It’s exciting to think about the day you are ready for retirement. You may be planning extensive travel, reducing your golf handicap, or finally slowing down and taking time to smell the roses. Regardless of your plans once you retire, a few practical aspects are often overlooked when planning for retirement, such as replacing a percentage of your salary or business revenues with a steady income stream that may have to sustain you for the next 30+ years. 

Another consideration often overlooked when considering your retirement is understanding the potential tax implications once you have retired. Retirees often face unique tax challenges, so you want to ensure a comprehensive retirement tax plan to avoid paying any more than necessary.

In this blog, we’ll look at 11 2025 tax tactics you can implement now to position yourself for a better future during retirement. 

As specialized Central Pennsylvania retirement advisors, 1st Choice Financial Services, Inc., headquartered in Camp Hill, helps pre-retirees and early retirees in Harrisburg, Hershey, Halifax, Lancaster, Lebanon, Enola, and beyond construct comprehensive, tax-efficient retirement plans.

Tax Tactic #1: Optimize Required Minimum Distributions (RMDs)

Once you reach age 73, you must start taking RMDs from most retirement accounts, including IRAs and 401(k)s. These distributions are taxable, and failing to withdraw the required amount can result in hefty penalties.

However, if you are 73 or older and don’t need the income, consider transferring your RMD dollars directly to a qualified charity through a Qualified Charitable Distribution (QCD). By doing so, the distribution doesn’t count as taxable income, reducing your overall tax burden while supporting a cause you care about.

Tax Tactic #2: Take Advantage of Roth IRA Conversions

If you believe your taxable income will be lower once you retire, it might be a good time to convert some of your traditional IRA funds into a Roth IRA. While you’ll pay taxes on the converted amount now, future withdrawals from the Roth IRA are tax-free, providing flexibility and potential savings.

Work with a retirement planning specialist in Central Pennsylvania to determine the optimal amount to convert each year without jumping into a higher tax bracket.

Tax Tactic #3: Manage Social Security Taxes

Did you know up to 85% of your Social Security benefits may be taxable depending on your combined income? Managing how and when you withdraw from other accounts can help reduce this tax.

For instance, withdrawing from Roth IRAs or taxable accounts, rather than traditional IRAs or 401(k)s, can lower your provisional income and potentially keep more of your Social Security benefits tax-free.

Tax Tactic #4: Leverage Standard Deductions or Itemize Wisely

For 2025, the standard deduction remains a powerful tool for retirees. If your total deductible expenses don’t exceed the standard deduction amount, stick with it. However, itemizing may save you more if you have significant medical expenses, mortgage interest, or charitable contributions.

As Central Pennsylvania retirement advisors, we often recommend bunching deductions—timing expenses like charitable donations or medical bills in one year—to maximize itemized deductions when necessary.

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Tax Tactic #5: Maximize Tax Credits and Deductions

Once retired, you may qualify for specific tax credits, such as the Credit for the Elderly or Disabled. Additionally, deductions for medical expenses, including premiums for long-term care insurance, can be substantial.

Pennsylvania does not tax retirement income from IRAs, 401(k)s, or Social Security at the state level. This makes Pennsylvania a very tax-friendly state for retirees:

• IRAs and 401(k)s: Distributions from these accounts are generally exempt from Pennsylvania state income tax. However, exceptions might apply, especially for early withdrawals, and federal taxes still apply.

• Social Security: Pennsylvania does not tax Social Security income, although it could be subject to federal taxation depending on your combined income.

This could offer significant savings for you as a Pennsylvania retiree because your retirement income from these sources remains untaxed at the state level. Remember that federal tax obligations on these incomes may still exist.

Tax Tactic #6: Capitalize on Tax-Efficient Investments

Shifting some of your portfolio to tax-efficient investments can reduce the taxes owed on investment income once you retire. Municipal bonds, for instance, provide tax-free interest income at the federal level and sometimes state and local levels.

At 1st Choice Financial Services, our Central Pennsylvania retirement advisors often recommend keeping high-growth investments in tax-advantaged accounts while holding tax-efficient or lower-growth investments in taxable accounts.

Tax Tactic #7: Plan for Healthcare Expenses

Healthcare can become one of your largest expenses in retirement. However, with careful planning, it can also present tax-saving opportunities. 

