Could I Have Done a Better Job of Tax Planning Before I Retired?

This article is part of the Retirement Financial Life Equation (RFLE) series. It was initially published in March 2024 and updated in March 2026.

It’s that time of year again: income tax time. And I can’t be sure, but I think many retirees are more concerned about taxes in retirement than they were when working.

I’m no different than anyone else; I don’t enjoy withdrawing from my retirement savings, handing some of it to the government, or having them take back some of our Social Security benefits. The government taketh, then giveth, and then taketh away.

Part of biblical stewardship is paying our taxes—what we owe under IRS regulations, but no more—using all lawful tax-reduction techniques available.

I have written before that I don’t worry too much about taxes, but as I wrote in my recent “Reflections on Five Years of Retirement” article,

“Because I have so little tax diversification, I wish I had found a way to save more in non-taxable accounts, thought more about Roth conversions, and figured out a way to do them from non-retirement savings, which is the key to optimizing them.”

If this sounds a little like regret, to be honest, I guess it is. I have tried to be diligent about planning for retirement, but I admittedly haven’t paid much attention to it. In my 30s and 40s, I knew little about how taxes work in retirement.

The consequences haven’t been significant up to now—perhaps because tax rates are historically low. But if they rise dramatically in the future, which is a greater than zero possibility, I might feel differently.

Regret isn’t all bad—there are godly regrets and worldly regrets. Godly regret produces a different outlook and lasting change, but worldly regret produces unbelief and hopelessness (2 Cor. 7:8-10).

Of course, the Bible is mainly concerned about repentance, but I think God doesn’t want us to wallow in ‘everyday’ regrets but to learn from our mistakes and set our hearts and minds on the future instead of the past with faith and trust in him:

Brothers, I do not consider that I have made it my own. But one thing I do: forgetting what lies behind and straining forward to what lies ahead, (Phil. 3:13, ESV).

Here’s the question I want to answer, or at least resolve in my mind: Do the facts warrant my regret? If rates rise, will I have a reason for more regret? To figure that out, I had first to take a little foray into the past.

First, some background

The traditional IRA was introduced in 1974 when I graduated from college. I remember starting work that year for the State of Florida as a social worker in the juvenile justice system, making about $6,500/year. The State had a pension plan, and, under IRS rules at the time, that disqualified me from contributing to an IRA.

I couldn’t have afforded to contribute to any of them. My wife was also working then, and we were living paycheck to paycheck.

As a result of the Tax Reform Act of 1986, a married couple filing taxes jointly would lose the IRA deduction at an income of $50,000. I worked for a bank with a pension plan at the time, and my MAGI was under $50,000. I opened a traditional IRA in 1985, when I was 33, and made as small contributions as I could.

By 1991, my gross income was over $50,000, meaning I could no longer make tax-deductible contributions to my IRA. So, I focused on my 401(k) instead.

I don’t remember precisely when I first contributed to a 401(k), but it was probably about the same time—in the late 80s or early 90s when I started working in IT for a regional bank holding company.

Roth IRAs were introduced in 1998 by the Taxpayer Relief Act of 1997. In 1998, the maximum contribution to a Roth IRA was $2,000; now it’s a much more meaningful $7,000 for workers under 50 and $8,000 for those 50 and older (2025 limits). It’s come a long way.

Roth IRAs were available to those with higher incomes (under $160,000 in AGI at the time). My income increased significantly after I started working in the corporate sector, and I didn’t qualify in 1999 or into the 2000s. So, I focused on getting the full employer match in my 401(k).

Although I contributed to it regularly, I never maxed out my 401(k) with pre- and after-tax contributions. I know many people try to do that nowadays since the maximum is $23,500 for 2025 ($31,000 for those 50 and older). But doing my 4, 5, or 6 percent and getting an employer match seemed reasonable. Plus, I had a personal conviction that I always wanted to give more, as a percentage, than I saved.

I was certainly not on my way to early retirement.

As many of you know, most retirement accounts were hit hard by the dot-com crash of 2000 and the housing crash of 2008-2009, depending on how they were invested. I don’t have my older 401(k) records, but my traditional IRA, which was probably 60 to 70 percent invested in stocks, had grown to $187,000 in October 2007. By February 2009, it had fallen to $112,601—a 53% drop!

