right approach depends on your unique financial picture. Tax planning often involves multiple moving parts, and making informed decisions requires looking at how each strategy fits into your overall retirement plan. The good news is that you don’t have to figure it all out on your own.
Working with an experienced financial advisor can help you sort through the details, understand your options, and move forward with greater clarity and confidence. If you don’t already have a trusted advisor, we’d be happy to start a conversation and explore how our team at Cobalt Private Wealth can support you.
Take the first step toward your ideal retirement by scheduling a conversation with us today. Reach out to me at danielkorleski@cobaltprivatewealth.com or 719-332-3863 to schedule a meeting.
About Dan
Daniel Korleski is the President & CEO for Cobalt Private Wealth, where he helps his clients grow, manage, and protect their wealth so they can work toward a stronger financial future. With over 30 years of experience in the financial services industry, Dan has served as the managing director for Investment Trust Company, chief investment officer for the Wealth Management Group at American National Bank in Denver, and regional investment manager for the Greater Colorado Region of the Private Bank at Wells Fargo, where he oversaw the management of over $2 billion. In 2008, he was appointed by the mayor of Colorado Springs to the City’s Investment Advisory Committee. Dan holds an MBA in investment management from Midwestern State University in Wichita Falls, Texas, a Bachelor of Science in Finance from Florida State University, and is a member of both the CFA Society Colorado and The Financial Planning Association.
Dan loves to give of his time to his community and is currently serving as the Board Chair of Catholic Charities of Central Colorado and oversees the Homebound Ministry at St. Paul Catholic Church. He has also served as Chair of the Board of Trustees of Pikes Peak Hospice Foundation, President of the Broadmoor Rotary Club, and Vice President of the Board for the Pikes Peak Chapter of Trout Unlimited. Dan was born and raised in Spain and is fluent in Spanish. To learn more about Dan, connect with him on LinkedIn.
