tax planning – Peterson Wealth

Short-Term vs. Long-Term Capital Gains

Posted on September 14, 2026September 17, 2026 by Carson Johnson, CFP®, CRPC™, NSSA™

Capital gains can be one of the most overlooked investment tax traps in retirement. This is something that I have seen, we have seen, many times throughout working with retirees and really just understanding what are capital gains, how they are taxed, and how can they work in retirement.

What is a Capital Gain?

So first, let’s talk about what is a capital gain. Capital gain simply put is when you buy an investment and it grows over time and then you sell it. So that profit that you make on an investment is the capital gains income. Now, there are only certain assets that are considered capital gains. So things like an investment property, selling of a stock or a mutual fund within a non-retirement account, or even the sale of a business can count as a capital gain.

So understanding what type of investment you have, if it does qualify for capital gains, is an important part. But let’s say you buy an investment like a stock, like Apple, for example, for $100 and it grows over time and it is now $300. The difference between those two, the $200, it would be considered the capital gain if you were to sell that investment. Then that $200 is reported on your taxes and then it’s taxed from there.

But, another part of capital gains that is important to note is that capital gains are broken down into two categories. They can be either short-term capital gains or long-term capital gains. And what really determines that is simply how long you’ve held the investment.

So, for example, let’s say you buy an investment and sell it within a year. That will be considered a short-term capital gain. If you have held it and sold it for longer than 12 months, longer than a year, then that would be considered long-term capital gains. So, understanding not only what type of investment you have and how long you’ve held it, actually creates a lot of planning opportunities when it comes to taxes.

How are Capital Gains Taxes?

Which leads me to kind of the last part of this, which is how are capital gains taxed? So as you can see, short-term capital gains are taxed as ordinary income, which just simply means it’s taxed like your other income that you get from either a job or pensions sometimes. It’s just taxes, ordinary income. So depending on how much income you have, you can see it will determine at what tax rate that is taxed at, which is typically higher than what long-term capital gains tax rates are.

So how are long-term capital gains taxed? Compared to the ordinary income tax rates, they are pretty simple. They’re either taxed 0%, 15%, or 20%. But they are dependent on your other combined income, things like your Social Security, your pensions, or even W-2 wages as well. That’s what determines which rate they’re taxed at.

So, for example, let’s say you’re a single filer. If you have income less than $40,400 combined between your Social Security, your wages, and all of that, then your long-term capital gains are taxed at 0%. Which you can see can present a huge opportunity to sell investments with zero tax impact. If that single individuals combined income is between $40,400 and $445,850, long-term capital gains are taxed at 15%. And if their combined income is greater than $445,850, then long-term capital gains are taxed at 20%. The same principle applies if you are married filing a joint return, but the numbers may be a little bit different. So if your combined income is less than $80,800, long-term capital gains are taxed 0%. Between $80,800 and $501,600, that’s taxed at 15%. And combined income above $501,601 is taxed at 20%.

Conclusion

So as you can see, understanding how capital gains work, what they are, and how they are taxed is so important. It’s essential in maximizing a retiree’s investment portfolio and creating a better retirement outcome for them over the course of their retirement.

Roth Conversions: Converting too much or too little?

Posted on September 1, 2026September 17, 2026 by Carson Johnson, CFP®, CRPC™, NSSA™

One of the most common questions that we get is, should I do a Roth conversion? And if so, how much?

What is a Roth conversion?

Now, for those that don’t know what a Roth conversion is, all it is is simply taking money from your IRA or 401K retirement accounts and converting them to an after-tax Roth 401K or a Roth IRA. Now, there are significant tax benefits for having these accounts, but there are many factors that should be considered before you make that decision to doing a Roth conversion.

Factors that may include where am I in the tax bracket today? What is my tax bracket projected to be in retirement? How do Required Minimum Distributions fit into all this? And what happens if my spouse passes away early during my retirement?

Today, I’d like to talk about a few of those costly mistakes that many people make when considering a Roth conversion in their retirement.

Many people get carried away with Roth conversions

First, many people get carried away with Roth conversions. There’s a lot of content and information about Roth conversions in the news, media, and nearly every financial institution has an article or content about it. But, often retirees get carried away and think I needed to be doing as much as I can into a Roth IRA or a Roth 401K, but they may not be seeing the tax impact of that during their retirement.

