Now that the 2025 tax filing season is underway, it’s time to get a head start on next year’s return. This is especially true for retirees.
As much as you’d like to think about your taxes beyond filing this year, it’s an opportune time to start planning ahead.
“If you’re already retired, there are a number of ways to reduce your future tax bill for 2026, but these strategies require strategic planning throughout the year,” Ann Reilley, a certified financial planner and CPA in Charlotte, NC, told Yahoo Finance.
Here are some steps from Reilley and other experts you can start right now to lower your tax bill a year from now.
“Calculate your 2026 tax bracket now,” said Alvin Carlos, a certified financial planner and financial advisor at District Capital Management in Washington, DC
Estimate your total income. This includes any income from social security, pensions, dividend income, interest and don’t forget capital gains (if you plan to sell shares). Then check which federal tax bracket you fall into.
“Tax planning is different if you’re in the 12%, 22% or 32% tax bracket,” he said.
Related: Tax brackets and rates for 2025-2026
A Roth conversion is when you transfer a portion of your savings from a traditional IRA or other pre-tax retirement account such as a 401(k) to a Roth IRA. You pay tax on this amount because it is income to you.
“You will need to have enough cash to pay the taxes in 2026,” he added. “But the upside is that your money will grow tax-free up front once it’s in a Roth.”
The idea is to convert enough funds from your 401(k) or traditional IRA to a Roth to keep you in the 12% tax bracket, according to Carlos.
You typically have to wait five years from the date of a Roth conversion to withdraw the converted funds without penalty if you’re under 59 ½. If you are already 59 ½, you can withdraw the converted funds at any time without penalty.
One caveat: Roth conversions will increase adjusted gross income, which can affect Medicare premiums and Social Security taxation.
I wouldn’t recommend doing this move alone. An accountant or financial advisor can hold your hand and guide you through the process.
Read more: What is an IRA and how does it work?
“In January, I identify clients who are likely to do a Roth conversion in the next year and prepare,” Reilley said. “Then if there’s a market downturn, … we have a plan and we’re ready to do some conversions right away while the accounts are smaller.”
Reilley’s logic: Converting to a Roth IRA while asset values are low can result in lower taxes on the conversion amount, and there’s the potential for positive growth when the markets rebound, which will be tax-free.
You must be prepared to move quickly. Ed Slott, a New York CPA and IRA expert, is wary of converting a traditional IRA to a Roth IRA when the market sinks. “It’s pretty hard to time,” he told me.
His advice: If you’re eager to do a Roth conversion this year, decide how much you want to convert and then make a plan to do it in small amounts periodically throughout 2026, perhaps monthly.
Skipping the RMD is a big mistake. Think tax penalties ranging from $1,160 to $2,900.
There are about 8.7 million RMD-age IRA holders nationwide, and an estimated 585,000 of them miss RMDs annually, according to Vanguard research.
You cannot bypass these withdrawals. They are required, with one exception: You can delay your RMD from an employer-sponsored 401(k) or 403(b) plan if you’re still employed.
Here’s how it works: Your first RMD for the year you turn 73 can be pushed up to April 1 of the following year. That means if you turn 73 this year, you must take your first RMD by April 1, 2027, and your second RMD by December 31, 2027.
While deferring the initial RMD until 2027 could reduce taxable income for 2026, it would mean taking two RMDs in 2027, which could increase taxable income for that year.
The amount you need to withdraw is calculated by dividing your tax-deferred retirement account balance on December 31 of the previous year by a life expectancy factor that corresponds to your age on the IRS Uniform Lifetime Table.
Your accountant can help you figure out how much you need to take out each year, and most financial services firms will run the numbers for you and let you know in January what the next year’s amount will be.
I advise you to automate your withdrawals throughout the year. You may also have taxes withheld in advance.
If you don’t take the required minimum, you will be hit with a penalty of 25% of the amount. But if you usually correct your mistake within two years, the penalty could be reduced to 10%.
You can always withdraw more than the required minimum amount and invest it. No one is telling you that you have to spend it.
“Once you’re in RMD territory, you have to take that RMD, and it can’t be converted to a Roth IRA,” Slott said. “So you take the RMD and then you take a little bit more, if you can, and convert that part. The idea is to reduce the taxable IRA balance as little as possible. Because if it just goes up, you’re going to have these taxes.”
If you retire sometime this year, you will likely have income for 2026.
If you’re eligible, consider contributing to a Roth IRA for more tax-free money down the road, Carlos said. If you’ve retired in recent years and still plan to work part-time in 2026, you may have earned income to qualify for a Roth.
If you don’t need all of your distribution to pay for living expenses, consider tapping a portion of it to donate to your favorite nonprofits.
“It’s a great way to spread goodwill, and you don’t pay federal taxes on that distribution,” Slott told me.
For tax year 2026, a QCD allows you to donate up to $111,000 from your traditional IRA directly to a qualified charity.
If you’re 70 ½ or older, don’t have enough deductions to itemize, and are charitable, a QCD allows you to keep the benefits of the standard deduction.
Learn more: Standard Deduction vs. detailed: which recording approach is best for you?
For tax year 2026, the standard deduction will increase to $16,100 for single filers and $32,200 for married couples filing jointly.
Another plus: A QCD lowers your taxable income, which could also lower taxes on your Social Security benefits and lower your Medicare premiums.
“It’s a smart choice for someone who’s going to give anyway and doesn’t need those RMD funds for living expenses,” Slott said.
Have a question about retirement? Personal finance? Something career related? Click here to send Kerry Hannon a note.
The deduction for state and local taxes (SALT) is a federal itemized deduction that allows you to subtract up to $40,000 ($20,000 filed separately) of state and local taxes or sales and property taxes from your taxable income. This is a significant increase from the previous $10,000 annual limit, but is phased out for incomes above $500,000.
While this deduction isn’t for retirees per se, it’s worth noting because many retirees live in higher-tax states, which include New York, Connecticut, New Jersey, and California.
Read more: The best tax deductions to claim this year
To claim it, you must itemize deductions on your federal tax return (Schedule A) rather than taking the standard deduction.
“If you’ve become complacent and always take the standard deduction, it’s time to take another look, especially if you’re in one of the higher-tax states,” Slott said. “It’s worth running the numbers.”
If you can deduct $40,000 of your adjusted gross income, you’ll exceed the standard deduction limit in most cases. You can then take advantage of a number of other tax-saving deductions, including charitable gifts, the mortgage interest deduction and medical expenses.
“Add all of that up and it’s going to have a big impact on your 2026 tax deductions and you’ll end up with a lower overall tax bill,” Slott added.
Kerry Hannon is a senior columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 books, including “Retirement Bites: A Gen X Guide to Securing Your Financial Future,” “In Control at 50+: How to Succeed in the New World of Work”, and “Never too old to get rich.” Follow her further Bluesky and X.
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