Products & Pricing
Online products
CD/download products
Mobile products
Self-employment taxes
Small business taxes
Compare products
TurboTax Advantage
Previous years' products
File an IRS extension
Access my downloads
Tools & Tips
Tax calculators
Tax tips & videos
Track my donations
TurboTax blog
After You File
Track my refund
Check my e-file status
Print my return
Amend my return
Access prior year returns
Go to Turbo
TurboTax Support
Frequently Asked Questions
Expert Services
How TurboTax works
Tax Reform

Tax Strategies for an Early Retirement

Updated for Tax Year 2017


Retirement. The word sounds so good to so many people because of what it implies: a life of leisure, free of the daily grind of workdays that last at least eight or nine hours and as many as 10 or 12 if you are unlucky. But there is one thing from which even retirement does not excuse you: paying taxes.

Tax-free retirement: Myth or possible?

While some say it can be done, the chances are slim that you will be able to have a tax-free retirement. Still, financial planners and tax experts identify steps you may take to minimize your tax burden in retirement. Some that you may take while you are still dedicated to your 9-to-5 job could help you reach the promised land of leisure a little early.

“If the ‘average Joe’ plans properly and maximizes these three strategies, he can surely keep his retirement income taxes very low, or even have tax-free golden years,” says certified financial planner, Michael Hardy.


Planning is the key element of a burden-free retirement.

Michael Hardy, a certified financial planner and partner with Amherst, New York-based independent financial planning firm Mollot & Hardy Inc., notes a few options about which he typically advises working-class clients. They include Roth IRAs and profits from the sale of the principal residence.

“A Roth IRA will provide tax-free income at retirement,” Hardy said. “Currently, as long as one falls under the maximum income limit as stated by the IRS, he or she can (contribute) up to $5,000 this year, plus another $1,000 for those 50 and over.”

In regards to real estate, Hardy says a couple filing joint taxes may realize a tax-free gain of up to $500,000 on the sale of their home.

Roth IRAs are your friends

Parents often lecture children about the importance of saving a few pennies here and there whenever they get a little money. Those pennies can add up, children are told.

A Roth IRA allows you to practice such saving on a much larger scale. A Roth IRA is a retirement account funded by after-tax contributions. Qualified distributions of contributions and earnings are not taxed. Experts say taking full advantage of a Roth IRA or a Roth 401(k) is among the best ways of mitigating some of the tax burdens in retirement.

“A Roth IRA can be set up by any financial institution and can hold a multitude of investment options,” said Nick J.D. Olesen, a private wealth manager with the Philadelphia Group in King of Prussia, Pennsylvania. “I do not recommend investors open up any account through a bank or credit union, as those institutions mainly recommend CDs for the investments and do not have access to other investments.”

Roth accounts allow retirees to withdraw income completely free of taxes after the later of attaining the age of 59 ½, or a five-year holding period for the first contribution.

“This obviously can help one plan for being within a certain tax bracket in retirement if they are able to access income from their investments that doesn’t get eaten up by Uncle Sam,” said Kasey Gahler, a certified financial planner.

Gahler, of Austin, Texas-based Gahler Financial, adds that most tax-advantaged accounts, such as IRAs, do not allow investors to access funds prior to the age of 59 1/2 without a 10 percent penalty.

He explained, however, that there are several ways around that stipulation including the Substantially Equal Periodic Payments (SEPP) calculation. It allows the account holder to withdraw funds before the stipulated age, granted the same amount is taken annually until the later of five years or attaining the age of 59 1/2.

The Internal Revenue Service has outlined three ways to calculate the SEPP amount, Olesen said. Each is based on the investor’s age and either the interest rates or Required Minimum Distribution tables.

Other ways which allow investors to access funds from tax-advantaged accounts, such as IRAs, prior to the age of 59 1/2 without a 10 percent penalty include:

  • Distributions to the extent the individual’s unreimbursed medical expenses exceed 7.5 percent of his adjusted gross income (AGI) for tax years 2017 and 2018, 10 percent of AGI for tax years after 2018.
  • Qualified higher education expenses of the taxpayer, spouse, child or grandchild
  • First-time home purchases (no home ownership in prior two years) limited to $10,000
  • Disability or death

In addition, a one-time tax and penalty-free transfer can be made from an IRA to a Health Savings Account (limited in 2017 to $3,400 for self-only coverage and $6,750 for family coverage, plus A $1,000 catch-up contribution if you're 55 or over).

Sell now, benefit later

Will you really need that five-bedroom house with the huge backyard once you have stopped working and all your children have moved out? Probably not. That is why experts say downsizing early can equate to rewarding benefits later.

“Another privilege that one could easily take advantage of is the tax-free gain on the sale of your primary residence,” Gahler says, noting that owners may walk away with up to $250,000 if single or $500,000 if married and filing jointly.

“Having your home paid off prior to retirement can be a major advantage not only in monthly cash flow but also if you plan to move and/or downsize in retirement,” Gahler said. “You are able to take those gains and could use them to supplement your retirement income if needed, or simply allow them to grow in your portfolio.”

Given the complexities involved in most long-term financial strategies, Sean Dowling, president of the Dowling Group, a Stamford, Connecticut-based financial planning firm, said it is important to consult with a tax professional or certified financial planner, as a good understanding of the nuances of the Internal Revenue Code is required. Mistakes could be extremely costly, he noted.