You take a look at the tax brackets, you’ll notice that it starts off with the 10% bracket, 12% bracket, but then it jumps, significantly jumps, to the 22% bracket. There’s more significant jumps throughout the tax brackets as well. But, what we see is when people come into our office, they say they have been doing Roth conversions and they end up making these big jumps in their taxes. But in reality, their tax bracket may not be as high in retirement as what they thought it was going to be.

People fail to plan for their Required Minimum Distribution

The second mistake is people fail to plan for their Required Minimum Distributions. All Required Minimum Distributions are is that you are forced to withdraw a certain amount out of your IRA or 401K account as soon as you reach age 73. Now, if you’re a retiree that is relying on your investment income then this may not be as big of a deal for you because you are relying on that income throughout your retirement.

But for most retirees, that income is not their only source of income. They may have pensions, Social Security, rental income, and more. And so what we see is retirees will get into retirement, start their Required Minimum Distributions, and then they’re not using all of their investment income, which is just ultimately going to be withdrawn from their retirement accounts and taxed.

Every retiree should have a plan on how their Required Minimum Distributions are going to impact them during and throughout their retirement.

The next mistake is how Roth conversions can potentially impact your Medicare premiums. Many may not realize that Medicare premiums is based on your combined income. And so the more income you have, the higher your potential Medicare premiums will be. The base Medicare premium cost for Part B is $164.90.

For those that are married and file a joint return, that will stay the same if their income stays below $194,000. If you’re a single filer and your income stays below $97,000, it will also stay that same amount. But as soon as your income is a dollar over that threshold, it will jump to $230.80. Believe it or not, there are actually four other thresholds or for other increases to your Medicare premiums above that. So if you have substantial income coming in, your Medicare premiums could be as high as $560.50 per person per month.

So as you can see, Roth conversions can make a significant impact. You may be wanting to do Roth conversions to save taxes, but you may be adding additional expenses to your Medicare premiums along the way.

What non-financial aspects of Roth conversions should be considered?

Lastly, there are some non-financial aspects of Roth conversions that should also be considered. Things like moving from one state to another. If you live in a state that doesn’t currently have state income tax and moving to a state that does, that can be a big factor.

Or if you have a spouse that has a terminal illness and isn’t expected to live throughout a long retirement, knowing how Roth conversions can impact them. Or even potentially your heirs, how these Roth conversions could help your heirs for generation after generation.

With the new changes to secure Act 2.0, some of your heirs may be required to withdraw all of the money from IRA or retirement accounts within ten years. So having a plan to consider these other non-financial aspects is so important.

Now, there is an important disclaimer I have to share about Roth conversions and tax planning altogether is there are some things that are just simply out of our control. Whether that be market movements, or changes in legislation, tax laws, is always constantly evolving.

Conclusion

What I like to share with my clients is financial planning also evolves with the time and changes. We plan for the best and if there are any changes, we make adjustments along the way. Now, Roth conversions may seem straightforward, but it’s important that retirees carefully consider the factors that we’ve talked about today. Roth conversions may seem straightforward, but it’s important that retirees carefully think through these considerations that we’ve talked about today.

The best way to protect yourself from these costly mistakes is to simply have a plan. A plan that is dollar specific, goal specific, and that addresses other non-financial aspects of Roth conversions. As you do so, you’ll start to address these items and you’ll see that it’s going to help you maximize your retirement.

The Impact of Ignoring Required Minimum Distributions

Posted on August 27, 2026September 17, 2026 by Carson Johnson, CFP®, CRPC™, NSSA™

Many of you throughout your working career have contributed to a tax deferred retirement account, whether that be a 401k, 403b, 457, or even an IRA account. Once you hit a certain age, you’ll be required to take what’s called Required Minimum Distributions that forces you to take money out each and every year and that you have to pay taxes on that distribution.Now, with that responsibility of withdrawing money from your retirement account comes a lot of mistakes that we often see.

So today I want to talk about some of those mistakes that are often overlooked and how you can avoid them. But first, let’s talk about some of the important changes that were made to Required Minimum Distributions back in December of 2022 in The SECURE Act 2.0.

Really, the biggest change was the age at which you begin taking these Required Minimum Distributions. For those that are already taking Required Minimum Distributions or were born before 1950, you will continue to take those Required Minimum Distributions as normal. For those that were born in 1951 to 1959, you will begin taking your Required Minimum Distribution at age 73. And those that were born in 1960 or later, you will begin at age 75.