I stayed the course with my IRA and 401(k) and didn’t “sell out” during that time, but boy, was it challenging; financially, it felt like the end of the world.

As I approached retirement, my savings were almost 100% in a traditional IRA and a 401(k), which are now combined into a single IRA. I also had a small Roth account. I didn’t have a non-retirement regular brokerage account funded with after-tax dollars. Nor did I have any annuities or whole life insurance products.

In other words, all my savings were taxable upon withdrawal. Furthermore, I’m subject to RMDs when I turn age 73 (for those born 1951-1959, like me; those born in 1960 or later start RMDs at age 75 under the SECURE 2.0 Act).

The small Roth account was a Roth 401(k) I contributed to for about five years while working for my final employer. When I retired, I rolled it over (my contributions, but not the employer match, which was pre-tax) into a new Roth IRA account.

I finally had my first (relatively small) Roth IRA! Better late than never, I guess.

Did I make the right choices?

Now that I’m retired, did I make the wrong decisions about traditional versus Roth accounts? Should I have put as much money as possible into Roth accounts over the years instead of traditional ones? I feel like I would have been better off with much more in Roth accounts, but are my feelings justified?

The whole idea of a Roth 401(k) (and, to some extent, a Roth IRA) is to pay taxes now and little or nothing in taxes later.

It may sound counterintuitive, but all things being equal, it doesn’t matter if you do a Roth and pay taxes now and let your investment grow tax-free, or go Traditional and let your pre-tax investments grow and then pay the taxes as you spend them in retirement. The result is much the same.

For you math nerds out there, here’s this concept expressed as an equation.

Let’s use the variables t0 and t1 to represent current and retirement marginal tax rates, respectively, and n to represent investment growth in this illustrative “Commutative Property of Multiplication” equation:

n × (1 – t1) = (1 – t0) × n

It highlights that a traditional 401(k) is more advantageous when the tax rate at retirement is lower, and vice versa. However, if your retirement tax rate is lower than your current tax rate, the Traditional 401(k) or IRA might be better because you pay less tax in retirement. If your retirement tax rate is higher than your current tax rate, the Roth 401(k) might be better because you pay taxes at a lower rate now.

Thus, your belief about future tax rates is the most significant determinant of whether you should contribute to a Roth IRA or not. If you think your retirement tax rate will increase, contribute to a Roth IRA while working.

Here are my actual marginal tax rates based on my taxable income for the 15 years before I retired and the tax brackets at the time:

With a marginal rate in the 28-35 percent range, you can see why I opted for Traditional 401(k) and IRA contributions during my peak earning years.

And since my current marginal tax bracket of 22% is the same or lower than the one I was in for the 15 years before I retired (my effective rate of 8.1% is much lower), it seems to me that, at least based on current tax law, I would not have been better off putting money into Roth accounts after all.

I don’t have easy access to my tax records beyond those years, but I believe my marginal tax rate would still have been higher than it is today. My income was lower in the 1980s and early ’90s, so it’s possible that a Roth would have made more sense then, but I wasn’t in a good 401(k) plan until the early ’90s, and there was no Roth 401(k) option then—the Roth IRA didn’t appear until 1998, and I had already set up a traditional IRA.

It’s important to note that we’re only talking about marginal dollars here—dollars taxed at my marginal tax rate.

My effective tax rates were lower than my marginal rates, averaging in the 13% range (much higher than my current effective rate of 8%). Therefore, it wouldn’t necessarily be true for all the money I could have allocated between a traditional and a Roth 401(k) or IRA. Still, I think comparing marginal rates is a reasonable high-level assessment.

On that basis, I believe my strategy to make tax-deductible contributions to my IRA and 401(k) was reasonable.

We must remember that the U.S. tax system is progressive, and there’s no reason to think it won’t always be. Higher incomes are taxed at higher rates, and the marginal brackets narrow as you move up the income ladder.

Of course, it’s possible that rates could go higher, but at my current income level, they have a long way to go to put me back in the marginal bracket I was in in 2004. In reality, that’s highly unlikely.