“These are fantastic opportunities available to those that are looking for them,” Dowling said. “Anyone who is interested in pursuing these types of strategies would be wise to seek out competent professionals who can work with them and integrate their tax, retirement and estate planning.”

The burden of taxes after retirement

You have worked most of your life and paid a lot of taxes. Must you really worry about Uncle Sam getting his share of your retirement income? Austin, Texas-based certified financial planner Kasey Gahler says yes.

“There are a number of tax burdens to be aware of in retirement,” Gahler said. “For more retirees, a large majority of their savings is usually in pre-tax accounts such as 401(k)s or 403(b)s.”

Gahler said all of these dollars are taxable as income in retirement—meaning taxed as if you’re working when you are really not.

Another tax to consider, he said, is the potential taxation on Social Security benefits. “Whether or not your benefits are taxed depends on the amount of other income derived from investments, pensions or even part-time work one is bringing in during retirement years,” Gahler said.

A TurboTax solution for every situation

See which tax prep product is right for you

Looking for more information?

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

Security is built into everything we do
* Important Offer Details and Disclosures

  • Try for Free/Pay When You File: TurboTax online and mobile pricing is based on your tax situation and varies by product. Absolute Zero $0 federal (1040EZ/1040A) + $0 state offer only available with TurboTax Federal Free Edition; offer may change or end at any time without notice. Actual prices are determined at the time of print or e-file and are subject to change without notice. Savings and price comparisons based on anticipated price increase expected in March. Special discount offers may not be valid for mobile in-app purchases.
  • QuickBooks Self-Employed Offer with TurboTax Self-Employed: File your 2016 TurboTax Self-Employed return between 4/19/17 and 10/16/17 to receive your complimentary subscription to QuickBooks Self-Employed until 10/31/18. Activation by 12/31/17 required. Sign in to QuickBooks Self-Employed via mobile app or at; e-mail address used for activation and sign-in. Offer valid only for new QuickBooks Self-Employed customers. See for price comparison.
    • When you use TurboTax Self-Employed to file your 2017 taxes, you will have the option to renew your QuickBooks Self-Employed subscription. If you do not purchase TurboTax Self-Employed by 10/15/18, you will have the option of renewing your QuickBooks Self-Employed subscription by 10/31/18 for another year at the then-current annual subscription rate. You may cancel your subscription at any time from within the QuickBooks Self-Employed billing section.
  • Pays for itself (TurboTax Self-Employed): Estimates based on deductible business expenses calculated at the self-employment tax income rate (15.3%) for tax year 2016. Actual results will vary based on your tax situation.
  • Anytime, anywhere: Internet access required; standard message and data rates apply to download and use mobile app.
  • Fastest refund possible: Fastest tax refund with e-file and direct deposit; tax refund time frames will vary.
  • Pay for TurboTax out of your federal refund: $34.99 Refund Processing Service fee applies to this payment method. Prices are subject to change without notice.
  • TurboTax Expert Help, Tax Advice and SmartLook: Included with Deluxe, Premier and Self-Employed (via phone or on-screen); not included with Federal Free Edition (but available for purchase with the Plus bundle). SmartLook on-screen help is available on a PC, laptop or the TurboTax mobile app. TurboTax experts provide general advice, customer service and product help; tax advice provided only by credentialed CPAs, enrolled agents and tax attorneys. Feature availability varies by device. State tax advice is free. Service, area of expertise, experience levels, hours of operation and availability vary, and are subject to restriction and change without notice.
  • Tax Return Access, My Docs and My Analysis & Advice features: Access to all tax-related documents we have on file for you is available until you file your 2017 tax return or through 10/31/2018, whichever comes first. Terms and conditions may vary and are subject to change without notice.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2015 TurboTax products.
  • Most Popular: TurboTax Deluxe is our most popular product among TurboTax Online users with more complex tax situations.
  • CompleteCheck: Covered under the TurboTax accurate calculations and maximum refund guarantees.
  • #1 rated online tax prep provider: Based on independent comparison of the best online tax software by March 13, 2017.

  • TurboTax CD/Download products: Price includes tax preparation and printing of federal tax returns and free federal e-file of up to 5 federal tax returns. Additional fees apply for e-filing state returns. E-file fees do not apply to New York state returns. Savings and price comparison based on anticipated price increase expected in March. Prices subject to change without notice.
  • Fastest refund possible: Fastest tax refund with e-file and direct deposit; tax refund time frames will vary.
  • Pay for TurboTax out of your federal refund: $34.99 Refund Processing Service fee applies to this payment method. Prices are subject to change without notice. This benefit is available with TurboTax Federal products except TurboTax Business.
  • About our TurboTax Product Experts: Customer service and product support vary by time of year.
  • About our credentialed tax experts: Live tax advice via phone is included with Premier and Home & Business; fees apply for Basic and Deluxe customers. State tax advice is free. Service, experience levels, hours of operation and availability vary, and are subject to restriction and change without notice. Not available for TurboTax Business customers.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2015 TurboTax products.
  • Data Import: Imports financial data from participating companies. Quicken and QuickBooks import not available with TurboTax installed on a Mac. Imports from Quicken (2015 and higher) and QuickBooks Desktop (2011 and higher); both Windows only. Quicken import not available for TurboTax Business. Quicken products provided by Quicken Inc., Quicken import subject to change.
Online Software Products
CD/Download Products
Mobile Tax Apps
Help and Support
Tax Tools and Tips
More Products from Intuit