Common Required Minimum Distribution Mistakes

Now, one of the biggest mistakes with Required Minimum Distributions is simply failing to take your Required Minimum Distribution. Now that may seem simple, but this can result in one of the largest tax penalties in the IRS code, which is 50% of the Required Minimum Distribution amount. Plus all of that distribution is still fully taxable to you on the federal and state level, depending on the state where you live.

Now, the second mistake is understanding how Required Minimum Distributions can impact the amount of tax to pay throughout retirement. So, here’s an example.

Let’s say you’re a young retiree that’s age 60 with $1,000,000 retirement account. Assuming a 4% growth rate, that Required Minimum Distribution will be approximately $60,769. Now, if you’re a retiree that is relying on that income and using all that income for their income plan, then this may not be as relevant. But, let’s say you aren’t needing that income. That could be an additional $60,769 of additional income that you have to pay tax on.

So, without a plan, this can make big impacts on your overall retirement. Now, the IRS calculates the Required Minimum Distribution based on two things, your age and your account balance. So, as you can see on the chart, as you continue to get older and your account continues to get bigger, your Required Minimum Distribution also continues to grow.

Now, let’s say this retiree has other taxable income, things like Social Security and pension, that equals to about $130,000. And that additional Required Minimum Distribution of a taxable income of $60,769, that jumps this retiree from the 22% bracket to the 24% bracket. And since the Required Minimum Distribution continues to get bigger, that means that this retiree will likely be in that higher tax bracket throughout the rest of their retirement.

Now, it may not seem like a big difference from the 22% to 24% bracket, but if you look at all the rest of the tax brackets, there are some significant jumps in the tax brackets. For example, from the 12% to the 22%, is a 10% jump. So, it’s so important to be aware of how your Required Minimum Distribution will impact your tax bracket.

The last mistake is how Required Minimum Distributions will also impact your Medicare premiums. This is an important planning item and oftentimes overlooked by retirees. An increase to Medicare premiums is called IRMAA, which stands for Income Related Monthly Adjustment Amount. Just as the name says, Medicare will adjust your Medicare premiums for Part B and D depending on your amount of total income that you report on your tax return.

How this works is Medicare looks at your income from two years prior, and if your income falls within certain thresholds, that will determine the amount of your monthly Medicare premium. It kind of works like tax brackets, depending on how much income you make, it may be in the 10%, 12%, 22%, 24% bracket, etc..

Now, I’ve listed a couple of common tax filing statuses to show you the different thresholds and brackets for Medicare. For example, let’s say you’re a married couple filing a joint return. If your total income, or in other words, your Modified Adjusted Gross Income falls between $194,000 and $246,000, your Medicare premiums will increase from $164.70 to $230.80 per person, plus your Medicare Part D premiums will also go up by about $12.20.

Now, these brackets do adjust for inflation and may change over time, but this will give you a general idea of where your Medicare premiums will be based on your income. Now, every retiree should be able to have an answer on how they’re going to address Required Minimum Distributions.

Like I mentioned before, some may be relying on all their Required Minimum Distribution for their income, so this may not be as relevant. However, time and time again I have seen so many retirees who have failed to plan for their Required Minimum Distribution and how it will impact them.

Conclusion

There are a lot of different ways you can manage the impact of your Required Minimum Distribution, whether that be through Roth conversions, Qualified Charitable Distributions using a Donor Advised Fund, but simply having a plan allows you to take your Required Minimum Distribution in the most tax efficient way possible.

How to Reduce Taxes in Retirement with a Smarter Income Plan

Posted on April 14, 2026July 1, 2026 by Carson Johnson, CFP®, CRPC™, NSSA™

When most people think about retirement, they focus on one question:

“Do I have enough?”

But there’s another question that can be just as important—if not more so:

“How much of what I have will I actually keep after taxes?”

Because the reality is, for many retirees, taxes become one of the largest expenses they’ll face throughout retirement.

And without a clear plan, those taxes can quietly erode the income you worked so hard to build.

Why Taxes Matter More in Retirement Than You Think

One of the biggest surprises for retirees is this:

You don’t stop dealing with taxes when you stop working.