Because nobody can predict future tax rates with absolute certainty (though we now have more clarity than we did a few years ago—see below), choosing between a Traditional 401(k) and a Roth 401(k) involves some uncertainty. This much is sure: Any Roth contributions you make immediately put some of your hard-earned money into the government’s pockets instead of yours. So there’s that.

What about non-retirement accounts?

If I had saved and invested long-term with after-tax income in a taxable non-retirement brokerage account, I could sell appreciated stocks to generate retirement income and pay capital gains tax instead of ordinary income tax.

Long-term capital gains are taxed at lower rates than ordinary income. The amount of tax I would owe depends on my annual taxable income. For 2025, if my taxable income is less than $96,700 (married filing jointly), I pay 0% on capital gains and 15% on income between $96,700 and $600,050.

Since I’m in the 22% marginal bracket, 15% or less in capital gains would benefit me. But alas, I don’t have such an account.

Another option I didn’t pursue was municipal bonds. They are basically like other bonds except that they are not subject to federal income tax. Because of these tax benefits, they usually pay less interest than other bonds.

I know other people who invest in real estate, such as rental properties. Real estate functions much like stocks—it’s typically held for the long term and is subject to a long-term capital gains tax of 0%, 15%, or 20%, depending on one’s taxable income.

If I were to do one or the other, I would have chosen stocks. Real estate is much too time-consuming (those pesky tenants, stuff breaking all the time, etc.), and there’s the high cost of entry (which is why most people use leverage, introducing more risk into the equation). But that’s just me—I know it works great for some people.

Another option that I decided against is “whole life” insurance (also known as “permanent” life insurance).

As they mature and benefits are “paid up,” mutually owned whole-life policies often pay dividends. These are considered a “return of premium”; the insurance company took in more than it needed and is returning some portion to you (how generous of them). Therefore, dividends aren’t taxed because they aren’t income.

The dividend payout is based on a percentage applied to the policy’s “cash value.” It’s unrelated to your actual return on your cash value. Most whole-life policies have a negative return for at least the first 5 to 10 years.

These non-taxable dividends can be used as income, so I guess there’s some value in that. Still, you’re getting your own money back.

Perhaps I should have given these options more thought. But I had a family to provide for, and I wanted to give as generously as possible, so saving and investing wasn’t on my radar.

What about Roth Conversions?

Since I had a traditional IRA and a 401(k), which are now consolidated into an IRA now that I’m retired, I could have done a Roth conversion, but I never did. I have sometimes regretted that decision. But there are some good reasons why I didn’t:

1) The math on Roth conversions doesn’t work nearly as well if you don’t pay the tax you owe on the conversion from non-IRA funds.

I didn’t save much beyond an emergency fund and some “sinking funds” in a taxable savings account. Between living, giving, and saving, I had very little left in after-tax dollars for that purpose.

I never had a taxable brokerage account to invest in stocks or other securities. However, I had stock options and grants throughout my career and used some for various purposes.

But the ones I still owned going into the “Great Recession” of 2008 became worthless after Wells Fargo acquired my employer, Wachovia, on December 31, 2008, after a government-forced sale to avoid Wachovia’s failure due to what now appears to have been somewhat overblown fears of a commercial banking run and collapse of Wachovia’s “sub-prime” mortgage portfolio.

Fortunately, I didn’t need those assets to fund future obligations. I would suggest that anyone fortunate enough to receive this form of compensation from their employer take a similar posture—you never know what will happen to a company or its stock.

2) The decision to do a Roth IRA conversion depends on your current versus future tax rate.

Throughout my working life, there was a lot of uncertainty about taxes. Surprisingly, my effective (blended) and marginal tax rates (~8% and 22%, respectively) are about the same as, or lower than, those when I contributed to my traditional retirement accounts 20 years earlier. So, at least under current tax law, there aren’t many savings.

3) Tax rates are now more predictable than they were.

When I originally wrote this article in early 2024, there was significant uncertainty about future tax rates. The Tax Cuts and Jobs Act (TCJA) of 2017 was set to expire on December 31, 2025, and, without congressional action, rates would have reverted to their 2017 levels. Here’s what the comparison looked like:

Source: IRS

At the time I was writing, my marginal tax rate was 22%, which could have risen to 25%-28% in 2026 if Congress did nothing. There was genuine concern about what would unfold, and many financial advisors were urging their clients to consider Roth conversions before the end of 2025.

