By The Galecki Financial Management Team
As all-encompassing a responsibility as retirement planning is, it can be easy to overlook some of its most important aspects. Tax planning is a necessary routine that often gets set aside—at least temporarily. However, there are tax planning strategies you can think about all year round that can help you maximize tax advantages when you’re retired.
Here are five retirement planning approaches that can make a big difference in your tax bill.
1. Manage Exposure to the Medicare Surcharge Tax
Individuals who make more than $200,000 a year and couples who top $250,000 in annual income are subject to a 3.8% tax to fund government medical initiatives, primarily Medicare. This tax is called the Medicare Surcharge Tax.
The amount such taxpayers must pay is calculated using their Modified Adjusted Gross Income (MAGI)—standard annual income with deductions added back. These deductions may be IRA contributions, interest on student loans, untaxed foreign income, and other sources. The tax rate is calculated on the lesser of your total net investment income or the margin your income exceeds the limits.
Suppose that a married couple jointly earns $190,000 in salary and $85,000 in investment income a year. This results in a MAGI of $275,000, which is $25,000 over the maximum to avoid the surcharge. The IRS therefore calculates the Medicare surcharge on the $25,000 figure since it’s lower than their total investment income.
High-earning individuals can reduce their exposure by maximizing tax efficiency on investments in retirement planning. They may move investments into tax-deferred accounts, use tax-loss harvesting, invest in tax-free bonds or realize capital losses to offset gains. A Fee-Only financial advisor can offer other ideas.
2. Convert to a Roth IRA
Contributions to a Roth IRA are made after taxes, but in retirement, distributions from a Roth account are tax-free. However, some can’t contribute directly to their Roth accounts because of income restrictions. Their MAGI may exceed IRS maximums, or their annual income may either restrict or eliminate their ability to contribute to a Roth fund.
One answer is to convert a traditional IRA to a Roth fund. You’ll have to pay taxes on the converted amount, so it’s better to take this option during a low-income year when your tax bill might be lower. Watch your tax bracket closely, as you may be pushed into a higher one.
3. Realize the 0% Tax Rate on Long-Term Capital Gains
If your taxable income fell below certain levels in 2024 ($47,025 for singles, $94,050 for married couples), your capital gains on sales of long-term investments are tax-free. Exceeding those limits results in a sizable tax percentage jump—at least 15% or 20% for higher earners.
You can take deductions to keep your taxable income under that limit. However, keep an eye on your tax-free gains as they affect your adjusted gross income. That can affect Social Security benefits and your state tax bill. Note that the limits for 2025 increase to $48,350 for singles, $96,700 for married couples.
4. Know the Rules on Inherited IRAs
Non-spousal beneficiaries of inherited IRAs must make required minimum distributions (RMDs) on the account and deplete the fund entirely within 10 years of the original account holder’s death. Surviving spouses, minor children, disabled or chronically ill beneficiaries, and those less than 10 years younger than the deceased are exempt from these rules.
5. Maximize Charitable Contributions
Charitable giving is an outstanding way to save on taxes. Donating appreciated assets such as stocks helps you avoid capital gains taxes but gets you full credit for your donation. You can potentially deduct up to 60% of your adjusted gross income for these donations. If the stock’s value has declined, sell it first to claim the loss.
The qualified charitable distribution (QCD) strategy is another popular way to give to charity while saving on taxes. Required minimum distributions now begin at age 73 (or 75 based upon age). In 2025, individuals can give a maximum of $108,000 as a QCD. QCDs are exempt from income taxes, but make sure the funds transfer from the IRA directly to the charity. For example, if your RMD is $125,000 in 2025, you could give $108,000 as a QCD to a charity (or charities) of your choice, thus only being taxed on $17,000 of income.
Discover More Retirement Planning Strategies With Galecki Financial Management
Galecki Financial Management is a Fee-Only advisory service that helps families attain their financial goals, including retirement planning and tax planning. When you contact our team, you get financial advice that focuses squarely on your needs above everything else.
To schedule a meeting, call (260) 436-8525 or email [email protected].
About Galecki Financial Management
At Galecki Financial Management, we help individuals and families confidently pursue their financial goals. We’re anything but a business-as-usual wealth management firm. We’re different. Friendly. Casual. And really good listeners. Indeed, that’s a big part of what makes us different. Everything we do is based on what we hear from you because our experienced team of professionals specializes in comprehensive financial planning, cash flow analysis, IRA rollovers, financial services, money management, estate planning, retirement planning, and advising. We help you identify your short- and long-term goals, and then we work together to pursue them. Lastly, and most importantly, we’re Fee-Only, meaning we’re only compensated for our time. Our only incentive is to help you succeed.