How to Pay Less in Taxes During Retirement

A Plain-English Guide for Normal People — Not Billionaires

If you’ve ever searched online for tax advice in retirement, you’ve probably noticed something:

A lot of it isn’t very useful.

Donor-advised funds. Charitable remainder trusts. Mega-backdoor Roth conversions. Pages of strategies that only make sense in very specific situations and require a team of accountants to pull off.

Most retirees don’t need any of that.

What most retirees do need is a handful of practical, real-world tax tips that actually fit their life — moves that can save real money without the complexity.

That’s what this guide is. Simple, useful tax-saving strategies for everyday retirees.

Let’s get into it.

First, Understand What’s Taxed and What Isn’t

Before you can save on taxes, it helps to know which of your retirement dollars get taxed in the first place.

Money that gets taxed in retirement:

• Pension payments
• Withdrawals from a Traditional IRA or 401(k)
• Some of your Social Security (depending on your other income)
• Part-time job income
• Rental income
• Profits from selling investments

Money that doesn’t get taxed (or barely does):

• Withdrawals from a Roth IRA or Roth 401(k)
• Money from a reverse mortgage or home equity loan
• Most life insurance death benefits
• Gifts and inheritances (in most cases)
• Some Social Security (if your other income is low)

The big idea: the more of your retirement income you can pull from the right side of that list, the less you’ll pay in taxes.

That’s the core game. Let’s look at how to play it.

1. Don’t Pull Everything from One Account

This is the single most important tax move for normal retirees.

Most people have at least two types of accounts:

• A Traditional IRA or 401(k) (taxable when you withdraw)
• Some kind of regular savings or checking (already taxed)

Some also have:

• A Roth IRA or Roth 401(k) (tax-free)
• Home equity (also tax-free if you tap it through a loan)

If you pull all your retirement income from your Traditional IRA, every dollar adds to your taxable income. That can push you into a higher tax bracket and cause more of your Social Security to get taxed too.

But if you spread your withdrawals across different accounts, you can keep your taxable income lower. Same amount of money, lower tax bill.

A simple version of this strategy: pull from your Traditional IRA up to a certain point each year (enough to use your standard deduction and the lower tax brackets), and cover the rest from your savings or tax-free sources.

It sounds basic. Most people don’t do it. The savings can be real.

2. Watch the Social Security Tax Trap

Here’s something most retirees don’t know until it’s too late.

Some of your Social Security can be taxed — but only if your other income goes above certain levels.

The rough rule:

• Single filers: If your “combined income” is over about $25,000, up to 50% of your Social Security may be taxed. Over about $34,000, up to 85% may be taxed.
• Married couples filing jointly: Those numbers are about $32,000 and $44,000.

“Combined income” means your regular income plus half of your Social Security plus any tax-free interest.

The trap: a single big withdrawal from your Traditional IRA can push you over one of those lines, suddenly making thousands of dollars of your Social Security taxable when it wasn’t before.

The fix: plan your withdrawals carefully. Sometimes pulling $30,000 from your IRA costs you a lot less in taxes than pulling $50,000. Sometimes pulling from a tax-free source instead saves your Social Security from being taxed at all.

This is a real-world strategy that adds up to thousands of dollars over a retirement.

3. Use Your HSA Like a Stealth Retirement Account

If you have a Health Savings Account (HSA), it’s quietly one of the best tax tools you have.

Here’s why:

• Money goes in tax-free (you get a deduction)
• It grows tax-free
• It comes out tax-free when used for qualified medical expenses

Three layers of tax savings. Nothing else does that.

In retirement, your HSA can pay for Medicare premiums, deductibles, prescriptions, hearing aids, dental work, and most other healthcare costs — all without taxes.

After age 65, you can also use HSA money for non-medical expenses without the 20% penalty. You’ll just pay regular income tax on those withdrawals (like a Traditional IRA).

If you have an HSA from your working years, hang onto it. Use it for healthcare in retirement and you’ve found one of the best tax deals around.

4. Know the RMD Rules (and Don’t Get Hit With the Penalty)

Once you turn 73, the IRS makes you start taking money out of your Traditional IRA, 401(k), and similar accounts. This is called a Required Minimum Distribution, or RMD.

(For people born after 1959, the RMD age moves up to 75 starting in 2033.)

Two important facts:

1. You can’t avoid RMDs. Once you hit RMD age, you have to take them every year.
2. The penalty for missing one is steep. It’s 25% of the amount you should have withdrawn, though that drops to 10% if you fix the mistake within two years.

Roth IRAs and Roth 401(k)s do not have RMDs during your lifetime. That’s one reason Roth accounts are so valuable in retirement — they don’t force you to take money out and pay taxes when you don’t want to.

The smart move: in the years before RMDs kick in, plan ahead. Some retirees pull money from their Traditional accounts in their late 60s and early 70s — at lower tax rates — so they have less to deal with later.

5. Give to Charity Straight From Your IRA

If you give to charity anyway, there’s a tax-free way to do it that most retirees don’t know about.

It’s called a Qualified Charitable Distribution (QCD). Here’s how it works:

• You must be 70½ or older
• The money goes directly from your IRA to the charity (you don’t touch it)
• The amount you give doesn’t count as taxable income
• It can satisfy part or all of your RMD that year

For 2026, you can donate up to $111,000 per person this way ($222,000 for married couples filing jointly, with each spouse using their own IRA).