However, the situation has now been resolved. In July 2025, Congress passed the One Big Beautiful Bill Act (OBBBA), which made the TCJA tax brackets permanent. This means:

• The current tax brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%) are now the baseline going forward
• There’s no longer the threat of automatic reversion to the higher 2017 rates
• We have much more certainty for long-term tax planning (though future Congresses could still change rates through new legislation)

This resolution actually validates my decision not to rush into Roth conversions. My marginal rate remains at 22%, and the generous standard deductions and other provisions favorable to retirees have been preserved.

Additionally, the OBBBA included a new temporary provision (2025-2028) that benefits many retirees: a $6,000 Senior Bonus Deduction for those age 65 and older. This deduction phases out at higher income levels ($150,000 MAGI for married couples). Still, for middle-income retirees like me, it represents a significant additional tax benefit, further reducing my effective tax rate.

When you combine the permanent lower brackets, the standard deduction ($31,500 for married filing jointly in 2025), the additional senior deductions ($1,600 per spouse age 65+), and potentially the $6,000 senior bonus deduction, the tax picture for many middle-income retirees is actually quite favorable—more favorable than I anticipated when making contribution decisions 20 years ago.

For these reasons, those in the lower marginal tax brackets (10% or 12%) might still benefit from Roth contributions or small conversions, but the pressure to convert before a deadline has been eliminated. The tax landscape is now more stable and predictable than it’s been in years.

4) Your gross income will likely be lower in retirement than when you worked. Lower income correlates with lower taxes unless tax brackets rise sharply.

Generally, it’s reasonable to assume that your retirement income is likely lower than when you were working. Mine is undoubtedly lower than during many of my working years, but not all. Most of my income comes from our Social Security and my IRA.

And with the new certainty that tax brackets will remain at current levels, I can plan with greater confidence that my effective tax rate will remain manageable throughout retirement.

5) Even if your income is the same or higher than when you were working, not all of it will be taxable.

I just finished my taxes. Because of the standard deduction and QCDs, my taxable income was 66 percent of my gross income. It helped that my Social Security isn’t fully taxed, even if I reach the IRS maximum for taxable benefits—85%.

With the additional senior deductions now available (both the standard additional amount for those 65+ and the new temporary senior bonus deduction), the gap between gross income and taxable income has widened even further for many retirees. This makes the effective tax rate even lower than I initially calculated.

But what about converting to a Roth IRA now? I still don’t see how that makes sense because 1) It would push me into a higher marginal tax bracket of 24% to maybe as high as 35%, and 2) I would have to pay the taxes with IRA money, which dramatically affects the math and the likelihood of a positive outcome.

If you’re considering a Roth IRA conversion (and some of you should be), you should probably consult a trusted advisor and run through various scenarios. One scenario is that you will have a higher income in retirement and, therefore, pay more taxes than when you were working. If that’s you, be thankful, taxes or no taxes. Just because you have to pay a little more in taxes because you didn’t do a conversion is no big deal.

Generally speaking, the best scenario for converting a Roth IRA would be the year you have the lowest income, are in your lowest marginal tax bracket (0%, 10%, or even 12%), and have the money to pay the relatively small amount of tax you’ll owe with non-retirement dollars.

Another good scenario is after you retire, when you are in a lower tax bracket but not yet receiving Social Security benefits and have the money to pay the tax from non-IRA sources.

QCDs have helped

As I wrote in my recent “Five Years of Retirement” article, I turned 70½ in 2023. This made me eligible to begin making Qualified Charitable Contributions (QCDs) directly from my IRA. I started using them to make donations to my church, our denomination, and various mission organizations.

I devoted an entire article to this topic, titled “Looking Forward to Making QCDs,” after concluding that it should be at least somewhat beneficial to me from a federal income tax perspective, even though I’ve been able to itemize my charitable contributions every year since I retired.

I also published an article on Humble Dollar titled “QCDs and Me.”

So, did the QCDs help or hurt my overall tax position? I go into this in more detail in the Humble Dollar article. But for QCDs to reduce the amount of taxes beyond what I would have had to pay if I had itemized my deductions, the total of the QCDs plus the standard deduction (SD) had to be more than what my itemized deductions would have been.

