Tax-Smart Strategies for Your Retirement

Dec 22, 2023

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.

Key Takeaways

  • You generally have until April 15, 2024, to make contributions to an individual retirement account (IRA) for the 2023 tax year and potentially decrease your taxable income for the 2023 tax year.
  • A Roth IRA conversion can potentially help you reduce your tax burden in retirement and may make sense if you expect to be in a lower tax bracket at the time of conversion.
  • Consider making a qualified charitable distribution to help meet your philanthropic goals while also potentially reducing taxes. 

Minimizing taxes in retirement can make your nest egg last longer—and potentially increase the financial legacy you leave after you’re gone. Consider these strategies to help you potentially reduce your taxable income, generate tax-advantaged growth potential in your retirement accounts and keep more of what you’ve worked so hard to save. 

  1. 1
    Max Out Your IRA Contributions

    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 (generally April 15, 2024, for tax year 2023). Note the two primary types of IRAs:


    1. Traditional IRAs, which may offer tax deductible contributions; or
    2. Roth IRAs, which have the potential tax-free distributions under certain conditions.1 Roth IRAs are funded with after-tax contributions.


    For the 2023 tax year, the maximum contribution to a Traditional or Roth IRA is the lesser of (a) your taxable compensation for 2023, or (b) $6,500 (or $7,500 if you are age 50 or older at any time during the calendar year). These limits apply to all your Traditional and Roth IRAs combined.2 In 2024, the limit goes up to $7,000 for most savers and $8,000 for those age 50 or older.3


    If you are self-employed or a small business owner, consider establishing an IRA-based retirement plan such as a Simplified Employee Pension Plan (SEP IRA), and fund that 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.


    For 2023, the maximum employer contribution to a SEP IRA (or to your own SEP IRA) is the lesser of (a) 25% of your employees’ eligible compensation (or, if you are self-employed, 20% of your net earnings from self-employment); or (b) $66,000 for 2023 ($69,000 in 2024).4 Beginning in 2023, SEP IRAs (and SIMPLE IRAs) designated as Roth IRAs may accept Roth contributions. The deadline to contribute is the due date of the federal income tax return for your business, which in many cases has the same due date as your individual federal income tax return.5

  2. 2
    Consider a Roth IRA Conversion

    If your income exceeds certain limits, you may not be allowed to contribute directly to a Roth IRA, but you may be able to convert a Traditional IRA to a Roth IRA, which may help to reduce your overall tax burden in retirement. You’ll have to pay federal taxes on the amount converted, including the tax-deductible contributions as well as tax-deferred earnings, in the year the conversion is made, but you may not owe any federal income taxes on any potential future appreciation on the converted amount.


    Keep in mind, however, that if you completed such a conversion in 2023, it may increase your 2023 adjusted gross income and your commensurate 2023 tax liability. So, this strategy may be the most effective in years when you have a lower income and are in a lower tax bracket.


    If you are considering a Roth conversion, speak with your tax advisor about the appropriate time to execute this strategy. It may be prudent to execute a Roth conversion, with an in-kind transfer of securities, when those securities have a relatively lower market value as opposed to a higher or appreciated market value, so that the conversion generates less ordinary federal income tax.

  3. 3
    Give Your Retirement Distribution to Charity

    Generally, individuals age 70½ or older can make a qualified charitable distribution (QCDs) of up to $100,000 per year directly from their IRAs, including inherited IRAs, to an eligible charitable organization. Also, under the SECURE 2.0 Act of 2022, individuals eligible to make a QCD may now make a one-time charitable distribution of up to $50,000 (as indexed for inflation) from their IRA to certain split interest entities, including charitable remainder annuity trusts, charitable remainder unitrusts and charitable gift annuities.6


    QCDs can count toward satisfying an individual’s required minimum distributions (RMDs) for the year if certain rules are met. However, if an individual makes a tax-deductible contribution to their IRA after age 70½, the amount the individual can exclude from their taxable income as a QCD will generally be reduced.


    Make sure to work with your tax advisor to ensure that you satisfy all the QCD requirements and that you have correctly reported QCDs have on your tax return. 


    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.

  4. 4
    Consider a Smart Gift with Your Distribution

    You can choose to take a distribution from your IRA to fund a 529 education savings plan (such as the Morgan Stanley National Advisory 529 Plan) for grandchildren or other family members. While you will likely owe federal income taxes on the distribution, once you invest the funds in a 529 plan they can potentially grow tax-free. Any withdrawal from the 529 planused for qualified higher education expenses, as defined by the IRS, will generally be tax-free.7


    In addition, beginning in 2024, SECURE 2.0 permits penalty-tax-free rollovers of certain assets held in 529 qualified tuition plans to a Roth IRA maintained for the benefit of the 529 plan’s beneficiary, subject to certain conditions. Note that such rollovers must remain below annual Roth IRA contribution limits and an overarching $35,000 lifetime limit. Also, the 529 plan must be established and maintained for at least 15 years, and the IRA owner must have compensation equal or above the amount of the rollover in addition to other requirements and limitations.”

  5. 5
    Save More in a Variable Annuity

    If you’ve contributed the maximum allowable to your 401(k) plans, IRAs and/or other tax-qualified retirement accounts, consider putting additional savings into variable annuities. Assets in a variable annuity maintain tax-deferred growth potential until the contract owner makes withdrawals.


    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.

Start Planning Today

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. 

Find a Financial Advisor, Branch and Private Wealth Advisor near you. 

Check the background of Our Firm and Investment Professionals on FINRA's Broker/Check.

More Insights

Discover more from Morgan Stanley.