Tax Planning Tradeoffs
Tax planning in retirement is less about chasing the lowest possible tax bill in any single year and more about balancing what you pay now against what you’ll likely owe later. The real challenge is to manage your income in a way that maximizes after-tax spending power over the course of your retirement, while avoiding unnecessary surprises from the tax code along the way.
Many retirees instinctively delay taxes for as long as possible by spending from taxable accounts first, then dipping into IRAs or 401(k)s, and saving Roth assets for last. While that sounds logical, it can backfire. Once required minimum distributions (RMDs) begin, you may be forced into higher brackets, which can have ripple effects. Sometimes it makes sense to pay some taxes earlier to avoid paying a lot more later.
Using Your Tax Brackets Efficiently
Because our tax system is progressive, the rate you pay on your next dollar of income depends on your tax bracket. For reference, below are the 2025 Federal income tax brackets from the IRS:
| 2025 Tax Rate | Single | Married Filing Jointly |
|---|---|---|
| 10% | $0 - $11,925 | $0 - $23,850 |
| 12% | $11,926 - $48,475 | $23,851 - $96,950 |
| 22% | $48,476 - $103,350 | $96,951 - $206,700 |
| 24% | $103,351 - $197,300 | $206,701 - $394,600 |
| 32% | $197,301 - $250,525 | $394,601 - $501,050 |
| 35% | $250,526 - $626,350 | $501,051 - $751,600 |
| 37% | Over $626,350 | Over $751,600 |
For example, in 2025, a married couple can earn up to about $207,000 of taxable income before leaving the 22% bracket. That means if your taxable income is $100,000, you could generate another $100,000 of ordinary income and still stay in that bracket. This might mean converting some traditional IRA funds into a Roth account and paying tax on the amount converted. You pay tax today, but the Roth assets can then grow tax-free and give you more flexibility later.
Balancing Current vs. Future Rates
The tradeoff boils down to whether you want to pay more tax today to create flexibility later, or defer taxes and risk a larger bill in the future. If you believe tax rates are likely to rise—either because of your personal income trajectory or broader policy changes—leaning toward earlier taxation through strategies like Roth conversions can make sense. On the other hand, if you expect to remain in a very low bracket later, deferral may still be the better choice.
Hidden Tax Traps
It’s not just the published brackets that matter. Extra income can trigger hidden costs, such as higher Medicare premiums, taxation of Social Security benefits, or the net investment income tax. These can potentially lead to “effective marginal rates” that are higher than the headline tax bracket suggests. Planning with these ripple effects in mind is crucial to avoiding costly surprises.
A Coordinated Approach
Ultimately, tax planning in retirement is about coordination. Timing withdrawals, blending different account types, and managing the ripple effects of the tax code can make the difference between a plan that barely covers your needs and one that stretches your resources further. Given the number of variables and complexity of the tax rules, it is highly recommended that you consult with a qualified tax professional before implementing any specific strategies.
McLean Asset Management Corporation (MAMC) is a SEC registered investment adviser. The content of this publication reflects the views of McLean Asset Management Corporation (MAMC) and sources deemed by MAMC to be reliable. There are many different interpretations of investment statistics and many different ideas about how to best use them. Past performance is not indicative of future performance. The information provided is for educational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy or sell securities. There are no warranties, expressed or implied, as to accuracy, completeness, or results obtained from any information on this presentation. Indexes are not available for direct investment. All investments involve risk.
The information throughout this presentation, whether stock quotes, charts, articles, or any other statements regarding market or other financial information, is obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither our information providers nor we shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission there of to the user. MAMC only transacts business in states where it is properly registered, or excluded or exempted from registration requirements. It does not provide tax, legal, or accounting advice. The information contained in this presentation does not take into account your particular investment objectives, financial situation, or needs, and you should, in considering this material, discuss your individual circumstances with professionals in those areas before making any decisions.
