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By Richard EisenbergFrom Kiplinger’s Personal Finance
A growing number of Americans are worried that higher taxes in the future will erode their retirement income. Yet few people who express this concern are adjusting their financial plans to help meet the challenge.
That’s the conclusion of two recent surveys by financial services companies.
According to an Allianz Life study earlier this year, 70 percent of Americans are now concerned about the impact of taxes on their income once they stop working, up from 66 percent in 2025. Gen Xers, on the cusp of retirement at ages ranging from 46 to 61, are the most fearful, with nearly 80 percent of them sharing this concern. Yet as a Nationwide Retirement Institute survey found, only 31 percent of investors who expect taxes to rise are taking steps to manage their finances accordingly.
“Taxes continue to be in flux, and finding the right strategy to help maximize your retirement income is definitely key,” says Kush Kotecha, president of Nationwide Annuity.
Although federal tax rates are currently at historically low levels, the massive budget debt and coming solvency problems for Social Security and Medicare have heightened fears that taxes will rise. “We cannot continue like this,” says Kelly LaVigne, vice president of consumer insights for Allianz Life Insurance.
To minimize the bigger bite of income that higher taxes in retirement could take, experts suggest these steps:
Invest Tax-Efficiently
Outside of tax-advantaged retirement accounts such as 401(k)s and IRAs, interest on U.S. government and corporate bonds and short-term capital gains (profits on the sale of assets held for a year or less) are taxed as ordinary income, with rates as steep as 37 percent. But the top rate for long-term capital gains is only 20 percent, and the rate is zero percent this year for taxable income below $49,450 for singles and $98,900 for married couples filing jointly.
Actively managed mutual funds tend to trade stocks often, causing their investors to owe short-term and long-term capital gains taxes, but index funds and exchange-traded funds make far fewer transactions, reducing their tax liabilities. You can also seek out actively managed funds whose mission is to be tax-efficient, or you can put some money in municipal bonds and muni funds, which are generally exempt from federal taxes—and sometimes from state income taxes too.
Consider a Roth Conversion
You’ll pay income taxes now on the amount you convert or invest, but you won’t owe taxes on withdrawals in retirement, when your liability could be higher if rates rise. “Paying taxes ahead of time isn’t necessarily a bad thing,” says LaVigne.
Take RMDs on Time
You must begin making required minimum distributions from traditional 401(k) plans and IRAs beginning at age 73 (age 75 starting in 2033), and your required minimum distribution (RMD) can push you into a higher tax bracket and lead to higher taxes on Social Security benefits. That may hurt, but so will the penalty for failing to follow the rules: You’ll owe up to 25 percent of the amount you should have withdrawn.
A Vanguard study of clients 73 and older with traditional IRAs found that about 7 percent failed to take their RMDs in 2024, and 24 percent took out less than the required amount. More than half who miss RMDs in one year miss them the next year as well.
Be Generous
After age 70 1/2, you can make a qualified charitable distribution (QCD) from money in a traditional IRA—up to $111,000 in 2026. The amount distributed won’t be included in your adjusted gross income, so it won’t be subject to taxes. QCDs after age 73 can satisfy some or all of your RMD, too.
Stash Cash in an HSA
If you’re not yet on Medicare and have a high-deductible health insurance plan, consider contributing to a health savings account. You’ll be able to lower your taxable income, the funds will grow tax-deferred, and withdrawals for medical expenses are tax-free. Says LaVigne, “An HSA is one of the best deals on the planet.”
The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
