Now that filing season for 2025 taxes is underway, it’s time to get a leg up on next year’s return. That’s especially true for retirees.
As much as you might like to put a hold on thinking about taxes beyond this year’s filing, it’s an opportune time to start planning ahead.
“If you’re already retired, there are a number of ways to trim your future 2026 tax bill, but these strategies require strategic planning during the year,” Ann Reilley, a certified financial planner and CPA in Charlotte, N.C., told Yahoo Finance.
Here are some steps from Reilley and other experts you can start right away to trim your tax bill a year from now.
“Compute your 2026 tax bracket now,” said Alvin Carlos, a certified financial planner and financial adviser at District Capital Management in Washington, D.C.
Estimate your total income. This includes any Social Security income, pension, dividend income, interest, and don’t forget capital gains (if you’re planning to sell stock). Then check which federal tax bracket you fall under.
“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 shift some of your savings from a traditional IRA or other pretax retirement account such as a 401(k) to a Roth IRA. You pay tax on that amount since it’s income to you.
“You’ll need to have enough cash to pay the taxes in 2026,” he added. “But the advantage is your money will grow tax-free moving forward once it’s in a Roth.”
The idea is to convert just enough funds from your traditional 401(k) or IRA into a Roth to keep you in the 12% tax bracket, per Carlos.
You typically must wait five years from the date of a Roth conversion to withdraw the converted funds penalty-free if you’re under 59 ½. If you’re already 59 ½, you can withdraw converted funds anytime without a penalty.
One caveat: Roth conversions will increase your adjusted gross income, which can affect Medicare premiums and Social Security taxation.
I wouldn’t recommend doing this move solo. An accountant or financial adviser 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 probably going to do a Roth conversion in the coming year and get prepped,” Reilley said. “Then, if there’s a drop in the market, … we have a plan and are ready to do some conversions right away while the accounts are lower.”
Reilley’s logic: Converting to a Roth IRA while asset values are low can result in lower tax bills on the conversion amount, and there’s the potential for upside growth when the markets rebound that will be tax-free.
You have to be prepared to move swiftly. Ed Slott, a certified public accountant in New York and an expert on IRAs, is wary of converting a traditional IRA to a Roth IRA when the market sinks. “It’s pretty hard to time it,” he told me.
His advice: If you’re eager to make a Roth conversion this year, decide how much you want to convert and then map out a plan to do so with small amounts periodically throughout 2026, perhaps monthly.
Skipping your RMD is a big mistake. Think tax penalties that range from $1,160 to $2,900.
There are roughly 8.7 million RMD-age IRA holders nationwide, and an estimated 585,000 of them miss their RMDs annually, according to Vanguard research.
You can’t sidestep these withdrawals. They’re mandatory with one exception: You can delay your RMD from an employer-sponsored 401(k) or 403(b) plan if you’re still on the job.
Here’s how it works: Your first RMD for the year in which you reach age 73 can be pushed until April 1 of the following year. That means if you turn 73 this year, you’re required to rake your first RMD by April 1, 2027, and the second RMD by Dec. 31, 2027.
While delaying your initial RMD to 2027 could lower your taxable income for 2026, it would mean taking two RMDs in 2027, which potentially jacks up your taxable income for that year.
The amount you’re required to withdraw is calculated by dividing your tax-deferred retirement account balance as of Dec. 31 of the preceding year by a life expectancy factor that corresponds with your age in the IRS Uniform Lifetime Table.
Your accountant can help you figure out the amount you must take annually, and most financial services firms will run the numbers for you and alert you in January about what your required amount will be for the coming year.
I advise automating your withdrawals throughout the year. You can also have taxes withheld in advance.
If you don’t take the required minimum, you will be hit with a penalty of 25% on the amount. But if you correct your mistake usually within two years, the penalty could be dropped to 10%.
You can always withdraw more than the minimum required amount and invest it. No one is telling you that you must spend it.
“Once you’re in RMD territory, you must take that RMD, and that can’t be converted to a Roth IRA,” Slott said. “So take the RMD and then take a little more, if you can, and convert that portion. The idea is to get that taxable IRA balance down as low as possible. Because if it just builds, you are going to have these taxes.”
If you’re retiring sometime this year, you will likely have earned 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 retired in recent years and still plan to work part time in 2026, you may have earned income to be Roth eligible.
If you don’t need all of your distribution to pay living expenses, consider tapping a portion of it to donate to your favorite nonprofits.
“It’s a great way to spread good will, 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 charitably inclined, a QCD allows you to keep the benefits of the standard deduction.
Learn more: Standard deduction vs. itemized: Which filing approach is best for you?
For tax year 2026, the standard deduction will increase to $16,100 for single tax filers and $32,200 for married couples filing jointly.
Another plus: A QCD reduces your taxable income, which could also potentially decrease taxes on your Social Security benefits and lower your Medicare premiums.
“It’s a smart choice for someone who’s going to be giving anyway and doesn’t need those RMD funds for living expenses,” Slott said.
Have a question about retirement? Personal finances? Anything career-related? Click here to drop Kerry Hannon a note.
The state and local tax (SALT) deduction is a federal itemized deduction allowing you to subtract up to $40,000 ($20,000 married filing separately) of state and local income or sales taxes and property taxes from your taxable income. This is a big increase from the previous $10,000 annual limit but phases out for incomes above $500,000.
While this deduction is not aimed at retirees per se, it’s worth noting since many retirees live in higher-tax states which include New York, Connecticut, New Jersey, and California.
Read more: Best tax deductions to claim this year
To claim this one, you must itemize deductions on your federal return (Schedule A) rather than taking the standard deduction.
“If you’ve gotten 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 from your adjusted gross income, that will get you over the standard deduction limit in most cases. Then you can take advantage of a range of other tax-saving deductions, including charitable gifts, mortgage interest deduction, and medical expenses.
“Add all of that together and it has a big impact on your tax deductions for 2026, and you wind 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 on Bluesky and X.
Sign up for the Mind Your Money newsletter
Click here for the latest personal finance news to help you with investing, paying off debt, buying a home, retirement, and more
Read the latest financial and business news from Yahoo Finance
