Seven Ways to Reduce Taxes Before You Retire

You may be able to reduce your taxes and increase your income before you retire if you follow these strategies:

1. Maximize retirement contributions to tax advantaged accounts like 401ks, and IRAs. Be sure you take advantage of catch-up contributions when your reach 50 years old.
2. Diversify your retirement savings accounts among taxable, tax deferred and tax-exempt accounts. It is much easier to manage your marginal tax rates in any one year if you can draw from different sources.
3. Consider partial Roth IRA conversions. Marginal tax rates are likely to increase in 2026 with the sunset of the Tax Cut and Jobs Act of 2017. You may be better off paying some taxes now rather than later. Usually this is effective up to 22% federal rate but be sure to work with a financial advisor or CPA to determine the amount of any Roth conversion from your traditional IRA.
4. Review asset location. You may be better off placing a greater portion of your stock portfolio in taxable accounts to take advantage of long-term capital gains treatment while moving your bond investments to your IRA or Roth account to avoid taxes on interest income.
5. Explore charitable giving strategies like Donor Advised Funds that provide immediate tax benefits while allowing for strategic giving over time. If you have ample income consider reducing your taxes (at age 73) by taking some or all of your Required Minimum Distribution from your traditional IRA as a Qualified Charitable Distribution.
6. Develop a strategic estate plan. Gifting during your lifetime can significantly reduce your estate, this is especially important for estates that are approaching $5 million in assets. Various trusts can alleviate your estate tax burden while achieving your income and legacy goals.
7. Stay informed. Tax laws can change and significantly impact your estate.

Everyone’s financial situation is unique, so it is important that you consult with a qualified tax professional or financial advisor before implementing any specific strategy. Personalized advice can make a significant difference in the taxes you pay throughout your and your heirs lifetime.