The Annual Tax Planning Process We Run for Every Retiree We Work With

Most people assume tax planning gets simpler in retirement. The W-2 goes away. You stopped contributing to a 401(k). It should clean up.

Here is what actually happens.

You now have multiple income sources that all interact on the same tax return. Required Minimum Distributions. Social Security. Capital gains from your portfolio.

Maybe a pension. And unlike when you were working, nobody is withholding taxes on your behalf. You are responsible for quarterly estimated payments. You are responsible for knowing what you will owe before April arrives.

We have sat across from retirees who got a tax bill that genuinely surprised them. Not because they did anything wrong. Because nobody was watching the full picture throughout the year.

This is the process we run at Gudorf Financial Group every year to make sure that does not happen.

It Starts Before Tax Season: The Year-End Tax Letter

Before a single tax document arrives in your mailbox, we send every client a year-end letter.

It covers two things: every document you should expect to receive, and every income source you had during the year. It sounds like a small step. It prevents real problems.

We have seen clients miss a 1099 they did not know was coming. We have seen income sources overlooked entirely when the return gets prepared. Starting this conversation in December rather than February gives us time to get ahead of anything unusual.

If a large distribution happened during the year, or a property sale, or some one-time income event, we know about it before anyone sits down to prepare the return.

We Review Every Return Before It's Filed

We work with Gudorf Tax Group, our sister tax firm, to prepare every client's return. Once it is drafted, one of our financial planners reviews it personally before it goes anywhere.

This is not a duplicate step. A tax preparer is focused on accuracy. We are focused on whether everything we planned throughout the year actually made it onto the return. Those are two different things.

So here is what we catch on retiree returns that gets missed.

QCDs not properly excluded from income. A Qualified Charitable Distribution goes directly from your IRA to the charity. It should never show up as taxable income. When it does, you pay tax on money you never actually received.

Roth conversion basis errors. If you made nondeductible IRA contributions over the years, Form 8606 tracks your after-tax basis. Without it, the full conversion looks taxable. We have seen clients pay tax on money they already paid tax on once.

Capital gains basis understated. This comes up with inherited assets and positions held for a long time. The cost basis gets reported incorrectly, and the taxable gain comes out far larger than it actually is.

RMD reporting errors. A missed or incorrectly reported Required Minimum Distribution carries a 25% excise tax on the amount that should have been taken. That is on top of the regular income tax you already owe on the withdrawal.

Actively managed funds pushing out capital gains. This one surprises people. When a fund manager trades inside the fund, those gains flow out to your tax return at year-end whether you sold anything or not. For a client already stacking Social Security, a pension, and RMDs, those forced distributions can push you into a higher bracket or trip an IRMAA threshold you were not expecting. We flag it when we see it.

After both firms review the return, the client sees everything and signs off before it is filed.

There is another reason we stay directly involved. A lot of retirees end up being the translator between their financial planner and their CPA. The planner does something. The client tries to explain it to the accountant. Something gets lost.

The client comes back to us confused, and now we are untangling it after the fact. You end up being the orchestrator of your own retirement instead of just living it. Having us in the loop directly removes that problem.

No Employer Is Withholding for You Anymore

In retirement, no employer withholds taxes from your income. You pay them yourself, throughout the year.

The IRS requires quarterly estimated payments. If you do not pay enough during the year, you owe an underpayment penalty on top of your actual tax bill. There are two ways to hit safe harbor and avoid that penalty.

First, pay 110% of what you owed last year. Second, pay 90% of what you will owe this year.

For most clients, we use option one. It gives us a clean number from the filed return to work from. Here is what that math looks like in practice:

You can also satisfy this through withholding. If you are taking RMDs, you can elect to have federal tax withheld directly from the distribution. Some clients prefer one larger withholding in December over writing four checks throughout the year.

Safe harbor keeps you out of penalties. The April projection tells you what you will actually owe. Both matter, and they are not the same number.

The April Projection: What Will You Owe This Year?

Once the prior-year return is filed, we rebuild a projection for the current year. We start fresh and model out every income source we expect to come in.

That includes RMD amounts based on December 31 account balances, how much of your Social Security will be taxable based on provisional income, capital gains and dividend distributions, pension income, and any one-time events like a property sale or a large planned withdrawal.

We also run two dedicated analyses at this point.

Roth Conversion Analysis

We look at how much bracket space you have before income spills into the next bracket, and whether crossing an IRMAA threshold would eliminate the benefit of converting.

Then we model what a conversion costs at your rate today versus what it would cost your family later -- at your future RMD rate, or at a surviving spouse's compressed single-filer rate.

This is not a one-size recommendation. We have sat with clients and told them conversions do not make sense right now. If the analysis does not support it, we say so.

Charitable Giving Analysis

For clients who give to charity, we look at whether a QCD makes sense, whether a donor-advised fund fits the year, and whether a year with higher income makes accelerated giving more valuable from a tax standpoint.