In fact, in many ways, you become more responsible for how and when you pay them.

During your working years, taxes are relatively straightforward. Income comes in, taxes are withheld, and the system runs in the background.

But in retirement?

You’re in control.

You decide:

How much income to take
Where to take it from
And when to recognize that income

And each of those decisions carries different tax consequences.

Without a plan, it’s easy to make withdrawals that unintentionally push you into higher tax brackets, increase Medicare premiums, or reduce the efficiency of your income.

The Foundation: Know Your Future Income

Before you can make smart tax decisions, you need clarity on one thing:

What will your income actually look like in retirement?

This is where many retirees fall short.

They attempt to make tax decisions in isolation—without first projecting their income over time.

But without that projection, it’s nearly impossible to answer key questions like:

Which accounts should I withdraw from first?
How much can I take without increasing my tax burden?
How do I coordinate withdrawals with Social Security and other income sources?

A well-structured retirement income plan answers these questions upfront—so your tax strategy becomes intentional, not reactive.

Not All Income Is Taxed the Same

Here’s where things start to get more nuanced—and more powerful.

Different sources of retirement income are taxed in different ways.

For example:

Social Security may be partially taxable depending on your income
Pension income is typically fully taxable
Investment withdrawals can vary widely based on the type of account you have

This creates both a challenge and an opportunity.

Because if you understand how each income source is taxed, you can begin to coordinate withdrawals in a way that minimizes your overall tax burden.

The Three Tax Buckets Every Retiree Should Understand

One of the simplest and most effective ways to think about taxes in retirement is through what I call the three tax buckets.

Each bucket represents a different type of account—and each is taxed differently.

Understanding how to use these buckets strategically is key to creating a tax-efficient retirement income plan.

1. Tax-Deferred Accounts

This includes accounts like:

Traditional IRAs
401(k)s, 403(b)s, and other types of retirement accounts

These are often called pre-tax accounts because the money went in without being taxed.

But there’s a catch:

Every dollar you withdraw in retirement is taxed as ordinary income at your tax rate.

And later in retirement, Required Minimum Distributions (RMDs) force you to take money out—whether you need it or not.

Without planning, this can create:

Large, unexpected tax bills
Higher Medicare premiums
And reduced flexibility

2. Tax-Free (Roth) Accounts

This includes:

Roth IRAs
Roth 401(k)s

With these accounts, you’ve already paid taxes on the money going in.

The benefit?

Qualified withdrawals are completely tax-free.

That makes Roth accounts incredibly valuable in retirement, because they give you:

Flexibility in managing your taxable income
A way to avoid pushing yourself into higher tax brackets
And a powerful tool for long-term tax planning

3. Taxable Brokerage Accounts

These are your standard investment accounts.

They’re called “taxable” because:

Interest and dividends are taxed along the way whereas retirement accounts are not taxed on the investment earnings
Capital gains are taxed when investments are sold

While that might sound less appealing, these accounts play an important role—especially in early retirement.

They can provide income before Social Security begins, helping you:

Control your taxable income
Potentially reduce healthcare costs
And delay withdrawals from tax-deferred accounts, allowing you to take advantage of other tax strategies such as Roth conversions

Turning Tax Complexity Into a Strategic Advantage

At first glance, having multiple account types with different tax rules might seem complicated.

But with the right plan, it becomes an advantage.

Because instead of being at the mercy of the tax code…

You can orchestrate your withdrawals across these buckets to:

Stay within favorable tax brackets
Reduce lifetime tax liability
And create a more efficient, sustainable income stream

This is exactly the kind of coordination that a structured retirement income plan is designed to provide.

How the Perennial Income Model™ Supports Tax Efficiency

At Peterson Wealth Advisors, we incorporate tax planning directly into the retirement income strategy through the Perennial Income Model.

This approach doesn’t treat taxes as an afterthought.

Instead, it:

Projects your income over time
Aligns withdrawals with your tax situation
Coordinates income sources to minimize unnecessary taxes
And adapts as tax laws and your situation evolve

The goal is simple:

Create an income stream that not only lasts—but does so as efficiently as possible.

Because it’s not just about how much you earn in retirement…

It’s about how much you keep.

