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5 tax-efficient strategies to include in your retirement plan

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PatriciaEnciso/Getty Images/iStockphoto

Are you concerned about how taxes may impact you down the road? You're not alone. According to the Thrivent Retirement Readiness Survey*, about two-thirds of retirees say if they had to advise their younger selves on a financial matter, it would be to learn how taxes impact retirement savings.

These tax-efficient strategies—starting with your tax filing—can help you reduce your taxes for the long term.

What can you do to potentially lower your taxes for the long term?

While you can’t control the outcome of potential tax changes to come, you can take proactive moves in your retirement tax planning to help buffer the effects of higher taxes. The historically lower tax rates we’re now enjoying could be your best tool for creating future savings, so make good use of them.

How can you reduce your tax burden? “We categorize a client’s assets—everything from Social Security and mutual funds to life insurance – into three categories: tax now, tax later, tax never,” says Todd Yeiter, director of Advisor Support. Those three buckets are helpful when you think about how to distribute your investments in the most tax-efficient ways possible.

A clear tax strategy can help you do more with your retirement funds, so you can reach your goals for retirement and beyond. Consider the following wise tax moves in your retirement plan.

We categorize a client’s assets – everything from Social Security and mutual funds to life insurance – into three categories: tax now, tax later, tax never.
Todd Yeiter, director of Advisor Support at Thrivent

1. Leverage the Roth IRA advantage.

Are you expecting that you have not entered your peak earning years yet and may fall into a higher tax bracket as you near retirement? “The thing we see with families—dual income with kids and a mortgage—is that they’re in the 12% tax bracket, for example, and often contributing to a pre-tax account,” says Ron Lutes, Advice Services consultant for Thrivent. “But by the time they retire, they could fall into a 22% or 25% bracket.”

Consider working a Roth IRA into your savings plan. You fund a Roth IRA with money that you've already paid taxes on—also known as after-tax dollars. While there is no tax deduction for Roth IRAs, your earnings in the account grow tax-free, which puts them into the "tax never" bucket, and you will have no tax liability on qualified withdrawals.1 In addition, Roth IRAs are not subject to required minimum distributions (RMDs) like most other retirement savings accounts, however beneficiaries of Roth IRAs may have specific distribution requirements.

IRAs, both Roth and traditional, have annual contribution limits set by the IRS each year. What's more, catch-up contributions are an option available on many retirement plans if you are 50 or order. They allow you to add additional dollars beyond the annual contribution limit for an extra boost to your savings.

  • 2023 contribution limit: $6,500
  • 2024 contribution limit: $7,000
  • Catch-up limit: $1,000

Roth IRAs have income limits to participate.

  • If you make between the maximum MAGI listed, you can contribute but it will be a reduced amount.
  • If you make equal to or more than the maximum limit listed, you can't contribute anything to a Roth IRA. If this applies to you, check out these alternatives.
Filing status
2023 maximum modified adjusted gross income (MAGI) to contribute to a Roth IRA
2024 maximum modified adjusted gross income (MAGI) to contribute to a Roth IRA
Single or head of household
Married filing jointly
Married filing separately

Do you already have a traditional IRA? Consider a Roth conversion.

If you already have a traditional IRA and are interested in a Roth IRA, consider a Roth conversion.1 Doing so can help you avoid the tax consequences of RMDs once you’re in retirement, giving you a potential tax break (at an already lower rate), as qualified distributions from Roth IRAs are tax-free.

“We always like to have a component [of a portfolio] with the potential not to be taxed in the future,” says Yeiter. One of the key benefits of a Roth IRA is that its growth isn’t taxed. So, over the long term, the tax you paid now on the Roth conversion effectively lowers as your assets grow, since it’s spread over a greater amount of money.

Roth conversions can support your legacy plan, too. The SECURE Act 2.0 requires most IRA beneficiaries to complete withdrawals within 10 years. In addition, if the original owner of the IRA was taking RMDs, the person who inherits the IRA must also take RMDs during the 10-year window. Many families’ legacy plans are in jeopardy—particularly the affluent. However, with a Roth conversion, you’ll pay at today's current tax brackets, which may be lower for many taxpayers, so your heirs won’t be taxed at all.2

2. Open a spousal IRA

“In a household where only one spouse works, you can increase your contributions—and lower your taxes now—with a new IRA account for the non-working spouse. This is best explained through a hypothetical example adapted from this IRS publication:

Let's say John is a full-time student with no taxable income. His wife, Shelby, makes an annual taxable income of $80,000. Shelby is currently contributing to an IRA at $6,000 a year, or their contribution limit because they are less than 50-years-old. She opens a second IRA under John’s name to increase their contribution.

