Smart tax planning can help you save more for retirement and keep more of what you’ve already saved. Consider these tax-efficient retirement planning strategies.
Knowing how and when taxes could affect your retirement savings may help you reduce your taxable income, generate tax-advantaged growth potential in your retirement accounts, and possibly keep more of what you’ve worked so hard to save.
Consider these tax-smart strategies when planning ahead.
The deadline to contribute to an Individual Retirement Account (IRA) for any given tax year is the due date of your federal income tax return of the following calendar year. For most individual taxpayers, that is April 15, 2026, for tax year 2025. Note the two primary types of IRAs:
For the 2025 tax year, the maximum contribution to a Traditional or Roth IRA is the lesser of:
These limits apply to all your traditional and Roth IRAs combined.2
For the 2026 tax year, the maximum contribution is $7,500 (or $8,600 if you are aged 50 or older at any time during the calendar year).
If you are self-employed or a small business owner, consider establishing a Simplified Employee Pension Plan (SEP IRA), which is an IRA-based retirement plan, and funding a SEP IRA with employer contributions made under that plan. Note that if your business employs any employees, the SEP IRA will likely have to cover the employees as well if they qualify.
The maximum employer contribution to a SEP IRA (or to your own SEP IRA) is the lesser of:
The deadline to contribute is the due date of the federal income tax return for your business, which typically has the same due date as your individual federal income tax return.3
Some individuals can't contribute directly to Roth IRAs if their income exceeds certain limits set by the Internal Revenue Code (the “Code”), but they may be able to convert a Traditional IRA to a Roth IRA.
The taxable amount converted (including the federal tax-deductible contributions as well as federal tax-deferred earnings) is subject to ordinary federal income tax for the year the conversion is made, but any potential future appreciation on the converted amount is federal income tax-free if certain requirements are satisfied.
Keep in mind, however, that such a conversion in the current tax year may increase your adjusted gross income and your commensurate federal tax liability for that year.
Starting in 2026, the SECURE 2.0 Act mandates that employees age 50 and older who earn more than $145,000 in the prior calendar year must have their catch-up contributions to their 401(k) or similar plan made on a Roth (after-tax) basis. For those earning less, the ability to make pre-tax catch-up contributions remains unchanged.
For the year 2025, however, employees age 50 and older who earned more than $145,000 in the prior year can still make traditional (pre-tax) 401(k) catch-up contributions. 4
The rules around Qualified Charitable Distributions (QCDs) generally allow individuals age 70½ or older to make a QCD of up to $108,000 in 2025 (and $111,000 in 2026) directly from their IRAs (including Inherited IRAs) to an eligible charitable organization. 5
Further, individuals may make a QCD from their IRA to a charitable organization by allowing a one-time distribution up to $54,000 in 2025, (and $55,000 in 2026), to certain split interest entities, including charitable remainder annuity trusts, charitable remainder unitrusts (CRUTS) and charitable gift annuities.
QCDs can count toward satisfying required minimum distributions (RMDs) for the year if certain rules are met.
QCDs are a great strategy for those age 73 and older, who may have to start making RMDs from their retirement accounts. That’s because a QCD can count toward satisfying an individual’s RMD for the year if certain rules are met
However, if an individual makes a federal tax-deductible contribution after age 70 ½, the amount the individual can exclude from their federal taxable income as a QCD will generally be reduced.
If you’re not yet 70 ½, you can still give to charity by donating appreciated stock directly to a qualified charity. If you meet certain requirements, this may allow you to avoid the capital gains tax you’d owe on the stock while also creating a tax deduction for the donation, as long as you itemize your taxes. For an IRA distribution to qualify as a QCD, it must satisfy certain requirements (e.g., must be paid directly from your IRA to an eligible charitable organization). Make sure to work with your tax advisor to ensure that you satisfy all the QCD requirements and that you have correctly reported QCDs on your federal tax return. Starting in 2026, charitable donations below 0.5 percent of adjusted gross income will not be deductible for taxpayers who itemize their deductions.