I’m working with a client right now where this type of planning has made a big difference. On the surface, they had plenty of savings for retirement to cover their needs. But the real question was how to turn those savings into income without unnecessarily increasing their tax bill. After projecting their retirement income through the Perennial Income Model and carefully evaluating which accounts to draw from, we found that the best approach was to take roughly 60% of their income from IRA and other tax-deferred accounts and 40% from Roth IRA accounts. That mix allowed them to stay in the 12% tax bracket rather than moving into the 22% bracket, while also preserving valuable tax deductions made available under the recent One Big Beautiful Bill that could have been reduced or lost at higher income levels. In their case, that planning is expected to save nearly $8,000 per year in taxes in addition to the other tax and charitable giving strategies we will continue to implement throughout their retirement. It is a good example of how retirement tax planning is not just about reducing taxes in a single year, but about creating a smarter income strategy over time.

The Bigger Picture: Income, Taxes, and Legacy

When you manage taxes effectively in retirement, the benefits extend beyond your monthly income.

You also gain more control over:

How your assets are preserved
How they’re passed on to future generations
And how you support the people and causes you care about

Tax-efficient planning can help reduce the burden on your heirs and increase the impact of your legacy—turning smart decisions today into meaningful outcomes or future generations to come.

Ready to Take Control of Your Retirement Taxes?

If you’ve spent years building your retirement savings, it’s worth taking the next step to protect them from unnecessary taxes.

A thoughtful, coordinated plan can make a significant difference in:

Your lifetime tax liability
Your retirement income
And your overall peace of mind

If you’d like help building a tax-efficient retirement income strategy, we’re here to help.

Schedule a free consultation today and see how the Perennial Income Model can help you keep more of what you’ve earned—and use it to live the retirement you’ve been planning for.

Smart Year-End Tax Moves

Posted on January 29, 2026 by Alek Johnson, CFP®

The final stretch of the year gives you a short window to make choices that still count on this year’s paperwork. Many of the best decisions are timing decisions, and they can shape what lands on your return when the calendar closes on December 31st.

A smart approach starts with clearly understanding your options. From there, you are looking for a few clean actions that fit your accounts, your cash flow, and your records; filing season feels straightforward, and your return reflects choices you made on purpose, not ones you made under pressure.

The Three Account Buckets That Drive Most Decisions

Year-end decisions get easier when you sort your accounts into three buckets, each with its own rules and tradeoffs:

Tax-deferred accounts

This bucket includes accounts like 401(k)s, 403(b)s, and traditional IRAs. Contributions generally reduce your taxable income in the year you make them, and the money can grow without annual taxation on interest, dividends, or growth while it stays inside the account.

The tradeoff happens at distribution time: money coming out is typically 100% subject to income taxes. Any money coming out before age 59½ can also trigger a 10% early-withdrawal penalty.

Required minimum distributions (RMDs) also apply to this bucket starting at age 73 or 75, depending on your birth year, and there is an exception for someone still working past those ages if they have a 401(k) they are actively contributing to.

Tax-free accounts

Accounts like Roth 401(k)s and Roth IRAs are funded with after-tax dollars, so contributions do not reduce taxable income today. The benefit shows up later: qualified withdrawals can be tax-free, including growth. The same age 59½ guideline can still apply to avoid the 10% penalty on growth, yet these accounts are not subject to RMDs, which means the money can remain invested for life if that fits your plan.

Taxable accounts

Taxable brokerage accounts work more like a bank account, a high-yield savings account, or a CD from a tax standpoint. They are funded with after-tax dollars, and the main benefit is flexibility: you can take money out at any point, for any reason, without the age 59½ restriction. The tradeoff is that interest, dividends, and capital gains are taxable in the year they are earned.

How Your Tax Return Gets Built

A clear way to think about your year-end choices is to follow the same path the IRS uses on paper:

Add up all sources of income: Start by totaling wages, salaries, rental income, dividends, and interest to reach gross income.
Subtract “above-the-line” adjustments to reach AGI: Certain items reduce income before you ever decide whether to itemize. Examples may include, but are not limited to, IRA contributions, 401(k) contributions, HSA contributions, and student loan interest. This step gets you to Adjusted Gross Income (AGI), a number that drives many thresholds inside the tax return.
Choose your deduction path: Compare itemized totals to the standard deduction, then subtract whichever is higher to arrive at taxable income. This is where many year-end actions either help or don’t help, depending on which route you end up taking.
Apply brackets and rates, then credits: Federal brackets range from 10% to 37%, and your final result also depends on your state’s income tax rules. The bracket calculation applies to taxable income, and then credits such as child and education credits reduce the bill dollar-for-dollar. The result is what you owe or what you get back.