Remember, because I’m claiming QCDs, my taxable income (TI) is AGI – (QCDs + SD).

In my case, the sum of my QCDs plus the standard deduction is 7.6% higher than my itemized deductions alone would have been, which immediately tells me the QCDs have improved my tax situation. That’s what I had hoped for.

If you can itemize your deductions and charitable contributions are a significant part of your deductions, making QCDs when you’re eligible (age 70½) will likely result in a lower federal income tax bill.

However, the impact won’t be as significant as if you had made charitable contributions and not itemized. That’s because you can make QCDs tax-free (you reduce your taxable income by the amount of your QCDs) while still being able to take the standard deduction.

For 2025, the QCD limit has increased to $108,000 per person annually (indexed for inflation), meaning a married couple can donate up to $216,000 from their IRAs to qualified charities tax-free each year.

The bottom line is that we’re free to minimize taxes and maximize the use of the resources God has entrusted to us for our good and His glory. QCDs are a wonderful gift of common grace for all retirees, especially for Christians who want to be generous in retirement and still receive tax benefits.

Also, for 2025, the income limit to qualify for a Roth IRA is up to $236,000 of modified adjusted gross income (MAGI) for married joint filers, with a phase-out range of $236,000 to $246,000. Given that the median household income in the US is around $75,000, that’s pretty generous.

So, a Roth IRA is now an excellent vehicle for those seeking to diversify their retirement income. Unfortunately, I never took full advantage of one, but you can if you want to.

So, could I have done better?

As you can probably tell, my answer to that question would be “maybe.” But, honestly, I’m not going to lose a lot of sleep over it.

I have regretted not having a larger Roth account balance, mainly because I don’t particularly appreciate paying taxes as a retiree. But I also don’t think I was foolish to contribute to traditional accounts while I was working.

The facts suggest I made a reasonable decision, even if tax rates had increased modestly in the future. With the passage of the OBBBA, making the current tax structure permanent, I now have even more confidence that my Traditional IRA strategy was sound. The combination of:

• Lower retirement income than peak earning years
• The progressive tax structure (most income taxed at 10-12% brackets)
• Generous standard deductions ($31,500 for married couples in 2025)
• Additional senior deductions ($1,600 per spouse age 65+)
• The temporary senior bonus deduction ($6,000 per person, subject to income phase-outs)
• QCDs are reducing AGI even further

…all combine to create very favorable, effective tax rates for middle-income retirees like me. My effective federal tax rate remains well below 10%, even though my marginal rate is 22%.

In an ideal scenario where future tax rates and policies are known with certainty, solutions would be straightforward and based on mathematical calculations. While we now have more certainty than we did a few years ago (thanks to OBBBA making the TCJA provisions permanent), there’s always the possibility that future Congresses could change tax law. But that’s a manageable risk.

As I have said many times, retirees make the best decisions they can in a realm of uncertainties, including investment yields, inflation, and prospective tax rates. Each decision involves trade-offs, requiring us to understand and assess our circumstances and determine the optimal course of action.

I can say that QCDs have definitely helped. The only other thing I could do is reduce my spending (and therefore the amount I need to withdraw from my taxable IRA) to fall below the 22% marginal tax rate. But that strategy will work for only so long—RMDs are on my near-term horizon at age 73, and they will put me right back where I am (though QCDs will help manage that as well).

So, I’ll keep making QCDs, monitor my marginal tax rate (and reduce it if I can), maximize the senior tax benefits available to me, and do my best to pay my taxes with gratitude. I know that I have been blessed with the privilege of living, working, saving, investing, giving, and retiring in the best country in the world.

The bigger picture is that for most middle-income retirees, the tax picture in retirement is much more favorable than we fear. The progressive tax structure, combined with generous deductions and tools like QCDs, means that effective tax rates are typically relatively low, even for those with substantial Traditional IRA balances like mine.

Rather than regretting not having more in Roth accounts, I’m grateful that the Traditional IRA strategy worked as well as it has. The tax arbitrage—contributing at 28-35% marginal rates and withdrawing at an 8% effective rate—is significant and tangible.