5 Tax Savings Strategies for Maintaining Wealth in Retirement

As retirees face rising taxes and Medicare surcharges, mastering strategies like Roth conversions, bucket planning and annuities is more critical than ever to protect wealth — and make your retirement portfolio cover your lifespan.

These strategies aren't just for those with millions in the bank. Even moderate retirement savings can be significantly eroded by poor withdrawal timing, inefficient tax planning, or underutilized income tools.

Here are five ways to use strategic retirement tax planning to better control outlays, preserve your wealth and help you live the lifestyle you’ve worked for — without outliving your assets.

1. Execute Roth Conversions

Roth conversions involve transferring money from a traditional, pre-tax IRA or 401(k) into a Roth IRA, triggering a tax bill now in exchange for withdrawals later. For retirees who expect to spend several decades in retirement, converting early in retirement can reduce long-term tax exposure and provide more flexibility in managing future income.

One of the most effective ways to convert is gradually — during low-income years, after leaving a job, or before claiming Social Security. This helps you stay within your current tax bracket while still shifting pre-tax savings into tax-free growth vehicles. The strategy becomes particularly powerful when you have time to spread conversions over several years, keeping each year’s tax liability manageable.

Tax-free withdrawals and the elimination of required minimum distributions (RMDs) are key benefits. Reducing future RMDs may also help lower your adjusted gross income (AGI) in retirement, preventing increases to your Medicare premiums under Income Related Monthly Adjustment Amount (IRMAA) thresholds.

The tradeoff is that conversions trigger immediate taxes and, depending on the amount moved, may push you into a higher tax bracket or affect other benefits.

It’s also critical to understand the five-year rule: funds must stay in the Roth account for at least five years before you can withdraw earnings tax-free. Managing how much you convert and when ensures you don’t unintentionally trigger bracket creep or Medicare surcharges — two common mistakes that erode the intended savings.

2. Leverage Backdoor or Mega Backdoor Roth Strategies

For high earners who can’t make direct Roth IRA contributions because of income limits, backdoor Roth strategies offer a legal workaround. The standard backdoor approach involves making non-deductible contributions to a traditional IRA, then converting those funds to a Roth IRA. This conversion is essentially transferring the money from the traditional IRA to a Roth IRA, which triggers a taxable event. But since you already paid taxes on the non-deductible contribution, only any earnings on the investment would be taxed at conversion. If you don’t have other pre-tax IRAs, the conversion is usually straightforward.

The mega backdoor Roth strategy may also be available through some employer 401(k) plans. To qualify, your employer-based 401(k) must permit both after-tax contributions and in-plan Roth rollovers. When available, it can allow you to shift tens of thousands of dollars annually into a Roth environment.

However, the strategy is not without complexity. The IRS’s pro-rata rule requires you to calculate your tax bill based on the ratio of pre-tax to post-tax funds across all your IRAs. This can increase your tax liability if you already have a large pre-tax balance.

It’s important to confirm with your plan administrator whether your 401(k) allows these strategies before attempting the mega backdoor approach. Then consult with your accountant to see what this type of conversion would mean for your particular situation.

Though these strategies require close attention to detail, they can be invaluable tools for high-income savers who want to maximize tax-free growth while they still have earned income.

3. Implement Bucket Planning

Bucket planning divides your retirement savings into short-, mid- and long-term “buckets” based on when you’ll need the money. This structure helps protect against market volatility and ensures you have the liquidity to cover essential expenses, even during downturns.

The short-term bucket, typically covering the next two to five years of expenses, might include cash, CDs, or short-term treasuries. The mid-term bucket holds assets like a bond ladder or dividend-paying funds designed to provide income over the next five to 10 years. The long-term bucket, invested in equities or growth-oriented funds, isn’t touched for a decade or more and has time to recover from market swings.

Proper withdrawal sequencing can extend how long your retirement savings will last while minimizing the amount of taxes you'll owe along the way.

