The Best Tax Moves to Make Before You Retire

An RMD is a certain amount of money you must withdraw from these and other eligible accounts. It’s calculated by dividing the account’s previous year end balance by a life expectancy factor determined by Internal Revenue Service tables.

You must take your RMD by Dec. 31 of each year if you’re 73 or older. But if you turn 73 this year, you can delay taking your first RMD by April 1 of the following year. But this would mean you still have to take another RMD by Dec. 31 of that year. RMDs are taxed as ordinary income. So a significantly large one could push you into a higher tax bracket. As a result, you may want to take your first RMD the year you turn 73.

Here’s an example:

Let’s say you have one IRA and the previous year’s end account balance was $200,000.

To figure out the RMD for a person who turns 73, they’d use a life expectancy factor of 26.5. So the RMD calculates to $200,000 divided by 26.5, or $7,547.16

If you fail to take your RMD, you could face a tax penalty of 25 percent of the amount you failed to withdraw. For instance, missing a $7,000 RMD could trigger a $1,750 penalty.

And you can convert a traditional IRA into a Roth IRA. However, you’d need to pay income taxes on the conversion. But the trade-off of tax-free withdrawals in retirement could be worth it.

In addition, you won’t need to take any RMDs from a Roth IRA. This means your Roth account grows tax-free throughout your lifetime. And you decide how and when to take distributions.

This move also could make sense if you believe you’d be in a higher tax bracket in future years as you approach retirement.

By spreading your savings across accounts with different types of tax treatments, you can strategically set up a drawdown plan that can reduce your tax burden and maximize your savings.

The strategy could lower or erase capital gains taxes.

Here’s an example:

Suppose you purchased stock A and stock B for $20,000 each in April. And in October, you sold stock A for $25,000. This results in a capital gains tax on the stock’s growth of $5,000.

But since you held onto stock ABC for less than a year, you’d get the less favorable short-term capital gains tax rate. That falls within a range of 10–37 percent for 2025, depending on your income tax bracket.

So if you’re a higher earner, you’d face a $1,850 capital gains tax on the sale of stock A (37 percent multiplied by $5,000).

But let’s say stock B dropped in value and you sold it for $10,000. That equates to a $10,000 loss ($20,000 subtracted by $10,000).