You can choose to take a retirement distribution to fund a 529 education savings plan for grandchildren or other family members. While your distribution will generally be subject to federal income tax, once you invest the funds in a 529 plan, they can potentially grow tax-free. Any withdrawal used for qualified higher education expenses, as defined by the IRS, will generally not be subject to income tax.6
You may also consider doing a federal income tax-free rollover of certain assets from a 529 plan to a Roth IRA maintained for the benefit of the beneficiary of such 529 plan, subject to certain conditions. Such rollovers are subject to annual Roth IRA contribution limits and an overarching $35,000 lifetime limit. Further, the 529 plan must be established and maintained for at least 15 years and the IRA owner must have compensation equal to or above the amount of the rollover.
If you’ve contributed the maximum allowable to your 401(k)s, IRAs and/or other tax-qualified retirement accounts, consider putting additional savings into variable annuities. A variable annuity benefits from tax-deferred growth potential until the contract owner takes the withdrawal. When you retire, depending on your annuity contract, you may be able to elect to receive regular income payments for a specified period or spread over your lifetime. Many annuities also offer a variety of living and death benefit options, usually for additional fees.
If you have complex tax planning needs, consider speaking with a tax advisor, who can help you optimize your tax strategy.
With Total Tax 365, Morgan Stanley Financial Advisors offer tax-smart strategies to help you reduce the impact of taxes, all year round. Talk to your Morgan Stanley Financial Advisor to learn more.
If you have complex tax planning needs, your Morgan Stanley Financial Advisor can connect you to experienced tax professionals at leading U.S.-based providers across the country to help ensure your tax strategy is optimized.
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Footnotes:
1. Restrictions, income taxes and additional taxes for early distributions may apply. For a distribution to be a federal income tax-free qualified distribution, it must be made (a) on or after you reach age 59½, due to death or qualifying disability, or for a qualified first-time homebuyer purchase ($10,000 maximum), and (b) after the five tax year holding period, which begins on January 1st of the first year for which you made a regular contribution (or in which you made a conversion or rollover contribution) to any Roth IRA established for you as owner.
2. Other limitations may apply. Note that age restrictions for Traditional IRA contributions were eliminated for contributions starting in tax year 2020 and thereafter. Also, note that Traditional IRA contributions may not be fully deductible, depending on your modified adjusted gross income and your (and your spouse’s) participation in an employer-sponsored plan.
3. A SEP IRA contribution for any given tax year may be made through the filing extension deadline, typically in October, of the following calendar year, provided the client or their tax advisor has obtained an extension to file the federal income tax return for the business.
5. Certain IRAs are not eligible for QCDs. Roth IRA owners are allowed to make QCDs, but they will not see any federal tax benefit to the extent the Roth IRA distribution is a qualified distribution or a non-taxable return of the owner’s after-tax contributions.
6. Note, the SECURE 2.0 Act builds upon and modifies the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 signed into law Friday, December 20, 2019 (the “SECURE Act”), which previously expanded the definition of qualified higher education expenses for federal income tax purposes to include certain costs associated with qualifying apprenticeship programs and up to $10,000 (lifetime limit per individual) in amounts paid towards qualified student loans of the 529 plan designated beneficiary (or such beneficiary’s sibling). Note, however, using 529 plan distributions to repay qualified student loans may impact the deductibility of student loan interest. This provision of the SECURE Act applies to 529 plan distributions made after December 31, 2018. The state tax treatment of 529 plans (including the state tax treatment of contributions and distributions) may be different from the federal tax treatment and may vary based on the particular 529 plan in which you participate and your state of residence. If the applicable state tax law does not conform with the federal tax law, 529 plan distributions used to pay certain expenses, such as principal and interest on qualified student loans and/or qualifying apprenticeship costs, may not be considered qualified expenses for state tax purposes and may result in adverse state tax consequences to the account owner or designated beneficiary. The 2017 Tax Cuts and Jobs Act allowed families to use 529 plans to pay for tuition expenses at elementary or secondary public, private, or religious schools, with a maximum of $10,000 per year per beneficiary. This provision became effective January 1, 2018.
