Retirement Tax Strategies That Save You Money

Understand how Social Security, pensions, and retirement withdrawals are taxed, and discover deductions available only to seniors.

Retirement changes your tax picture dramatically. Income shifts from wages to a mix of Social Security benefits, pension payments, retirement account distributions, and investment income. Each of these income sources has different tax treatment, and understanding the rules is key to minimizing your tax burden.

Social Security benefits may be partially taxable depending on your combined income. Up to 85% of your benefits can be taxed if your combined income exceeds $34,000 for single filers or $44,000 for joint filers. Strategic withdrawal planning from different account types can help keep your Social Security taxation low.

Seniors also enjoy special tax provisions including a higher standard deduction, the Credit for the Elderly or Disabled, and the ability to deduct significant medical expenses that often increase with age. Required Minimum Distributions begin at age 73, and planning around these mandatory withdrawals is essential for tax-efficient retirement income.

Key Deductions & Credits

Higher Standard Deduction for Seniors

$400 - $800

Taxpayers age 65 or older receive an additional standard deduction of $1,950 for single filers or $1,550 per qualifying spouse for joint filers in 2025.

Medical Expense Deduction

$1,000 - $10,000

Deduct unreimbursed medical expenses exceeding 7.5% of AGI. This is especially valuable for seniors with significant healthcare costs, long-term care, or dental expenses.

Qualified Charitable Distributions (QCD)

$1,000 - $25,000

Taxpayers 70.5 or older can donate up to $105,000 directly from an IRA to charity. The distribution counts toward your RMD but is excluded from taxable income.

Credit for the Elderly or Disabled

$500 - $1,125

A nonrefundable credit of $3,750-$7,500 for taxpayers 65+ with AGI below $17,500 (single) or $25,000 (joint) and limited nontaxable Social Security.

State Property Tax Exemptions

$500 - $3,000

Many states offer property tax exemptions or freezes for seniors, typically starting at age 65. These can reduce property taxes by $500-$3,000 annually.

Forms You May Need

Form SSA-1099 — Social Security Benefit Statement

Form 1099-R — Distributions from Pensions, Annuities, IRAs

Schedule R (Form 1040) — Credit for the Elderly or Disabled

Form 8606 — Nondeductible IRAs (for Roth conversions)

Form 1040-SR — U.S. Tax Return for Seniors

Filing Tips

Use Form 1040-SR which has larger print and a standard deduction chart built in, designed specifically for taxpayers 65 and older.
Consider Roth conversions in low-income years to reduce future RMDs and potentially lower lifetime taxes on retirement savings.
Use Qualified Charitable Distributions from your IRA instead of writing checks, since QCDs satisfy your RMD without increasing taxable income.
Calculate whether itemizing deductions still makes sense, especially if medical expenses and charitable giving exceed the higher standard deduction.
Review your state tax rules for retirement income. Nine states have no income tax, and many others partially or fully exempt Social Security and pension income.
Time large Roth conversions or capital gains in years when your income is lower to stay in a lower tax bracket.

Common Mistakes to Avoid

Not realizing that up to 85% of Social Security benefits can be taxable depending on your combined income level.
Missing Required Minimum Distributions from retirement accounts after age 73, which triggers a 25% penalty on the amount not withdrawn.
Overlooking the higher standard deduction for seniors, which provides an additional $1,550-$1,950 beyond the regular amount.
Failing to take advantage of Qualified Charitable Distributions to satisfy RMDs tax-free.
Not coordinating withdrawals across traditional IRAs, Roth IRAs, and taxable accounts to minimize overall tax liability.

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FAQ

At what income level is Social Security taxed?

Social Security becomes taxable when your combined income (AGI + nontaxable interest + half of SS benefits) exceeds $25,000 for single filers or $32,000 for joint filers. Up to 50% is taxed at the lower threshold and up to 85% at $34,000 single or $44,000 joint.

When do Required Minimum Distributions start?

RMDs begin at age 73 under the SECURE 2.0 Act. Your first RMD must be taken by April 1 of the year following the year you turn 73. Subsequent RMDs are due by December 31 each year. Roth IRAs do not have RMDs during the owner's lifetime.

Can I still contribute to an IRA after retirement?

Yes, if you have earned income such as part-time work or self-employment income. There is no age limit for IRA contributions. For 2025, the limit is $7,000 plus a $1,000 catch-up contribution for those 50 and older.

Is my pension income taxable?

Generally yes. Pension payments funded entirely by your employer are fully taxable. If you contributed after-tax dollars, a portion of each payment is a tax-free return of your contribution. Form 1099-R will show the taxable amount.