If they joint file, John can add Shelby’s annual income minus her contribution ($80,000 - $6,000 = $74,000) to his compensation (in this case, $0) to determine his maximum contribution amount. Because their joint compensation is $74,000 his personal IRA contribution limit is also $6,000.

That means they can double their IRA contribution, and if they don’t mind foregoing the tax deduction, they can both choose to contribute to Roth IRAs instead.

"We see thousands of cases with clients missing this opportunity. If it’ll lower your taxes, why not do it?” says Tom Hussian, Advice Services consultant for Thrivent.

3. Consider tax-exempt municipal bonds

In addition to offering automatic federal tax benefits, tax-exempt municipal bonds can, in some cases, offer state-tax benefits. If you buy municipal bonds issued in your state, you often avoid state and local taxes.3 Additionally, if you live in a no income tax state, you can maintain tax-free income with this additional investment.

However, it’s important to double check your local tax laws to see whether you qualify for certain benefits because the tax advantages of municipal bonds depend on your income and where you live.

For example, high income households that live in high-tax states often benefit most from investing in municipal bonds, whereas those with lower income and live in a no- or low-tax state don’t have the same tax advantages.

4. Maintain a permanent life insurance policy as an asset

While the primary purpose of life insurance is to protect your loved ones, the right policy also can help you both manage taxes. Unlike other retirement plan proceeds, beneficiaries receive life insurance death benefit payouts income tax-free.4

Permanent life insurance, such as whole life, universal life and variable universal life, are designed last for your entire lifetime, as long as the coverage remains in force. These policies may also build up cash value on a tax-deferred basis throughout your lifetime. Tax-deferral allows your cash value to accumulate faster because growth is not subject to annual taxation.

If you ever need to dip into your funds prematurely, you can access the cash value on a tax-advantaged basis, meaning you have tax-free access up to the amount you’ve contributed through your premiums or through a policy loan.5,6 But before you access these funds early, it’s advised to connect with a financial advisor or tax professional to avoid unnecessary tax consequences. While Thrivent does not provide specific legal or tax advice, we can partner with you and your tax professional or attorney.

Your contract (such as whole life) may also be eligible for dividends, or the annual distributions your insurance company applies to your policy based on your contribution to the company’s surplus. Note that dividends are never guaranteed.

> Learn more about Thrivent's history of dividends.

5. Consider tax-efficient options for charitable giving

Designed for both tax-efficient giving & receiving income during your life.
You give assets to charity in exchange for a stream of income payments with minimal taxation.
Tax-free donations to specified charities that count toward your annual RMDs.

Charitable remainder trusts

A charitable remainder trust is a trust designed for both giving assets to charity and receiving income during your life. You fund the trust by adding assets (such as cash or liquid investments). During your life, the trust pays out income to you or someone you designate from the assets you added to it. You can choose tax-qualified charities to receive the remainder interest. After you die or the specified term ends, any remaining assets in the trust will automatically go to your charities of your choice.

You may qualify for a tax deduction in the year that you add assets to the trust, even though the charity might not receive the remainder interest for years. And if you can't use the entire deduction in the year you give, you may be able to carry the deduction forward for five additional years.

Charitable gift annuity

A charitable gift annuity involves giving assets to charity in exchange for a stream of income payments. You may give cash, stocks or mutual funds to a charity or charities important to you, and in return, you receive a lifelong stream of income. At your death, the charity receives any remaining assets, which can be used to fund the charity's mission. 

This opportunity can allow a taxpayer to reposition retirement assets as well as other non-qualified assets, while minimizing their taxable income. Lutes uses the hypothetical case of a couple, ages 82 and 78, in the 12% tax bracket:

In the early 1980s they invested $1,000 in an up-and-coming tech giant and never touched it. Now, with perhaps half a million dollars or so in appreciated stock, they face capital gains taxes.

