Understanding the Impact of Taxes on Your Retirement

What you keep from your retirement income depends partly on which accounts you use and when. Withdrawals from a traditional IRA, sales in a taxable portfolio and qualified Roth withdrawals can have very different tax consequences.

The useful question is not simply how to pay the least tax this year. It is how to coordinate withdrawals, investment gains, Social Security and Roth decisions with the income you need now and the choices you want to preserve later.

Start with the main rules below, then connect them to your retirement plan and investment portfolio.

What the 2025 Tax Law Means for Retirees

The One Big Beautiful Bill Act, signed in July 2025, retained the individual federal tax rates from 10% through 37% and the larger standard deduction, instead of letting those provisions expire at the end of 2025. For 2026, the standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly. See the IRS's 2026 inflation adjustments.

Three provisions worth reviewing if you are in or near retirement:

• A new senior deduction. Taxpayers age 65 and older can claim an additional $6,000 deduction ($12,000 for a couple where both spouses qualify) for tax years 2025 through 2028. It phases out above $75,000 of modified adjusted gross income for single filers and $150,000 for joint filers, and it is available whether you itemize or not.
• Social Security is still taxable. Depending on income, up to 85% of benefits can be included in taxable income; that is not an 85% tax rate. The income thresholds are still not indexed for inflation, and the new senior deduction does not make Social Security benefits universally tax-free.
• A higher state and local tax deduction cap. For 2026, the cap is $40,400 and begins phasing down above $505,000 of modified adjusted gross income; married-filing-separately amounts are half those figures. The cap and income threshold increase 1% annually through 2029, before the cap returns to $10,000 in 2030 under current law. This matters only if you itemize, and other limits can apply. See Section 164.

The practical question is how the rules fit your retirement plan. When considering a Roth conversion, compare your current and possible future tax rates alongside your cash needs and Medicare costs.

How Where You Live Factors Into Retirement Taxes

If you are considering a move, compare your total cost of living rather than a state's income-tax rate alone. Property and sales taxes, housing costs and the treatment of retirement income can change the result.

Review how the destination state treats your particular income sources, along with any estate or inheritance tax considerations. A lower tax bill is useful only in the context of a place and spending plan that work for you.

Selling a home may also affect the plan. Eligible taxpayers can exclude up to $250,000 of gain, or up to $500,000 for qualifying married couples filing jointly; ownership, use and other requirements apply. See the IRS guidance on selling your home.

Coordinate Taxes With Your Retirement Plan

Start with the deductions available to you, then consider how contributions, withdrawals and Roth decisions fit the income you need. The aim is to make those choices work together, not simply to find the lowest tax bill in a single year.

Claiming the Higher Standard Deduction

When filing, you have the choice between claiming the standard deduction or itemizing your deductions. For those 65 and older, the extra standard deduction in 2026 is $2,050 for an unmarried individual who is not a surviving spouse, or $1,650 per qualifying spouse for joint filers. This is separate from the temporary $6,000 senior deduction described above, which has its own income and eligibility limits.

Many retirees who meet this age requirement find that their standard deduction, plus the extra standard deduction for age, is more than the itemized expenses they could claim. That's especially likely if you have paid off your mortgage and no longer have the mortgage interest deduction.

Still, check whether itemizing other deductions, such as property taxes and medical bills, would come out ahead.

For example, qualifying unreimbursed medical expenses are deductible only to the extent they exceed 7.5% of adjusted gross income, and only if you itemize. See the IRS medical-expense guidance.

Review Contributions Before Retirement

If you are still working and eligible to contribute, catch-up contributions can help build retirement savings. For 2026, the 401(k) employee deferral limit is $24,500, with an $8,000 catch-up for those 50 and older and a higher $11,250 catch-up for workers aged 60 to 63 whose plans allow it. The IRA limit is $7,500, plus a $1,100 catch-up at 50 and older. Eligibility and deduction rules still matter. See the IRS's 2026 contribution limits.

For 2026, participants covered by the Roth catch-up requirement generally must make catch-up contributions on a Roth basis if their 2025 wages from the plan sponsor exceeded $150,000. This is not a test of all household income. Check the IRS catch-up guidance and your plan's rules.

Consider a Roth Conversion

Roth IRAs have income limits on direct contributions. In 2026, contributions phase out between $153,000 and $168,000 of modified adjusted gross income for single filers and between $242,000 and $252,000 for joint filers. Conversions do not have that income limit.

A conversion moves money from a traditional IRA to a Roth IRA. Previously untaxed amounts are generally included in income for the conversion year; any nondeductible basis needs to be accounted for under the IRA rules. Qualified Roth withdrawals are tax-free. See the IRS IRA guidance.

A lower-income period between retirement and required minimum distributions can be a useful time to compare conversion amounts. A conversion may reduce future taxable withdrawals, but it also can increase today's tax bill, reduce income-based deductions and raise Medicare premiums in a later year.

Medicare generally looks back two tax years, so a taxable conversion in 2026 could affect 2028 premiums. Those future premium thresholds are not yet published as of this review. Our Roth conversion and IRMAA guide explains how to compare the trade-offs.

Stay Ahead of Taxes During Retirement

Your withdrawal choices, portfolio and spending plan should support one another. A tax decision that looks attractive on its own may be less useful if it leaves too little cash available or creates costs elsewhere.

Todd can help you connect your retirement income needs with your personal financial plan and investment decisions, coordinating tax-specific questions with your tax preparer. Whether retirement is approaching or already underway, schedule an introductory meeting with Todd to talk through the decisions ahead.

This content is developed from sources believed to be providing accurate information, and provided by Integrity Financial Planning, LLC. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.