5 Ways to Lower Your Tax Bill in Retirement

2. Do a Roth IRA conversion.

A similar move for those with savings in a Traditional IRA is to do a Roth IRA conversion—by shifting some of your money out of your pre-tax account into a Roth, you can reduce your future RMDs. If you don’t have a Roth 401(k), it may be your best option for creating a cushion of tax-free savings. But the same caveats noted above apply here.

3. Donate IRA savings.

Another option for those with traditional retirement accounts, assuming you don’t need the money, is a qualified charitable distribution. The IRS allows taxpayers to donate up to $100,000 annually from their Traditional IRAs, as long as the money is sent directly from the IRA trustee to charities. These donations can reduce your RMDs, but they do not qualify for a charitable deduction.

4. Save in tax-efficient accounts.

Beyond these individual moves, it’s important to pay attention the bigger picture: Are you choosing the right type of accounts for your investments? Opting for the right tax location can help trim your tax bill. Your 401(k), IRA, or other tax-advantaged accounts are best for sheltering investments that generate income or significant short-term capital gains, such as taxable bond funds, real estate investment trusts, and actively managed funds. For assets that pay fewer taxable distributions—such as municipal bonds, individual stocks, low-turnover stock funds and exchange-traded funds—you can opt for a taxable brokerage account.

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