With the annual tax deadline approaching, many Americans are focused on their filings. For retirees, this is a key time to find ways to lower their 2025 tax bill and even get a head start on planning for the next tax season.
If you had any earned income in 2025—perhaps from consulting, part-time work, or a side gig—consider making a contribution to an Individual Retirement Account (IRA) if you qualify. This move can significantly reduce your taxable income. Another often-overlooked opportunity is the Health Savings Account (HSA). If you’re still on a high-deductible health plan and haven’t enrolled in Medicare, contributing to an HSA offers a triple tax advantage: the money goes in tax-free, grows tax-free, and can be withdrawn tax-free for qualified medical expenses at any time.
One of the most important decisions is whether to take the standard deduction or to itemize. The standard deduction is a significant amount, but if you have substantial medical expenses, charitable contributions, mortgage interest, or state and local taxes (SALT), itemizing might be the better financial choice. It’s also wise to investigate local tax breaks specific to retirees, such as property tax reductions for those over a certain age, which can vary by location.
Looking ahead to next year, it’s crucial to plan for Required Minimum Distributions (RMDs). If you turned 73 in 2025, your first RMD is due by April 1st of this year. However, if you will turn 73 in 2026, you might want to consider taking your first distribution this year to avoid having to take two RMDs next year, which could push you into a higher tax bracket.
Finally, this is an ideal time to assess your expected income for 2026. If you anticipate being in a relatively low tax bracket, it could be a strategic opportunity to perform a Roth conversion. This involves moving money from a tax-deferred retirement account into a Roth IRA. While the converted amount is taxable income in the year of the conversion, the funds then grow tax-free and can be withdrawn tax-free in the future. Consulting with a tax professional or financial advisor is highly recommended to determine if this strategy is right for your situation.