By withdrawing from the cash bucket during market declines, you avoid having to sell equities at a loss. This timing flexibility can reduce your taxable events in any given year, while also preventing emotional decisions that undermine long-term plans.

The bucket system also allows you to strategically control the taxable nature of your withdrawals. This means you can choose which accounts to draw from based on their tax treatment — taxable, tax-deferred, or tax-free — to minimize your tax burden each year.

Your tax advisor can help you optimize the timing of account rebalancing to minimize taxes. They can also implement tax-loss harvesting strategies during market downturns to offset gains. Working with an advisor ensures these sophisticated tax management techniques are executed properly to maximize your after-tax returns.

Moving money between your different bucket accounts and strategically harvesting investment gains or losses creates a more tax-efficient schedule for withdrawing retirement funds.

The key is consistency: Meet with your financial planner to check your allocations annually or semi-annually — and rebalance when necessary. The discipline of not shifting funds reactively helps the entire strategy survive under pressure.

4. Purchase Annuities

Annuities are insurance contracts that provide a stream of guaranteed income, either immediately or in the future. They can be a useful part of a broader strategy to create a reliable income floor — especially for retirees concerned about outliving their savings.

There are several types of annuities. Fixed annuities pay a predictable income, indexed annuities offer returns linked to market benchmarks, and variable annuities offer investment flexibility but with more risk. All can help smooth income and remove the uncertainty of drawing from volatile investments.

Annuities are particularly effective for covering non-negotiable expenses like housing, food and healthcare. When used properly, they reduce the pressure on your portfolio to generate steady income and allow you to take more strategic risk in other areas.

However, annuities are not without drawbacks. They often come with surrender charges, limited liquidity and fees that can erode returns. Returns are usually modest — typically 3% to 5%. Annuities can be held in a traditional IRA, a Roth IRA, or outside of any tax-advantaged account. Annuities held in Roth IRAs can undercut the value of tax-free growth due to income limits and fixed payout structures.

That’s why it’s essential to understand the contract terms before committing. Make sure you don’t put too large a portion of your savings into annuities — especially annuities with limited liquidity or lower returns. This can reduce your flexibility and long-term growth potential.

Also ensure the annuity you choose aligns with your broader goals, time horizon and estate planning needs.

5. Plan Tax-Efficient Withdrawal Sequencing

Withdrawal sequencing refers to the order in which you draw funds from your accounts — and it can significantly impact how long your retirement savings last. Done well, it extends your portfolio’s life and minimizes the taxes you owe along the way.

A common sequence begins with tapping taxable accounts first. These may generate lower taxes due to capital gains treatment and provide flexibility in managing your AGI. Withdrawals from traditional IRAs and 401(k)s come next, helping to reduce future RMDs and spread tax liability over more years. Roth accounts, with their tax-free withdrawals, are typically saved for last — either to grow further or for legacy planning.

Sequencing also plays a critical role in managing how much of your Social Security benefits are taxed. Because the IRS uses “provisional income” to determine taxation on those benefits, pulling too much from traditional IRAs in a single year can push more of your Social Security into the taxable column.

There are also Medicare implications. Higher withdrawals can push your income above IRMAA thresholds, increasing your premiums for Part B and Part D. Proper sequencing helps you stay below these limits while still meeting your income needs.

The challenge with this strategy is that it requires ongoing monitoring. Your needs, market conditions, tax laws and income sources can all shift, which is why staying flexible — and working with a financial advisor — is critical to optimizing the approach.

Tax Advantaged Retirement Takes Planning

A tax-smart retirement is built purposefully by applying strategies like these early and adjusting them as your circumstances change. While no one can predict exactly what retirement will bring, planning around taxes — especially during your drawdown years — can give you more control over your income, your healthcare costs, and your ability to preserve and transfer wealth.

Important disclosure information

Asset allocation and diversifications do not ensure against loss. This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.