Tax Tips to Aid in Retiring Early
Retiring early takes more than reaching a savings target. You also need a plan for accessing your money, managing taxes, and covering expenses before traditional retirement benefits begin.
Early retirement tax planning can help you make the most of available savings opportunities and understand how your income will be taxed after you leave the workforce.
Here are several strategies to consider.
1. Make the Most of Tax-Advantaged Retirement Accounts
Traditional retirement accounts can help you save while managing your current tax bill. Eligible pretax contributions to a 401(k) reduce current taxable income, while traditional IRA contributions may be deductible depending on your income and workplace retirement coverage.
Investment earnings grow tax-deferred, with taxable withdrawals generally included in income later.
What you can do: Review your contribution levels, employer matching opportunities, and eligibility for deductions. Balance retirement savings with accessible funds you may need before retirement-account withdrawal restrictions ease.
2. Use Catch-Up Contributions When Eligible
Catch-up contributions allow eligible older savers to contribute beyond the regular annual limit.
The general 2026 contribution limits are:
| Account or plan |
Regular contribution limit |
Catch-up at age 50+ |
Higher catch-up at ages 60–63 |
|---|---|---|---|
| Most 401(k), 403(b), and governmental 457(b) plans | $24,500 | $8,000 | $11,250 |
| Traditional and Roth IRAs combined | $7,500 | $1,100 | No separate increase |
| SIMPLE IRAs | $17,000 | $4,000 | $5,250 |
The higher catch-up replaces the regular catch-up; the two are not added together. Certain SIMPLE plans have different limits, and employer plan provisions matter.
Beginning in 2026, certain higher-paid employees must make employer-plan catch-up contributions on a Roth basis. For 2026, the rule generally applies when prior-year wages from the sponsoring employer exceeded $150,000.
What you can do: Confirm your available limits and contribution options with your plan administrator before adjusting payroll deductions.
3. Build Flexibility With Roth Accounts
Roth accounts are funded with after-tax dollars. In exchange, qualified withdrawals—including earnings—are tax-free when applicable requirements are met.
Having both pretax and Roth savings can give you more options for managing taxable income during retirement. Roth IRA contribution eligibility depends on income, while employer Roth accounts follow different rules.
What you can do: Compare your current tax rate with your projected retirement tax situation. Consider how Roth savings could complement your other accounts and future income sources.
4. Evaluate Roth Conversions During Lower-Income Years
Early retirement may create a period of lower taxable income before Social Security and required minimum distributions begin. That can be an opportunity to evaluate partial Roth conversions.
The taxable portion of a conversion is included in income for the conversion year. Future qualified Roth withdrawals can be tax-free, but holding-period and early-withdrawal rules require attention.
What you can do: Compare conversion amounts across several years rather than automatically converting a large balance at once. Include the conversion tax cost and potential effects on income-based benefits in your review.
5. Plan How You’ll Access Money Before Age 59½
A large retirement balance does not automatically mean every dollar is available without additional tax.
Withdrawals before age 59½ generally may face a 10% additional tax, unless an exception applies. One exception can cover qualifying employer-plan withdrawals after separation from service in or after the year you turn 55. It generally does not apply to IRA withdrawals. Other exceptions have their own requirements.
What you can do: Build a plan for funding the years between leaving work and reaching key retirement milestones. Review accessible savings, taxable investments, and eligible retirement withdrawals before moving money between accounts.
A rollover can change which withdrawal exceptions are available, so check the consequences first.
6. Include Healthcare and HSA Planning
Healthcare deserves its own place in an early retirement budget, particularly before Medicare eligibility.
If you qualify, a Health Savings Account can provide deductible or pretax contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. Unused funds carry forward. Contributions generally must stop once you enroll in Medicare.
For 2026, HSA contribution limits are $4,400 for self-only coverage and $8,750 for family coverage, with an additional $1,000 catch-up contribution for eligible individuals age 55 or older. Eligibility and partial-year rules can affect your limit.
What you can do: Estimate insurance premiums and out-of-pocket costs, confirm HSA eligibility, and keep records supporting qualified medical withdrawals.
7. Review Where You’ll Live and Future Tax Benefits
Your retirement location affects more than income taxes. Property taxes, housing costs, insurance, healthcare access, and proximity to family also influence your budget.
Federal law generally prevents a former state from taxing qualifying retirement income solely because it was earned there once you are no longer its resident or domiciliary. Residency and the type of income still matter.
As you approach later retirement milestones, revisit Social Security, Medicare, and age-based deductions. Under current law, eligible taxpayers age 65 or older may claim an additional deduction of up to $6,000 per person for 2025–2028, subject to income limits. This temporary benefit should not be assumed available in later years.
What you can do: Compare locations using your full projected budget and revisit your plan as your circumstances and tax laws change.
Bring Your Retirement Timeline and Tax Plan Together
The goal is to understand how much you need, where your income will come from, and what remains after taxes and living expenses.
At Cohn, Lopez & Associates, our proactive tax planning and financial and retirement planning services help you evaluate these decisions together. Located in Winter Park, we offer in-person and virtual appointments.
Let’s review your retirement timeline and identify tax planning opportunities that support your goals.
Call 407-960-3652 or schedule an appointment.