If you have a Health Savings Account (HSA), continue to use it for qualified medical expenses tax-free. While you can no longer contribute after enrolling in Medicare, those with existing HSAs can still benefit from this tax-advantaged account.

Another option is to deduct medical expenses that exceed 7.5% of your adjusted gross income, including out-of-pocket Medicare premiums or long-term care costs.

Tax Tactic #8: Be Strategic When Selling Assets

Selling investments, real estate, or other appreciated assets in retirement can trigger capital gains taxes. However, long-term capital gains are taxed at lower rates than ordinary income, and retirees often have more flexibility to control the timing of these sales.

You can use tax brackets to minimize capital gains taxes. For instance, if your taxable income is below a certain threshold, you owe no federal tax on long-term capital gains. Work with a local retirement advisor to create a strategy that aligns with your financial goals.

Get to know one of our principles: Kevin Deitrich.

Tax Tactic #9: Watch for the Medicare Surtax

You may face an additional Medicare surtax of 3.8% on net investment income if you have a high income. Keeping your taxable income below the threshold can help avoid this tax:

The Medicare surtax threshold for 2025 for the 3.8% Net Investment Income Tax (NIIT) is:

• $200,000 for single filers, heads of household, and qualifying widow(er)s with dependent children
• $250,000 for married couples filing jointly
• $125,000 for married individuals filing separately

You’ll pay the surtax on whichever number is smaller: your net investment income or the amount your modified adjusted gross income (MAGI) exceeds these numbers.

There are ways to keep your taxable income under these thresholds. You could look into strategies like converting to a Roth IRA, harvesting tax losses, or even gifting appreciated assets to manage your overall tax bill.

Tax Tactic #10: Use Tax-Loss Harvesting to Offset Gains

If you have investments that have depreciated in value, consider selling them. This move, called tax-loss harvesting, can offset the gains from the sale of appreciated investments, lowering your tax bill and improving your portfolio’s upside potential.

As a retiree in Central Pennsylvania, I find this especially useful in managing the tax impact of selling appreciated assets or rebalancing portfolios.

Tax Tactic #11: Don’t Forget Estate and Gift Taxes

While federal estate taxes only apply to estates exceeding $12.92 million per individual 

in 2025, smaller estates can still benefit from gifting strategies.

The 2025 annual gift tax limit is $19,000 per recipient. This means you can give up to $19,000 to as many individuals as you want in 2025 without reporting these gifts to the IRS or triggering federal gift taxes. 

This could allow you to reduce the size of your estate over time while supporting loved ones. The 1st Choice Financial Services retirement planning specialists in Central Pennsylvania can help you integrate gifting into your financial plan.

About 1st Choice Financial Services, Inc.

Our firm is rooted in a biblical foundation. We believe God calls on us to be good stewards of our finances. We are dedicated to helping you pursue the financial success God intends for you, your family, and your legacy.

Our independence allows us to craft personalized strategies tailored to your unique retirement goals rather than fitting your investments into generic molds used by other investors. Because we are not owned by a bank, insurance company, or broker/dealer, we’re not required to recommend investments that may or may not be aligned with your financial goals and needs. 

Ready to learn more about our retirement planning services? Connect with us.

Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, 1st Choice Financial Services, Inc., and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security, or any security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Foundations deems reliable any statistical data or information obtained from or prepared by third party sources that is included in any commentary, but in no way guarantees its accuracy or completeness.

Tax loss harvesting is a strategy that may help minimize the amount of current taxes you have to pay on your investments by choosing to sell an investment at a loss.  It is only appropriate for certain taxpayers in certain scenarios.  Please review your retirement savings, tax and legacy planning strategies with your legal/tax advisor before attempting a tax loss harvesting strategy.

A Roth conversion may not be suitable for your situation. The primary goal in converting retirement assets into a Roth IRA is to reduce the future tax liability on the distributions you take in retirement, or on the distributions of your beneficiaries. The information provided is to help you determine whether or not a Roth IRA conversion may be appropriate for your particular circumstances. Please review your retirement savings, tax, and legacy planning strategies with your legal/tax advisor to be sure a Roth IRA conversion fits into your planning strategies.