Why Itemizing Has Been Harder, and the Updates That Can Change the Math

Itemizing has been harder for many households simply due to how often the standard deduction wins the comparison. That reality changes the way many people experience generosity on their return: you can still give faithfully, yet the giving may not change the tax calculation in years when the standard deduction is larger than the itemized total. This is why timing strategies show up so often at year-end: the goal is to line up deductions in a way that makes itemizing possible in the years it makes sense.

Recent legislative changes have also changed how taxpayers need to weigh their options. One change is a new age-based deduction: individuals over 65 can receive an additional $6,000 deduction (or $12,000 for married couples). The deduction has income-based phaseouts ($75k–$175k for single filers; $150k–$250k for married couples), and it is received in addition to either the standard deduction or itemized deductions.

Another update is the state and local taxes (SALT) cap. The cap increased from $10,000 to $40,000, which can make state tax deduction totals more meaningful for households with larger property taxes and other state and local taxes. That higher cap can increase the odds of itemizing pencils out.

The following will happen starting in 2026:

For those who do not itemize, an extra $1,000 charitable donation deduction per person, or $2,000 for a couple, as an add-on when taking the standard deduction
Charitable donation deductions will only be available for the portion above 0.5% of AGI. For example, a $100,000 AGI would mean donations must exceed $500 before any deductible amount begins.

Bunching: One Timing Change That Can Create More Deduction Power

A common year-end idea is simple: move the timing of your donations so that your itemized total clears the hurdle in one year, then take the higher standard deduction the next. This approach does not require you to give more, and it does not require you to change what you support. It focuses on when you write the checks:

Bunching Example 1

A household has about $14,000 each year from other itemized items, and then they give $12,000 each year. That puts them at $26,000 of total itemized deductions in 2024 and $26,000 again in 2025. In the example, both years end up below the standard deduction, so they take the standard deduction twice. Over the two years, their combined deductions total $60,700.

Bunching Example 2

The household keeps the same total generosity across two years, but they change the timing. They give double their normal amount in 2024 (i.e., $12,000 x 2 = $24,000) and $0 in 2025. In 2024, they still have the $14,000 of other deductions, so $14,000 + $24,000 = $38,000, which is high enough to itemize that year. In 2025, they take the standard deduction. The two-year result in this case is $69,500 of total deductions (one year itemizing and one year taking the standard deduction), which is $8,800 more than Example 1, without increasing charitable giving.

Donor-Advised Funds (DAFs): Take the Deduction Now, Give on Your Timeline

A donor-advised fund (DAF) is a charitable account where you contribute, take the deduction in that year if you are itemizing, and then decide later which organizations receive grants. This is a timing tool for charitable contributions when you want more control over when the deduction lands versus when the charities receive the money.

A DAF really helps in a specific situation: you want to bunch deductions into one year, yet you do not want to change the steady monthly or annual support your organizations rely on. A DAF lets you “front-load” the contribution for deduction purposes, then send grants out over time.

Funding a DAF can be done with cash, and it can also be done with appreciated stock. In the example discussion, the account can remain invested while you decide when to distribute grants, which can support year-end planning without forcing you to rush the “where should it go?” decision before the calendar closes.

Donating Appreciated Shares: A Cleaner Way to Give From Taxable Accounts

If you hold shares in a taxable account that have gone up in value, donating those shares can be more tax-efficient than selling the shares and donating cash. The key difference is what happens to the gain.

When you sell, the gain becomes taxable. When you donate the shares directly, you can often avoid triggering that gain in the first place. This strategy can be a meaningful lever in strong market years, especially when you already plan to give, and you want to keep more dollars working for you instead of turning a donation into an avoidable tax event.

This approach also pairs cleanly with a DAF. You can contribute shares to the DAF, take the deduction in the year you contribute (when itemizing applies), then send grants out later. For many households, this is simply a better use of investments you already own, rather than selling first and creating a taxable gain you did not need to realize.

Qualified Charitable Distributions (QCDs): The IRA-to-Charity Move That Can Lower Taxable Income

A qualified charitable distribution (QCD) is a direct transfer from an IRA to a qualified charity. The amount sent to the charity is excluded from income, which can reduce what shows up as taxable for the year.