“But by creating a $100,000 charitable gift annuity, they can draw $5,400 of annual income whenever they want. Then, by itemizing enough deductions against a $100,000 distribution, they can enjoy that money with minimal taxation,” Lutes explains.

Qualified charitable distributions (QCDs)

QCDs enable individuals 70½ years or older to satisfy their RMDs through charitable giving. You can make a distribution of $100,000 each year from an IRA, as long as it goes directly to the charity. The money you donate to charity is classified as a direct transfer, which allows the contribution to avoid taxation. 

> Learn more: Tools for tax-efficient charitable giving

There is a relatively narrow window of time to act to potentially reduce your tax burden. And although accountants and tax preparers focus on cutting your taxes today, not all can project what taxes might look like in the future.
Todd Yeiter, director of Advisor Support at Thrivent

How can Thrivent help me develop tax-efficient strategies?

“There is a relatively narrow window of time to act to potentially reduce your tax burden,” says Yeiter. “And although accountants and tax preparers focus on cutting your taxes today, not all can project what taxes might look like in the future.”

However, working with a financial advisor to lower your taxes in the future is a worthwhile and rewarding process—especially if you do your homework.

“Every client should take the time to fill out the Tax Efficiency Checklist (also available from a Thrivent financial advisor) to get a better understanding of where their current savings and investments are sitting from an income tax perspective,” says Yeiter.

“Very few people have much, if any, money in the ‘tax never’ category. Sharing your most recent income-tax return can more accurately project your long-term tax profile,” suggests Yeiter.

Also be sure to advise your financial advisor of any potential money you may receive in the future from a property sale, bonus or other windfall. To develop a plan to potentially lower your short- and long-term taxes, consult a certified public accountant and/or your attorney.

How a financial advisor can help

“Our proprietary tool, What-If Tax, can generate side-by-side hypotheticals involving many of the tax-reducing tactics discussed above. Using this and other Thrivent applications, financial advisors can work alongside the client’s tax professional to provide tradeoffs and suggest options,” says Yeiter. You’ll benefit from seeing upcoming life events from a tax perspective.

Summing up the financial advisor’s role in helping you reduce taxes, Hussian says: “What if your friend is growing a vegetable garden and they’re losing two out of 10 of their vegetables to poor soil conditions? If I could show them ways to lower that loss to 10%, I’m giving them something valuable.”

Ready to talk to a financial advisor? Connect with someone near you.

*Methodology: This research was conducted in June 2022 among a national sample of 1,500 adults in order to measure their sentiments, financial planning, knowledge, and issues regarding retirement. The interviews were conducted online and the data was broken into three sample groups; Saving, Nearing, and Retired. Results from the full survey have a margin of error of plus or minus 3 percentage points.

State tax rules may differ from federal rules governing the tax treatment of Roth IRAs and there may be conflicts between federal and state tax treatment of IRA conversions. Consult your tax professional for your state's tax rules.

2 Distributions of earnings are tax free as long as your Roth IRA is at least five years old and one of the following requirements is met: (1) you are at least 59½; (2) you are disabled; (3) you are purchasing your first home ($10,000 lifetime maximum); or (4) the money is being paid to a beneficiary. Non-qualified distributions of earnings prior to age 59½ may incur a 10% premature distribution penalty and are taxable.

Interest is free from federal income tax; may be subject to state income tax, federal alternative minimum tax and capital gains tax.

4 Under current tax law [IRC Sec. 101 (a)(1 )), death proceeds are generally excludable from the beneficiary's gross income. However, death proceeds may be subject to state and federal estate and/or inheritance tax.

5 Loans and surrenders will decrease the death proceeds and the value available to pay insurance costs which may cause the contract to terminate without value. Surrenders may generate an income tax liability and charges may apply. A significant taxable event can occur if a contract terminates with outstanding debt. Contact your tax advisor for further details. Loaned values may accumulate at a lower rate than unloaned values.

6 Modified Endowment Contracts (MEC) do not qualify for tax-free withdrawals.

Investing involves risk, including the possible loss of principal. The prospectus and summary prospectuses of the variable universal life contract and underlying investment options contain information on investment objectives, risks, charges and expenses, which investors should read carefully and consider before investing. Available at

Insurance contracts have exclusions, limitations and terms under which the benefits may be reduced, or the contract may be discontinued. For costs and complete details of coverage, contact your licensed insurance agent/producer.