This is a much better deal than taking the money out, paying taxes, and then giving it to charity. With a QCD, you just skip the tax bill entirely.

If you give regularly to a church, a food bank, a veterans’ group, or any other 501(c)(3) charity, ask your IRA custodian about setting up a QCD. It takes a phone call.

(Note: QCDs can’t go to donor-advised funds or private foundations — only to public charities directly.)

6. Pay Attention to Where You Live

State taxes are an underappreciated piece of retirement planning.

Some states tax retirement income heavily. Others don’t tax it at all. The difference can be thousands of dollars a year.

States with no state income tax:

• Alaska
• Florida
• Nevada
• New Hampshire (mostly — limited tax on interest and dividends being phased out)
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

A handful of other states have full or partial exemptions for retirement income, even though they tax wages. Pennsylvania, Illinois, Mississippi, and Iowa are examples.

Moving for taxes alone usually isn’t worth it — family, climate, and community matter more. But if you were already thinking about moving, the tax difference is worth a hard look.

7. Use Home Equity for Tax-Free Cash Flow

Here’s the angle most retirement tax articles miss.

For many normal-people retirees, your home is your biggest asset. And money pulled from home equity — through a HELOC, a home equity loan, or a reverse mortgage — is not taxable income, because it’s a loan, not earnings.

That makes home equity one of the most useful tax tools available to middle-class retirees.

A reverse mortgage line of credit is especially powerful because:

• It doesn’t require monthly payments
• It gives you tax-free cash flow on demand
• Drawing from it doesn’t push you into a higher tax bracket
• It doesn’t make more of your Social Security taxable
• It doesn’t trigger higher Medicare premiums

Real-world example: say you need $30,000 for a new roof. Pulling that from your Traditional IRA could push you into a higher tax bracket and cause more of your Social Security to get taxed. Pulling it from a reverse mortgage line of credit costs you nothing in taxes.

This isn’t a fancy strategy that only works for billionaires. It’s a practical move that can save normal retirees real money — and it’s one of the reasons more financial advisors are starting to recommend setting up a HECM line of credit before you actually need it.

For homeowners 62 and older, this is one of the most important tax angles to understand.

Putting It All Together

Tax planning in retirement isn’t about chasing complicated maneuvers. For most normal retirees, it’s about doing a few simple things consistently:

• Spread your withdrawals across different account types
• Watch the Social Security tax thresholds
• Use your HSA for healthcare costs in retirement
• Don’t miss your RMDs once you hit 73
• Give to charity through your IRA if you give anyway
• Consider state taxes if you’re already thinking about moving
• Use home equity for tax-free cash flow when it makes sense

You don’t need a wealth manager. You don’t need a charitable trust. You just need a plan that fits your life — and a willingness to pay attention to a handful of basic numbers each year.

See What You May Qualify For

If you’re a homeowner 62 or older and want to see how home equity could fit into your retirement plan, the best place to start is to run the numbers.

You can get a personalized estimate in seconds using our free calculator. No pressure. No obligation.

Get your instant reverse mortgage quote today and see what may be possible.

If you’d rather talk it through with a real person, our team is happy to walk you through your options. Call us at (888) 249-5651.

FAQ — Retirement Taxes for Regular People

At what age do I stop paying taxes in retirement?

There’s no age where you stop paying taxes. Tax depends on your sources of income, not your age. As long as you’re pulling from taxable sources, you’ll owe tax on those withdrawals.

Is money from a reverse mortgage taxable?

No. A reverse mortgage is a loan, not income — and loan proceeds aren’t taxed. This is one reason a HECM line of credit is so useful: it gives you cash without raising your tax bill or pushing more of your Social Security into the taxable column.

What’s an RMD and when do I have to start taking one?

An RMD is a Required Minimum Distribution from your Traditional IRA, 401(k), or similar account. You generally have to start taking them at age 73 (75 starting in 2033 for people born after 1959). Roth IRAs and Roth 401(k)s don’t have RMDs during your lifetime.

Will some of my Social Security be taxed?

Maybe. It depends on your other income. The thresholds are roughly $25,000 for singles and $32,000 for married couples — above those, up to 50% of your benefit can be taxed. Higher income levels can make up to 85% taxable.

What’s the simplest tax-saving move I can make this year?

For most normal retirees, it’s spreading withdrawals across different account types instead of pulling everything from one place. This single change can save thousands over a retirement.

Can I really avoid taxes by giving to charity from my IRA?

If you’re 70½ or older, yes. A Qualified Charitable Distribution sends money directly from your IRA to a charity without it being counted as taxable income. The 2026 limit is $111,000 per person.

Should I move to a no-income-tax state for retirement?

Only if you were already thinking about moving for other reasons. Family, friends, climate, and community matter more than tax savings. But if a move is on the table anyway, taxes are a real factor worth considering.

Should I talk to a tax professional?

Yes — especially if your situation is complex (large IRA balance, rental property, business income, big charitable giving). A tax professional usually pays for themselves. The tips in this article are a starting point, not personalized advice.