Retiring can come with some expensive surprises. To avoid getting hit with unexpected expenses when you retire, financial advisors suggest planning as far in advance. Even if you are just about to retire, there are a few tips that can save you a lot of money and headaches when you file your taxes. Since nearly half of retirees wish they had been better prepared for the jump in taxes in retirement[i]. 1 in 4 says they paid thousands more than they anticipated[ii], getting educated can be a real wallet saver. This is truer than ever for the upcoming retirees, as they are more likely to use tax-deferred options, like 401(k)s, as a main source of income.

401(k)s and Tax-Deferred Savings

Over the last few decades, workplace pensions were replaced with employer-match individual savings plans. The accounts allow employees to save for their retirement. Once you meet a certain age though, 70.5 years, retirement minimum distributions (RMDs) are activated. Once you meet your RMD, you must be taking out a certain amount of your savings yearly or incur a pretty heavy tax penalty (of 50%). This is true even if the IRAs and 401(k)s are up in the six figures, and can be a real surprise to retirees both in how large the yearly withdrawals are and also how steep the tax penalties are. But with a little advanced planning, you can avoid a lot of that trouble. Below are some ways to do that.


You’ve heard it a million times no doubt. You want a diverse portfolio. Specifically, you want to split your savings into three different piles. The first is tax-deferred, which was mentioned above, your 401(k) and traditional IRA where your contributions are not taxed until you withdraw from them after your retirement. The second is tax-free, in things like a Roth 401(k) where the investment was put in after-tax, making it tax-free to withdraw after retirement. Lastly, you have taxable investments, like savings accounts, these you are taxed on interest earned, gains or dividends. Ideally, you want a healthy mix of all three, which allows you better financial control and more options of where you can be drawing from and from when. For example, if you are considering retiring early, you would be locked out of a lot of tax-free traditional IRAs until you reach a certain age.

Look at Roth Opportunities

Roth IRAs are a great option and more workplaces are offering them now. You can invest up to $5,500 this year, or $6,500 if you are over 50. There are income limitations with Roths, $120,000 for a single filer or $189,000 if filing jointly. You may be able to circumvent that if your employer offers a Roth option, as they may not have the income limitation. As always, do your research on a Roth IRA offered through your workplace is recommended, as some companies only match pre-tax 401(k) contributions. Rolling your savings into a Roth IRA may also be a good option if you have maxed out your contributions, to avoid paying a larger tax bill in retirement.


Health Savings Accounts are a great deal, as they have a triple-tax advantage. You can contribute either pre-tax or tax-deductible, and they can be withdrawn without incurring taxes and penalties when used for medical expenses. They also tend to grow tax-free. While it may seem like an odd place to stash your money now, the reality is that you will, at some point come up against some pretty expensive health-care down the line. Estimates have the average retired couple paying over a quarter million dollars ($280,000 after-tax) in health-care related costs in retirement[iii]. For HSAs to work best, you must max your contributions and avoid dipping in for any immediate medical needs in the present.

Make a Retirement Budget

Once retired, you will be pulling your income from a variety of different places. This can be both complicated for taxes and complicated to keep track of. Depending on what you are drawing from, you could end up paying higher taxes or bump yourself into a higher tax bracket. Pulling from another area may incur higher taxes on your Social Security benefits. It may behoove you to roll over IRA savings or postpone RMDs. You may also be able to minimize RMDs through charitable giving. Qualified charitable distributions can lower your income and in doing so, protect your Social Security or Medicare benefits. If your head is spinning thinking about any of this, take heart you aren’t alone. This may be a good place, once you crunch the numbers on how much you will need day to day to cover your living expenses, to seek out the aid of a professional. A qualified financial advisor should be able to look over your portfolio and help come up with the best plan to make your money work for you.