When many people retire and are no longer collecting a regular paycheck, they turn to their retirement plans, such as IRAs and Social Security checks.
But you need to use these strategically to avoid surprise tax hits.
So it’s important to first know how these are taxed.
How Are Retirement Plans Taxed?
Qualified withdrawals from accounts like traditional IRAs and 401(k)s are taxed as ordinary income. On the other hand, qualified withdrawals from accounts like Roth IRAs and Roth 401(k)s are tax-free.
How Are Social Security Benefits Taxed?
Your Social Security benefits may be partially taxed based on your combined income.
This is how the IRS calculates combined income.
Combined Income = Adjusted gross income (AGI) + nontaxable interest + 50 percent of your Social Security benefits.
If you’re single and your combined income is up to $25,000, none of your Social Security benefits will be taxed. If it’s between $25,000 and $34,000, up to 50 percent of your benefits will be taxed. And if it’s above $34,000, up to 85 percent of it will be taxed.
If you’re filing jointly and your combined income is up to $32,000, your benefits won’t be taxed. If it’s between $32,000 and $44,000, up to 50 percent will be taxed. And if it’s above $44,000, up to 85 percent will be taxed.
The Combination
It’s important to note that withdrawing funds from traditional IRAs and 401(k)s would increase your AGI and therefore your combined income. As a result, they may push you into, or further into, Social Security taxation territory. Roth IRA withdrawals don’t count toward your AGI.
Moreover, pre-tax accounts like traditional IRAs and traditional 401(k)s involve required minimum distributions (RMDs).
RMDs are mandatory withdrawals that you must take at age 73 or age 75 if born after 1960. RMDs can also push you into a higher tax bracket and affect the taxation of your Social Security benefits. Roth IRAs don’t involve RMDs.
But there are ways to strategically benefit from your traditional IRA and 401(k) savings and make the most out of your Social Security benefits.
Delay Social Security
Delaying your Social Security benefits increases your monthly payments by up to 8 percent per year after your full retirement age until age 70.
And if you can live off your traditional IRA or 401(k) distributions during early retirement, you’d essentially be reducing your future RMDs. That’s because RMDs are partially calculated based on your account balance.
Utilize a Roth Conversion
Roth IRAs can be essential tools in retirement. Here are some key benefits.
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Tax-free qualified withdraws
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No RMDs
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Won’t affect the taxation of your Social Security benefits
And if you’ve been saving in a traditional IRA, you can make a Roth conversion. This is the process of converting funds in a traditional IRA into a Roth IRA.
You’d owe taxes on the converted amount in the year the conversion is made.
Some advisers recommend taking advantage of a Roth conversion during the so-called sweet spot or gap years. This is the time between retirement and before taking Social Security and before RMDs begin. Presumably, these would be low income years. So the tax burden could be minimal.
But Roth conversions can be tricky and may backfire if not done strategically. So it’s best to approach a Roth conversion with the guidance of a qualified financial adviser.
Make a QCD
If you’re charitably inclined and age 70.5 or over, you can make a qualified charitable distribution (QCD). A QCD allows you to donate up to $111,000 in 2026 to an IRS-approved charity directly from your IRA. The amount can satisfy your RMD and it won’t count toward your taxable income. This may also minimize the impact of taxation on your Social Security benefits.
But when using a QCD to satisfy your RMD, it’s important to understand the first-dollars out rule.
The IRS states that the first dollars coming out of an IRA in a year when an RMD is due goes toward satisfying that RMD.
Suppose your RMD this year is $10,000. And you withdrew $5,000 to cover a car repair. This counts toward your RMD. Later that year, you make a $10,000 QCD. Because you already spent $5,000 of your RMD, only $5,000 of the QCD counts toward the remaining RMD. This means $5,000 is taxable.
So it’s best to make the full RMD amount as a QCD first before making any traditional IRA withdraws.
The Bottom Line
When the time comes for retirement, many Americans look to their IRAs, 401(k)s, and Social Security benefits. But it’s important to use these income sources strategically in order to avoid major tax burdens. You can consider delaying Social Security and using your IRA in early retirement, making Roth conversions in the gap years, and utilizing QCDs if charity is important to you. To come up with a personalized strategy, you can seek the help of a qualified financial adviser.
The Epoch Times copyright © 2026. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
