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With some careful planning focused on the standard deduction, retirees who have large sums in tax-deferred accounts can avoid unpleasant tax bills and even part ways with the IRS for good.
By
Joe F. Schmitz Jr., CFP®, ChFC®, CKA®
published
20 February 2026
in Features
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If you know anything about me or have seen my content before, then you already know one thing about me: I hate taxes.
Now, before you get the wrong idea, let me explain. I love this country and know that taxes pay for many of the good things we enjoy and rely on, so I don't hate them completely.
But I am not confident the government is the best steward of our taxpayer dollars, especially considering our national debt.
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Sign upAlso, the government can change the tax rates at any time.
If most of your wealth sits in tax-deferred accounts, such as a 401(k), IRA, 403(b) or Thrift Savings Plan, you have a silent partner in your retirement: The IRS. And you can either trust Uncle Sam to not raise taxes on you in the future, or take action now.
Why your $1 million isn't really $1 million
I was meeting with someone recently who pulled out their 401(k) statement and said, "I've finally made it. I've got a million dollars." And sure enough, right there on the page, it said $1,000,000. They felt confident and relieved that their retirement was already handled.
I then asked a simple question: "Have you paid taxes on that money yet?"
They looked at me for a second and said, "Well … no. That's all pretax."
About Adviser Intel
The author of this article is a participant in Kiplinger's Adviser Intel program, a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.
That's when I told them something that usually changes the whole conversation. A million dollars in your 401(k) isn't really a million dollars, at least not yet. Someday, the IRS is going to want its share.
In reality, that retirement account is a joint account. Part of it belongs to you, and part of it belongs to Uncle Sam. You just don't know exactly how much yet.
What's more, the government doesn't just get paid — it also decides how much it gets paid by changing the tax code. That means the future value of your retirement savings is unknowable unless you take action now.
Most people, like me, dislike taxes (I even wrote a book about that, called I Hate Taxes — you can request a copy here), but very few take proactive steps to reduce them. That is unfortunate, because the tax code, while massive and complex, offers opportunities for those who plan ahead.
Why retirement tax planning matters more than ever
Many retirees assume their taxes will automatically be lower once they stop working. In some cases, that's true, but for disciplined savers with large tax-deferred balances, the opposite can happen.
Required minimum distributions (RMDs), pensions, Social Security taxation, higher Medicare premiums and widowhood are all factors that can push retirees into higher tax brackets later in life.
That's why we emphasize a simple but powerful idea: It's not how much money you have in retirement — it's how much you keep.
The power of the 0% tax bracket
One of the most overlooked planning opportunities in retirement is the standard deduction. If you can structure your income carefully, it's possible to pay very little or even nothing in federal income taxes.
Many retirees do exactly that by taking only enough from their tax-deferred or taxable accounts, combined with their Social Security benefits, to keep their income below taxable levels, then using their tax-free Roth distributions to provide the rest of their needed income.
When done correctly, this allows retirees' income to "fill up" the standard deduction without crossing into taxable territory. The result? Some households with seven-figure net worths pay zero federal income tax in retirement. That's what we call being legally divorced from the IRS.
Now, if you have a pension like many of our clients, the 0% tax bracket may not be possible, but the concept of keeping your income lower in retirement is still important (if not more important) since you will likely never be in a lower tax bracket throughout retirement.
A real-world example: Two ways to take $100,000
Let's look at how strategy matters using a simplified example.
Household A:
- Takes Social Security at 62, resulting in $30,000 of income
- Withdraws $70,000 from an IRA
- Total taxes: About $7,000
- Takes $100,000, keeps $93,000
Household B:
- Takes Social Security at 70, resulting in about $55,000 in income
- Withdraws $22,500 from a Roth IRA
- Withdraws $22,500 from an IRA
- Keeps Social Security provisional income low
- Keeps taxable income under the standard deduction threshold
- Total taxes: $0
- Takes $100,000, keeps $100,000
This is the power of "tax-efficient income planning" and understanding the impact of when you take income. Planning for this now by using Roth IRAs is a good way to give yourself greater flexibility.
Looking for expert tips to grow and preserve your wealth? Sign up for Adviser Intel, our free, twice-weekly newsletter.
Why Roth conversions can be so powerful
Roth conversions are one of the most effective tools available today, particularly given the historically low tax-rate environment we are currently in. By voluntarily paying taxes now, on your terms, you reduce the IRS' future claim on your money.
For some households, disciplined Roth planning over time can dramatically shrink future RMDs, lower Social Security taxation and create greater flexibility for large expenses, charitable giving or legacy planning. This isn't about avoiding taxes at all costs. It's about controlling them.
Too many retirement plans focus on how much income you can generate without paying enough attention to how much you actually get to keep. A $100,000 withdrawal from a traditional IRA taxed at 25% leaves you with $75,000.
The same withdrawal from a Roth leaves you with the full amount (because you already paid taxes on that money). Over a 20- or 30-year retirement, that difference can add up to hundreds of thousands of dollars.
You can either have your own tax plan, or default to the IRS' plan. For high savers approaching retirement, especially those with pensions or significant tax-deferred balances, proactive tax planning isn't optional. It's one of the most impactful decisions you'll make.
Success in retirement isn't measured by how much you have in your accounts — it's measured by how much stays in your pocket.
Related Content
- The Extra Standard Deduction for Those 65 and Older
- Claiming the Standard Deduction? Here Are 5 Tax Breaks for Retirement
- Here's What Being in the 2% Club Means for Your Retirement
- Five Opportunities if You're in the 2% Club in Retirement
- Are You a 'Midwestern Millionaire'? Four Retirement Strategies
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
TOPICS Adviser Intel Get Kiplinger Today newsletter — freeContact me with news and offers from other Future brandsReceive email from us on behalf of our trusted partners or sponsorsBy submitting your information you agree to the Terms & Conditions and Privacy Policy and are aged 16 or over.
Joe F. Schmitz Jr., CFP®, ChFC®, CKA®Social Links NavigationFounder and CEO, Peak Retirement PlanningJoe F. Schmitz Jr., CFP®, ChFC®, CKA®, is the founder and CEO of Peak Retirement Planning, Inc., which was named the No. 1 fastest-growing private company in Columbus, Ohio, by Inc. 5000 in 2025. His firm focuses on serving those in the 2% Club by providing the 5 Pillars of Pension Planning. Known as a thought leader in the industry, he is featured in TV news segments and has written three bestselling books: I Hate Taxes (request a free copy), Midwestern Millionaire (request a free copy) and The 2% Club (request a free copy).
Investment Advisory Services and Insurance Services are offered through Peak Retirement Planning, Inc., a Securities and Exchange Commission registered investment adviser able to conduct advisory services where it is registered, exempt or excluded from registration.
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