How to Control Your Tax Rate in Retirement (Yes, Really.)

Here’s a retirement planning surprise: one of the most powerful levers you have in retirement isn’t investment performance—it’s your tax rate.

No, you can’t control what Congress does. But you can control how and when you pull money from different accounts—and that can have a massive impact on your total lifetime tax bill.

In this post, we’ll walk through the major types of retirement accounts and income sources—and show you how to make tax-smart choices with each one. Because the goal isn’t just to retire. The goal is to retire efficiently.

1. The Underrated Power of the Brokerage Account

Let’s start with one of the most flexible (and often overlooked) accounts: your taxable brokerage account.

Unlike retirement accounts, there’s no upfront tax break for contributing—but the tradeoff is flexibility. You can withdraw at any time. And better yet, long-term capital gains and qualified dividends may be taxed at 0% if your income falls under certain thresholds.

📌 2025 Thresholds:

• Married filing jointly: $96,700 taxable income

• Single filers: $48,350 taxable income

If your income is below those numbers, you could sell investments you’ve held longer than a year and pay zero federal tax on the gains.

Pro Tip: “Harvest” Gains at 0%

Even if you don’t need the money now, you can sell and immediately rebuy the same investment to step up your cost basis, locking in gains without triggering tax. That means smaller gains (or losses) in the future when you do need to sell.

2. Understanding Your 401(k) and Roth 401(k)

Your 401(k) is a key retirement savings tool—but how you contribute determines how it’s taxed.

• Traditional 401(k): Pre-tax now, taxed later

• Roth 401(k): Taxed now, grows and withdraws tax-free

Your decision depends on your current vs. future tax bracket. If you expect to be in a higher bracket later, Roth may make more sense. If you expect to be in a lower bracket, Traditional might be the smarter move.

💡 Important Detail: Employer contributions are always made pre-tax—even if you contribute to the Roth side. That portion will be fully taxable when withdrawn.

Bonus Tip: Donating from Your IRA

Once retired, consider using Qualified Charitable Distributions (QCDs) to give to charity directly from your IRA. It’s one of the most efficient ways to give and reduce your tax bill simultaneously.

3. The Hidden Superpower of Health Savings Accounts (HSAs)

If you’re enrolled in a high-deductible health plan, you may have access to an HSA—and it's arguably the most tax-advantaged account out there.

• Tax-deductible contributions

• Tax-free growth

• Tax-free withdrawals for qualified medical expenses

That’s right: triple tax savings.

Even Better:

You don’t have to use the HSA right away. You can pay out of pocket for medical expenses now, keep the receipts, and withdraw from the HSA years later—tax-free. This lets your HSA grow like a stealth Roth IRA.

💡 After age 65, you can withdraw funds from your HSA for any reason. You’ll pay income tax on non-medical withdrawals, but no penalty—making it behave like a traditional IRA.

4. Inheritance: What You Receive Matters

How you inherit assets has a huge impact on taxes.

💼 Non-Retirement Assets (Stocks, Homes, Businesses):

You get a step-up in cost basis to the value at the date of death. That means if your parents bought stock at $1/share and it’s worth $100 when they pass, you can sell it for $100 and pay no tax.

🧾 Retirement Accounts (IRAs, 401(k)s):

Very different story. These are fully taxable when distributed.

Most non-spouse beneficiaries must withdraw the entire account within 10 years, which can create a tax time bomb if not planned carefully.

💡 Strategy: If you inherit a $500,000 IRA and need $60,000/year to live on, consider using withdrawals from that inherited IRA to fund your lifestyle first. That allows your other retirement accounts to stay invested longer and grow tax-deferred.

5. Don’t Forget About Social Security (It’s Taxable…Sometimes)

While most states don’t tax Social Security, the federal government might—up to 85% of your benefit could be included in your taxable income, depending on your other income sources.

It all comes down to something called provisional income.

If your retirement income is low enough, your benefits might not be taxed at all. But if you’re drawing from IRAs or collecting other income, you could end up paying tax on the majority of your benefit.

📌 Tip: Timing your Social Security, Roth conversions, and IRA withdrawals carefully can help you stay in a lower bracket and reduce your total taxes over time.

Wrapping It Up: The Real Retirement Advantage

A successful retirement isn’t just about how much money you’ve saved. It’s also about how you use it.

By understanding how your different income sources are taxed—from brokerage accounts to IRAs to Social Security—you can build a withdrawal strategy that minimizes taxes and maximizes how long your money lasts.

And that’s where we come in.

Want Help Creating a Tax-Efficient Retirement Plan?

At Clover Leaf Financial, we specialize in helping you turn your nest egg into a sustainable, tax-smart income stream.

👉 Book a free call to see how we can help you keep more of your money and make the most of your retirement years.