7. Starting in 2026, the One Big Beautiful Bill Act increases this annual limit from $10,000 to $20,000 per student for K-12 education expenses. Additionally, OBBBA expands the types of eligible K-12 expenses beyond just tuition to include curriculum materials, tutoring services, standardized test fees, dual enrollment fees, and educational therapies for students with disabilities, effective as of July 5, 2025.
The source of this article, “Tax-Smart Strategies For Retirement,” was originally published on Feb. 1, 2023.
Disclosures:
When Morgan Stanley Smith Barney LLC, its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors (collectively, “Morgan Stanley”) provide “investment advice” regarding a retirement or welfare benefit plan account, an individual retirement account or a Coverdell education savings account (“Retirement Account”), Morgan Stanley is a “fiduciary” as those terms are defined under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and/or the Internal Revenue Code of 1986 (the “Code”), as applicable. When Morgan Stanley provides investment education, takes orders on an unsolicited basis or otherwise does not provide “investment advice”, Morgan Stanley will not be considered a “fiduciary” under ERISA and/or the Code. For more information regarding Morgan Stanley’s role with respect to a Retirement Account, please visit www.morganstanley.com/disclosures/dol. Tax laws are complex and subject to change. Morgan Stanley does not provide tax or legal advice. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a Retirement Account, and (b) regarding any potential tax, ERISA and related consequences of any investments or other transactions made with respect to a Retirement Account.
This material does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this material may not be appropriate for all investors. Morgan Stanley recommends that investors independently evaluate particular investments and strategies and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
This material does not reflect the impact of state and local income taxes. The state and local income tax treatment of your retirement account and the distributions from it may vary based on your state of residence. You should consult with and rely on your own independent tax advisor with respect to such.
Eligibility to contribute to a Roth IRA is dependent on your taxable compensation, tax filing status and modified adjusted gross income for the year.
A Roth IRA Conversion may not be right for everyone. There are a number of factors taxpayers should consider before converting, including (but not limited to) whether or not the cost of paying taxes today outweighs the benefit of income tax-free qualified distributions in the future. Before converting, taxpayers should consult their tax and legal advisors based on their specific facts and circumstances.
Annuities are offered in conjunction with Morgan Stanley Smith Barney LLC’s licensed insurance agency affiliates.
Variable annuities are sold by prospectus only. The prospectus contains the investment objectives, risks, fees, charges and expenses, and other information regarding the variable annuity contract and the underlying investments, which should be considered carefully before investing. To obtain a prospectus, please contact your Financial Advisor. Please read the prospectus carefully before investing.
Variable annuities are long-term investments designed for retirement purposes and may be subject to market fluctuations, investment risk, and possible loss of principal.
Taxable distributions (and certain deemed distributions) from an annuity are subject to ordinary income tax and, if taken prior to age 59½, may be subject to a 10% federal income tax penalty.
Optional riders may not be able to be purchased in combination and are available at an additional cost. Some optional riders must be elected at time of purchase. Optional riders may be subject to specific limitations, restrictions, holding periods, costs, and expenses as specified by the insurance company in the annuity contract.
If you are investing in a variable annuity through a tax-advantaged retirement plan such as an IRA, you will get no additional tax advantage from the variable annuity. Under these circumstances, you should only consider buying a variable annuity because of its other features, such as lifetime income payments and death benefits protection.
Contribution limits vary by state. Before investing in a 529 plan, investors should consider whether tax or other benefits are only available for investments in the investor’s home state 529 education savings plan.
Investors should carefully read the Program Disclosure statement, which contains more information on investment options, risk factors, fees and expenses, and possible tax consequences before purchasing a 529 plan. You can obtain a copy of the Program Disclosure Statement from the 529 plan sponsor or your Financial Advisor.
For more information on the Morgan Stanley National Advisory 529 Plan clients need to see the applicable ADV brochure available at www.morganstanley.com/ADV.
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