What your tax return is telling you about your retirement plan
By The Galecki Financial Management Team
Tax season has a way of making people squirm. Between hunting down documents, wrestling with forms, and bracing for what you might owe, it’s easy to treat April as something to just get through. But if you’re nearing or already in retirement, tax season is actually one of the most valuable financial checkups you have all year—if you know what to look for.
Beyond telling the IRS what you earned, the numbers on your return tell you whether your retirement plan is working as hard as it should. And in many cases, what shows up on that page reveals planning gaps that could cost you thousands of dollars over time.
At Galecki Financial Management, a Fee-Only wealth management firm serving clients in Fort Wayne and throughout Northeast Indiana, we talk with retirees and pre-retirees every spring who are surprised by what their tax return uncovers. Here’s what we see most often—and what you can do about it.
1. You’re Pulling from Your Accounts in the Wrong Order
One of the most common (and costly) mistakes retirees make is drawing income without a withdrawal strategy in mind. It seems simple enough: you need income, so you pull from whatever account is most accessible. But the order in which you withdraw from different account types (e.g., taxable brokerage accounts, traditional IRAs, and Roth IRAs) can significantly affect how much tax you pay over the course of your retirement.
If your tax bill felt higher than expected this year, your withdrawal order may be the reason. Pulling too heavily from pre-tax accounts like traditional IRAs can push you into a higher bracket, trigger Medicare premium surcharges (known as IRMAA), or cause a larger portion of your Social Security benefits to become taxable.
A smarter approach often involves “filling up” lower tax brackets intentionally. That might mean spending from taxable accounts first, converting portions of traditional IRAs to Roth IRAs during lower-income years, and reserving Roth assets for later. There’s no single right answer, which is exactly why personalized, Fee-Only financial planning in Fort Wayne, Indiana, makes such a difference.
2. Required Minimum Distributions Are Closer Than You Think
If you turned 73 this year, or will soon, required minimum distributions (RMDs) are no longer a distant concept. They’re a reality, and they can catch people off guard if the plan isn’t already in place.
Required minimum distributions force withdrawals from your pre-tax retirement accounts each year, regardless of whether you need the income. That amount adds to your taxable income, potentially pushing you into a higher bracket.
The good news: if you’re not yet subject to required minimum distributions, you likely have a meaningful window to reduce future RMD exposure through Roth conversions, charitable giving strategies, or other planning moves. As we noted in our 3 Smart Pre-Filing Tax Moves, the earlier you start, the more flexibility you have.
3. You Don’t Have a Roth Conversion Strategy
A Roth conversion involves moving money from a traditional IRA to a Roth IRA, paying taxes on that amount now in exchange for tax-free growth and withdrawals later. It’s not the right move for everyone, but for many retirees and pre-retirees, it’s a powerful tool that goes underutilized.
If your return shows you’re in a lower bracket than expected this year—say, the 12% or 22% range—you may be sitting in a planning window. Converting a portion of your traditional IRA at today’s rate could shield you from higher taxes down the road, particularly as RMDs kick in or tax law changes take effect.
This strategy can feel counterintuitive: why pay taxes today if you don’t have to? But over a 20- or 30-year retirement, the math often favors those who convert strategically during lower-income years. A Fee-Only financial advisor in Fort Wayne, Indiana, can help you model this for your specific situation.
4. You’re Missing a Qualified Charitable Distribution Strategy
If you’re 70½ or older, charitably inclined, and taking required minimum distributions, the qualified charitable distribution strategy may be one of the most tax-efficient tools available to you—and one of the least utilized.
A qualified charitable distribution (QCD) allows you to transfer up to $111,000 per year (indexed for inflation each year) directly from your IRA to a qualified charity. The distribution counts toward your required minimum distribution for the year, but it doesn’t appear as taxable income. For most people who no longer itemize deductions (thanks to the increased standard deduction), this is far more tax-efficient than writing a personal check and claiming a charitable deduction.
If you made charitable gifts last year and also took required minimum distributions, your return is almost certainly showing you a more expensive version of generosity than necessary. This is a gap we help clients close every year at Galecki Financial Management.
What to Do After Tax Season
Tax season doesn’t have to be something you endure. Used well, it’s a free annual audit of your retirement strategy. Once your return is filed, run through this quick checklist:
- Review your effective tax rate. Was it higher or lower than expected? Do you know why?
- Note any required minimum distributions. Are they growing? Do you have a strategy to manage them over the next 5–10 years?
- Look at your charitable giving. Could a qualified charitable distribution strategy reduce your taxable income next year?
- Consider your withdrawal sources. Were you drawing from the most tax-efficient accounts, in the right order?
- Explore Roth conversion opportunities. Are you in a lower-income year that creates a planning window?
If any of these questions gave you pause, that’s worth paying attention to. Our team at Galecki Financial Management serves individuals, families, and retirees who want objective, Fee-Only financial guidance, without commissions or hidden incentives.
Ready to take the worry out of your financial future? To schedule a meeting, call (260) 436-8525 or email [email protected].
Frequently Asked Questions
How does tax season reveal gaps in my retirement plan?
Your tax return reflects your actual income sources, tax bracket, required minimum distributions, and Social Security taxation for the year. Reviewing it carefully can reveal whether you’re withdrawing from accounts in the most tax-efficient order, whether a Roth conversion makes sense, or whether you’re leaving charitable giving tax benefits on the table. Think of it as an annual audit of your retirement strategy—at no extra cost.
What is a tax-efficient withdrawal strategy in retirement?
A tax-efficient withdrawal strategy involves drawing income from your retirement accounts in a sequence that minimizes your annual tax liability. This typically means considering which account types to tap first (taxable brokerage, pre-tax IRA, or Roth), how to manage your tax bracket each year, and how to coordinate withdrawals with required minimum distributions and Social Security income. A Fee-Only advisor can help you model a personalized approach based on your specific accounts and goals.
What is a Qualified Charitable Distribution and who can use it?
A QCD allows individuals age 70½ or older to transfer up to $111,000 per year (indexed for inflation each year) directly from an IRA to a qualified charity. The amount counts toward your required minimum distribution but is excluded from your taxable income, making it a more tax-efficient way to give than a standard cash donation. It’s particularly valuable for retirees who take the standard deduction rather than itemizing.
How can a Fee-Only advisor in Fort Wayne help with retirement tax planning?
A Fee-Only advisor is compensated only for their time and advice; no commissions, no product sales. At Galecki Financial Management, our team helps retirees and pre-retirees in Fort Wayne and throughout Northeast Indiana develop personalized retirement income strategies that account for tax bracket management, required minimum distributions, Roth conversions, Social Security timing, and charitable giving. The goal is to help you keep more of what you’ve saved while staying on track for a worry-free retirement.
About Galecki Financial Management
Galecki Financial Management is a fee-only wealth management firm that rejects “business as usual” by prioritizing active listening and transparent, time-based compensation. Their experienced team provides comprehensive services (ranging from estate planning to cash-flow analysis) to help families identify and pursue their long-term financial goals. They focus on a friendly, casual, and client-centered approach to keep your financial success their only incentive.