Retirees are often surprised by how taxes continue to shape their income and financial decisions even years after they stop working. What catches many off guard is how small missteps can chip away at hard-earned savings. You might move into a higher tax bracket without realizing it.

That’s why proactive tax planning is smart, and the earlier you start, the more flexibility you’ll have to protect your retirement lifestyle.

This article from 1st Choice Financial Services highlights practical tax-saving strategies to support your retirement planning in Pennsylvania and reduce the risk of unexpected tax surprises.

The Three-Bucket Approach to Retirement Income

A helpful way to view retirement income planning is through the lens of the three-bucket approach. Each “bucket” represents a different type of account and tax treatment. Understanding this concept can help you make more informed decisions about when and how to draw income.

1. Taxable Bucket

This includes checking and savings accounts, certificates of deposit (CDs), and brokerage accounts. Interest from CDs, savings, and money market accounts is typically taxed as ordinary income. In brokerage accounts, qualified dividends and long-term capital gains (on assets held more than 12 months) may be taxed at lower rates. In contrast, short-term gains are taxed as ordinary income.

This bucket offers flexibility and liquidity for short-term needs, and may provide meaningful growth potential when managed with a tax-conscious investment strategy.

2. Tax-Deferred Bucket

Traditional 401(k)s and IRAs fall into this category. These accounts grow without annual taxes on earnings, but withdrawals are taxed as ordinary income. This deferral can help your savings grow faster but may lead to larger tax bills later, especially once required minimum distributions (RMDs) begin.

3. Tax-Free Bucket

Roth IRAs offer tax-free withdrawals in retirement, provided certain conditions are met. Because contributions are made with after-tax dollars, qualified distributions aren’t taxed again. Health Savings Accounts (HSAs) can also fit into this category when used for qualified medical expenses, offering triple tax advantages: tax-deductible contributions, tax-free growth, and tax-free withdrawals.

1st Choice’s retirement advisors in Central Pennsylvania can help assess your investments and identify the most tax-efficient buckets to draw from.

Key Tax-Saving Strategies for Retirees in PA

Below are some important tax-related strategies that may assist your wealth management in Harrisburg, so you keep more of what you’ve saved.

Understanding Social Security Taxation

Many retirees are surprised to learn that a portion of their Social Security benefits may be subject to taxation. The IRS uses something called provisional income, which includes half of your Social Security benefits, plus other sources of income, to determine how much of your benefit is taxed.

Depending on your income, up to 85% of your benefits may be subject to federal tax. Pennsylvania, however, does not tax Social Security benefits, which can be a welcome relief for residents. Still, it’s worth reviewing your overall income picture to avoid an unexpected bill.

Strategic Withdrawal Planning

Once you retire, you may have more flexibility than ever in choosing how to access your money. This is especially true in the years between retirement and when RMDs begin.

During this gap, you might be in a lower tax bracket, making it an ideal time to:

• Withdraw from tax-deferred accounts strategically to reduce future RMD burdens.

• Convert traditional IRA funds to a Roth IRA in manageable amounts. While the converted amount is taxable in the year of the conversion, it could create tax-free income in the future. Just be mindful of how much you convert each year, so you don’t unintentionally increase your Medicare premiums or enter a higher tax bracket.

• Use tax-loss harvesting in your taxable brokerage account to offset gains or income.

An experienced retirement advisor in Harrisburg, PA, like those with 1st Choice, can coordinate withdrawals across different account types to help you manage your tax liability over time.

The Role of Required Minimum Distributions

Starting at age 73 (per current IRS rules), you must begin taking RMDs from most tax-deferred retirement accounts, whether you need the income or not.

These mandatory withdrawals can:

• Push you into a higher tax bracket
• Increase your taxable income
• Affect how much you pay for Medicare (especially Part B and D premiums)

If you’re not careful, the impact of RMDs can feel like a domino effect. That’s why many retirees explore Roth conversions or charitable giving strategies as ways to help reduce future RMDs and create a more flexible income stream.

Beyond the Numbers: The Value of a Retirement Specialist

While understanding the tax laws is important, effective retirement planning in Pennsylvania extends far beyond the numbers on a spreadsheet. It’s not just about minimizing taxes—it’s about understanding your complete financial picture and advancing your long-term objectives.

That’s where a trusted retirement planning specialist comes in.

Because the tax code is complex and frequently changes, trying to interpret it alone can lead to missed opportunities or costly mistakes. An independent retirement advisor can help you:

• Reassess your withdrawal plan each year
• Coordinate your income sources efficiently
• Identify opportunities to reduce lifetime tax exposure
• Explore how different strategies may fit your evolving lifestyle

As your experienced retirement planning specialist in Central Pennsylvania, 1st Choice Financial Services works closely with individuals and couples to support smarter financial decisions. We take pride in offering personal, local guidance, not generic, one-size-fits-all advice.

1st Choice Can Help You Take Control of Your Financial Future

1st Choice Financial Services, Inc., an independent advisor firm headquartered in Camp Hill, provides comprehensive financial solutions to clients in Harrisburg, Hershey, Halifax, Lancaster, Lebanon, Enola, Mechanicsburg, and surrounding communities.

We aim to help you take the guesswork out of retirement planning. Whether you’re already retired or planning your next steps, we invite you to connect with our Camp Hill-based team to explore how we can support your goals.

Schedule your complimentary consultation today. We’re ready to help you pursue your financial future, one smart decision at a time.

Investment advisory services offered through Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser. The views, statements and opinions expressed herein are those of the  1st Choice Financial, and not necessarily of Foundations or their affiliates.  The content provided is for educational purposes only and the views reflected are subject to change at any time without notice.   No investment, legal or tax advice is provided.    Always consult with a professional.  Foundations deems reliable any statistical data or information obtained from third party sources that is included in this article,  but in no way guarantees its accuracy or completeness.

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. 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 and/or to be sure a Roth IRA conversion fits into your planning strategies.