Quick Summary:
Three strategies can significantly extend how long your retirement income lasts: Roth conversions (reducing future taxable income), withdrawal sequencing (drawing from the right accounts at the right time), and RMD planning (managing Required Minimum Distributions to avoid large surprise tax bills). When used together, these techniques can reduce your lifetime tax burden and help your money stretch further.
At Blue Sky Capital Consultants Group, a fiduciary advisor in San Diego, CA, we help retirees proactively design tax-efficient retirement income strategies—especially important for Californians facing one of the highest state income tax rates in the country.
Why Tax Planning Matters in Retirement
Many people focus on investments but overlook taxes, even though taxes often have a bigger impact on how long your savings last. Proactive tax planning helps you:
- Keep more of your withdrawals
- Stay in lower tax brackets
- Reduce Medicare premium surcharges (IRMAA)
- Minimize taxes on Social Security benefits
- Smooth your lifetime tax liability instead of reacting year by year
Done well, tax planning can add years to the life of your portfolio.
1. Roth Conversions: Lower Taxes Later by Planning Today
Roth conversions involve moving money from a pre-tax IRA into a Roth IRA, paying taxes today so you can take tax-free withdrawals later.
Why this matters for Californians:
California taxes IRA withdrawals as ordinary income, but Roth IRA withdrawals are tax-free at both the federal and state level.
Example:
A couple retiring at 62 has several years before RMDs begin at age 73. By converting a portion of their IRA each year while they’re in a lower tax bracket, they reduce future taxable withdrawals—cutting both federal taxes and California state taxes later in retirement.
2. Withdrawal Sequencing: Pull From the Right Accounts at the Right Time
Withdrawal sequencing is one of the most overlooked retirement strategies. The order in which you tap your accounts affects your tax bill every single year.
Common approaches include:
- Using taxable accounts first to allow tax-deferred assets to grow
- Smoothing IRA withdrawals before RMD age
- Coordinating withdrawals with Social Security start dates
Example:
A San Diego retiree delays Social Security until age 70. During that gap, they take moderate IRA withdrawals—keeping them in a manageable bracket—while allowing their eventual benefit to grow. This can also reduce the amount of Social Security that becomes taxable.
3. RMD Planning: Avoiding Large Forced Withdrawals
Required Minimum Distributions (RMDs) can push retirees into unexpectedly high tax brackets—especially in California where the state tax adds another layer.
Strategies include:
- Reducing future RMDs with partial Roth conversions
- Using Qualified Charitable Distributions (QCDs) to lower taxable income
- Distributing strategically between ages 60–73 to avoid major spikes
Example:
A retiree with a large IRA waits until 73 to withdraw anything. Their first RMD is so big that it triggers a higher Medicare premium tier and a larger California tax bill. A proactive RMD plan could have smoothed withdrawals over time, lowering lifetime taxes.
Tax Planning Is an Ongoing Strategy
Your tax situation changes year to year—market conditions, income sources, law changes, and life events can all shift the optimal approach. A dynamic strategy helps you adjust proactively rather than reactively.
Learn more about our tax-efficient approach: Tax Planning
Ready to Make Your Retirement Income Last Longer?
If you want a retirement plan that accounts for taxes—not just investments—we’re here to help. Book a tax‑efficient retirement income review and see how smart planning today can save you money for decades to come.