A QCD can help in a few ways at once. It can lower taxable income, it may reduce how much of your Social Security becomes taxable, and it can create a tax benefit even in years when you are not itemizing. QCDs also count toward required minimum distributions, so dollars that would have been forced out of your IRA can be directed to charity instead.

The rules have to be followed closely for the transaction to be treated correctly:

You must be older than 70½ at the time of the transfer
The distribution must come from an IRA (not a 401(k) or 403(b))
The money must go directly from the IRA to the charity
The 2025 limit is $108,000 (indexed for inflation)
The reporting must be handled correctly so it is not treated as taxable income

For many retirees, this is one of the most practical year-end tools available, and it can create real tax savings when it fits your giving habits and your account structure.

Roth Conversions: A Powerful Lever, With a Real Cost

A Roth conversion is not a “must-do.” It’s a decision that can be great in the right tax situation and completely wrong in another. It involves taking pre-tax money (often from traditional IRAs) and moving some or all of it into a Roth account so the dollars can grow tax-free going forward.

That move matters most when your goal is long-term flexibility in retirement. The tradeoff is that a conversion increases the amount of income you’re recognizing in the conversion year, which can change where you land in a tax bracket and what you pay in total for that year. The same conversion can look cheap in one year and expensive in another.

Roth Conversion Example

Picture a year where your income drops, maybe you retire mid-year, take unpaid time off, or step away for family, yet your spending plan stays the same. You need $12,000 per month in your normal working years, and $7,000 per month during that lower-income year. When your income is higher, and you’re in the 22% bracket, converting $44,000 creates a $9,680 federal tax cost. When your income is lower, and you’re in the 12% bracket, converting the same $44,000 creates a $5,280 cost. Timing is the lever here: doing the conversion in the lower-income year lowers the federal tax cost by $4,400.

Please Note: State taxes can matter too. Converting in a state with no income tax and then moving to a higher-tax state could reduce the state-side bite on the conversion. Sometimes the state side becomes the difference-maker in multi-year planning.

When You Need to Think Twice

Conversions deserve a “whole-picture” check before you commit, especially if any of these are true:

You expect a better tax window later: Converting in a high-income year can be less appealing if you anticipate lower income and lower rates in a future year.
You’d be forced to use retirement dollars to pay the tax: Paying the tax from the conversion itself reduces how much ends up in Roth, which can weaken the long-term benefit.
You plan to use the funds soon: The move often fits best when the converted dollars can remain invested for many years.
You’re close to, or already in, RMD years: The required distribution generally needs to happen first, and that can narrow your conversion flexibility for the year.
Other costs move with reported income: Increasing reported income can affect items tied to the tax return, including credit phaseouts, Social Security taxation, Medicare premiums, and marketplace subsidy calculations.

Tax-Loss Harvesting: Using Down Markets Intentionally

Market declines can feel discouraging, but they can also create planning opportunities. Tax-loss harvesting uses losses inside taxable accounts to reduce the tax impact of gains and create flexibility for future years.

The benefit comes from how losses are treated on your return. Realized losses can offset realized gains dollar for dollar. If losses exceed gains, up to $3,000 can be used against other income, and remaining losses can be carried forward into future years. This creates flexibility across multiple tax years, especially when markets move unevenly or when you plan to sell appreciated holdings later.

Please Note: The wash sale rule is the guardrail. Selling at a loss and repurchasing the same or a substantially identical investment within 30 days before or after the sale disqualifies the loss. Staying invested requires careful replacement choices during that window.

Year-End Tax Moves FAQs

1. If I do bunch, should I consider using a donor-advised fund?

A donor-advised fund can support bunching while preserving consistency in giving. You take the deduction in the funding year and decide on grants later.

2. When does a Roth conversion usually not make sense?

Several situations warrant caution: when you’re in a high bracket now and expect a lower bracket later, when you don’t have outside funds to pay the tax, when you’ll need the money soon, or when the added income creates collateral issues (credit phaseouts, Medicare premiums, Social Security taxation, marketplace subsidy impacts, and more).

3. What is the wash sale rule, and why do people trip over it?

The wash sale rule prevents you from claiming a loss if you buy the same or substantially identical security within 30 days before or after the loss sale. That creates a practical 61-day window to watch (i.e., 30 days preceding the sale, 30 days following the sale, and the sale day itself).

