5 tax-saving moves to make before age 72


Key Points

  • Many retirees are in a lower income tax bracket before required minimum distributions begin at age 72.
  • Five specific actions could help you manage taxes.
  • Talk with your tax and financial advisors about which ones could benefit you.

Because many retirees are in a lower federal income tax bracket before required minimum distributions (RMDs) begin at age 72, they have an opportunity to manage the impact of taxes on their income.

In December 2019, Congress passed the Setting Every Community Up for Retirement Enhancement – the SECURE Act – which focused on retirement planning, including increasing the RMD age from 70 1/2 to 72. By pushing back the RMD start date, the SECURE Act provides additional time to allow your retirement accounts to grow without exhausting funds via distribution and taxes. Read more on Ameriprise.com or connect with your Ameriprise advisor to help you understand what this new legislation means for you, including how it impacts you if you are already taking RMDs. 

In addition to these changes to RMD, there are a few tax-related considerations for retirement planning. Talk with your tax and financial advisors about whether any of these five actions could benefit you. 

1. Convert taxable assets to a Roth IRA

If you expect to be in a higher tax bracket when your RMDs begin, consider converting taxable investments to a Roth IRA before then. Think about your ability to pay the taxes on the conversion as well as your timeline before you would need to access the Roth IRA. Converting to a Roth IRA generates a tax bill, but it could be less expensive now because of your temporarily lower income tax bracket— and the temporarily lower federal income tax brackets that will expire after 2025.

2. Sell investments that have appreciated

The tax rate on long-term capital gains — assets held beyond one year — is based on your taxable income. If you have stocks, mutual funds, bonds or other taxable investments, it may make sense to sell appreciated long-term investments while you’re in a lower tax bracket. Some, or all, of net long-term capital gain may qualify for 0 percent tax note for lower income taxpayers. Talk to your tax professional to see if this applies to you. 

3. Redeem older savings bonds

While you’re in a lower tax bracket, you may want to cash in savings bonds issued when interest rates were higher. If you have bonds issued more recently, talk to your advisor about whether to hang on to them, given rising interest rates.

4. Exercise employee stock options

If you own employee stock options,1 exercising them while you’re in a lower tax bracket may benefit you — especially if the current stock valuation is high.

5. Revisit your withdrawal strategy

Because withdrawals from tax-deferred accounts are neither penalized nor required between ages 59 1/2 and 72, you have more flexibility and control with your withdrawal strategy for retirement savings. Your advisor can help you make a plan to determine how much money to withdraw each year while managing your tax liability across the years. 

Talk to us

Work with your financial advisor to decide how and when to withdraw money in retirement. A personalized retirement distribution strategy could help make your money last longer.