If markets drop during the year, that is worth a conversation. Lower account values mean a Roth conversion costs less. And clients with appreciated positions in taxable accounts may want to accelerate giving through a donor-advised fund rather than writing a personal check.

The Gap Years: The Most Valuable Planning Window Most Retirees Miss

So here is where most retirees leave real money on the table.

There is a window between when you retire and when Required Minimum Distributions begin at age 73 or 75. We call these your gap years.

During this window, your income is lower than it has been in decades. No salary. RMDs have not started. Your tax brackets have more room than they will at any other point in retirement.

Most retirees leave this window almost completely unused.

Here is what happens if you do nothing. Taxes stay low through the gap years. Then they jump when RMDs force income out whether you need it or not. Add Social Security on top of that, and you are stacking two or three income streams into brackets you could have filled at a much lower rate years earlier. We call that the tax torpedo.

The RMD and Social Security income hits at the same time, often at single-filer rates after a spouse passes, and the tax bill is far larger than it needed to be.

Here is what we do instead.

Roth Conversions

Roth conversions let you move portions of your traditional IRA into a Roth during years when taxable income is lower. You pay tax at today's rate. The money grows tax-free from that point forward. Future Roth withdrawals do not count toward provisional income for Social Security and do not trigger IRMAA.

There is a sweet spot for the conversion amount each year. Convert too much and you cross into the next bracket or trip a Medicare threshold. Convert too little and you leave bracket space on the table. We find that number and work toward it deliberately.

The table below shows how the 2026 federal brackets interact with the gap-year planning window for a married couple filing jointly:

Qualified Charitable Distributions

For clients 70 and a half or older, a QCD lets you transfer money directly from your IRA to a qualified charity. The money goes straight to the organization. It never passes through your hands. It does not count as income on your return. It does not push provisional income up. And it counts toward your RMD once you have reached that age. The limit for 2026 is $111,000 per person.

Most clients have not heard of a QCD before we bring it up. Many have been writing personal checks to their church or a favorite nonprofit for years, taking the standard deduction, and getting no tax benefit from those gifts. The QCD changes that math entirely.

One tool we set up for some clients is a QCD checkbook tied directly to the IRA account. You write the check, it goes to the charity, done.

The alternative -- requesting a check from the custodian and mailing it before year-end has real failure points. Checks get lost in the mail. Timing gets tight in December. The checkbook removes the friction and the risk.

Tax Gain and Loss Harvesting

During low-income years, long-term capital gains can be taxed at 0%. We look at whether intentionally realizing gains in taxable accounts makes sense while your income is in the right range.

That is selling on purpose, to lock in gains at a favorable rate before income climbs in future years.

On the flip side, we also look for positions to sell at a loss to offset gains elsewhere. This does not change your long-term investment strategy. It is a tax efficiency move, and it runs throughout the year, not just in December.

The Year-End Meeting: Locking in the Plan

In the fall, we hold a second formal planning meeting with every client.

By November, we have real numbers. We know what income actually came in, whether the year tracked above or below our April projection, and what decisions still need to be made before December 31.

At this meeting, we finalize Roth conversion amounts for the year adjusted for actual income, charitable giving decisions including QCDs and donor-advised fund contributions, any final retirement plan contributions, and the Q4 estimated tax payment adjusted up or down from what we set in April.

Nothing gets decided in a panic on April 15th. Every decision has already been made by the time we are filing the return.

What Most Advisors Miss

CPAs are looking backwards. They are focused on what happened and whether the return is accurate. That is valuable. But the return tells you what happened. The planning determines what happens next.

A lot of financial advisors do not get into this work either. It takes time. It requires specialized software.

It means knowing enough about tax law to model scenarios across multiple years and catch the interaction between RMDs, Social Security, and IRMAA before they stack up in the wrong direction.

That gap between the financial planner and the CPA is where retirees lose real money. We do not want to leave the IRS a tip. That is why tax planning is part of the core service at Gudorf Financial Group, not an add-on.

Here's What Matters

• Tax planning for retirees runs year-round across four phases: year-end letter, return review, April projection, and year-end meeting.
• The gap years between retirement and RMD age are the most valuable planning window. Most retirees underuse them.
• Two sets of eyes on the return catch things that get missed, especially when a financial planner and CPA are not talking directly to each other.
• Roth conversions and QCDs require careful coordination with your income projection. Neither works well in isolation.
• Safe harbor keeps you out of penalties. An actual tax projection keeps you out of surprises.

If you are getting a tax bill in April that surprises you, the problem is not April. It is everything that did not happen before it.

👉 If you would like to get a FREE retirement assessment, click the link to schedule your 20-minute call to start the retirement assessment process.

Gudorf Financial Group is a fee-only, fiduciary retirement planning firm based in Dayton, Ohio. We work with clients in the Dayton and Cincinnati area and nationwide via Zoom.