4. If my losses are bigger than my gains, do I get any extra benefit?

Yes. After offsetting gains, you can deduct up to $3,000 per year against ordinary income, and remember, you can carry forward additional losses to future years.

5. What does a donor-advised fund actually do?

A donor-advised fund is an account designed to hold your charitable dollars until you decide where and when to grant them. You contribute (cash or even appreciated shares), receive the deduction in the contribution year, and then decide on the giving schedule afterward.

6. If I am subject to required minimum distributions (RMDs), can I use a qualified charitable distribution (QCD)?

Yes, when you meet the age rule, and you’re giving to qualified charities. A QCD is an IRA-to-charity transfer that can count toward your RMD and keep the transferred amount from being included in taxable income. The transfer has to go directly from the IRA to the charity, and it must come from an IRA rather than a workplace plan.

How We Help People Make Smart Year-End Tax Moves

Year-end planning works best when decisions are connected instead of isolated. Bunching, charitable strategies, Roth decisions, and investment-related moves all affect one another, and the order you apply them can matter just as much as the moves themselves.

Our financial advisory team helps you look at the full picture: your accounts, your income timing, your giving goals, and how each decision shows up on your return today and in future years. The focus stays practical, grounded, and tailored to your situation rather than built around generic rules.

If you want help evaluating which year-end moves actually fit your numbers, you can schedule a complimentary consultation call. That conversation is simply about clarity, like what matters now, what can wait, and how to approach the final weeks of the year with confidence.

Best Tax-Friendly States for Retirees

Posted on July 12, 2018August 21, 2025 by Mark Whitaker, MS, CFP®, CRPC

If you’re approaching retirement age, you may be considering a move to a more retirement-friendly state, particularly if your current state of residence imposes numerous taxes on social security, pensions, and other retirement income. While making the decision to relocate is not something that can be done lightly, there are a variety of options available nationwide that may allow you to retain more of your retirement income.

Of course, taxes alone are not the only reason to relocate; climate, proximity to health care, cost of housing, ability to create an emergency fund, and property taxes all need to be taken into consideration.

What are the Most Tax-Friendly States for Retirees?

What are the most tax-friendly states for retirees? Below, we’ve gathered a list of states that provide a great environment for those looking to retire.

Alaska – While it may not be the first choice of retirees, Alaska offers an excellent environment for retirees with neither Social Security nor pensions taxed. Another advantage is the lack of state income tax and sales tax.

New Hampshire – Retirees residing in New Hampshire are exempt from state taxes on Social Security and pay no taxes at all on pensions or distributions from their retirement plans. As an added bonus, there is no state sales tax either. Homeowners, however, need to take into account that property taxes are higher than most other states.

Nevada – There’s a reason why so many retirees gravitate to Nevada, and it isn’t for the slot machines. Nevada has no state income tax, so Social Security and other retirement income are tax-free. There is a sales tax in Nevada, though food and prescription drugs are currently exempt. Property taxes are reasonable, however, there are no breaks given to those over the age of 65.

Florida – Florida remains popular with retirees for a lot of very good reasons. With no state income tax, residents are able to retain more of their Social Security and retirement income. One downside is the state’s sales tax rates that can go upwards of 7% in some areas. However, property taxes are slightly below the national average, with some counties offering homestead exemptions to homeowners over 65.

Wyoming – While Wyoming may not be on anyone’s radar when it comes to retirement, the state offers a lot of benefits to retirees, including no state income tax. Sales taxes are also relatively low in Wyoming, and property taxes are minimal.

Mississippi – Social Security and other retirement income, including retirement plan withdrawals, and public and private pensions are exempt from state income tax in Mississippi. The state sales tax rate is high at 7%, and the state also imposes sales tax on groceries though other items such as prescription drugs and utilities are exempt. Property taxes are also some of the lowest in the U.S.

Other states with no state income tax include Texas, Washington, South Dakota, and Tennessee. While a lot of factors need to be taken into consideration when looking to relocate, these states make it just a little easier on your wallet, so you can enjoy your retirement stress-free.

Resources

https://www.kiplinger.com/slideshow/retirement/T006-S001-most-friendly-states-for-retirees-taxes/index.html