5 ways to save on taxes in retirement

There's still time for retirees to put a dent in their tax bill.

Kerry Hannon · Senior Columnist

Updated January 23, 2026 6 min read

If you were invested in stocks and stock mutual funds, 2025 was a good year, albeit not a smooth one at times.

But in the end, the results were higher balances for many retirees’ investments.

The S&P 500 ended the year with a gain of around 18%. The Dow Jones Industrial Average jumped nearly 13%, and the Nasdaq ballooned close to 21%.

But how much of that will you get to keep? The dividends and capital gains you get from these investments do come with a tax bill.

Meanwhile, Social Security recipients received a cost-of-living adjustment (COLA) of 2.5% for 2025. That small increase could push you over the income threshold that makes your benefits taxable.

Keeping more of your money in retirement is your end goal, and tax time offers ways to maximize your nest egg. Here are some basic ways to lower your tax liability for your 2025 return.

5 ways retirees can save on this year's taxes

1. Make an IRA contribution

Investing money in an individual retirement account — a non-Roth IRA — reduces your taxable income, which in turn can mean a lower tax bill.

Even though you’re “retired,” you or your spouse might have earned some extra money from a consulting, contract, or part-time gig last year. That means you may be able to make IRA contributions.

Traditional IRA contributions are not limited by how much you make annually, meaning that anyone with earned income is eligible, though your contribution may not be fully deductible. If you (or your spouse) are covered by an employer-sponsored retirement plan, the tax-deductible portion of your IRA contribution may be further trimmed.

Meantime, there is no age restriction on making regular contributions to traditional IRAs.

2. Contribute to an HSA

In general, you can contribute to a health savings account (HSA) as long as you’re covered by a high-deductible health plan and not yet enrolled in Medicare. You can also open an account as a self-employed freelancer or business owner if you have a qualified HDHP.

It’s the only account that lets you put money in on a tax-free basis, lets that money build up tax-free, and allows it to come out tax-free for qualified healthcare expenses.

Just like IRAs, you can contribute to an HSA up until the April 15 tax deadline, and doing so reduces your taxable income.

3. Run the math on the standard deduction

Most tax filers opt for taking the standard deduction , which has increased substantially.

For tax year 2025, the standard deduction is $31,500 for married couples filing jointly ($15,750 for single filers). For most taxpayers, that amount exceeds the total of their itemized deductions.

But it’s worth running the numbers to see if your own itemized deductions exceed that amount and would deliver a tax benefit. Common itemized deductions, such as charitable contributions , state taxes, and mortgage interest , can quickly add up.

Then take a look at your medical spending. Unreimbursed medical expenses that exceed 7.5% of your adjusted gross income (AGI) can also be deducted.

If you’re 65 or older at the end of the tax year, you can save more on your 2025 taxes by taking the additional standard deduction of $2,000 if you're single or file as head of household. If you file jointly, the bonus deduction is $1,600 for each spouse if you’re both 65 or older.

On top of that, effective from 2025 through 2028, if you’re 65 or older, you may claim an additional deduction of $6,000 per person. The deduction phases out for taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers).

4. Review state and local tax breaks

Contribute to a 529 education account

You may qualify for a state tax deduction for contributions made to a 529 education account by April 15 in a few states — Georgia, Indiana, Iowa, Mississippi, Oklahoma, South Carolina, and Wisconsin.

For other states, you need to get those accounts funded by Dec. 21 of the applicable tax year. For example, if you’re the 529 account owner or a contributor, you can subtract up to $2,500 per beneficiary from your Maryland state income for contributions in that calendar year.

Take advantage of older adult tax breaks

Your state, county, or city might also offer income tax breaks or credits if you’re 65 or older. Property tax breaks for older adults are available in some states.

For example, in the District of Columbia, if you're 65 or older, the Senior Citizen Tax Relief reduces your annual real property taxes by 50%. You need to apply for this tax break and can contact your state’s tax agency or local tax office.

5. Get a leg up on next year’s return

If you’re already retired, there are several ways to reduce your 2026 tax bill, but these strategies require planning throughout the year, and now is the best time to start.

Be strategic about Required Minimum Distributions (RMDs)

You must take your first RMD for the year in which you reach age 73. However, you can delay taking the first RMD until April 1 of the following year.

If you reach age 73 in 2026, you must take your first RMD by April 1, 2027, and the second RMD by Dec. 31, 2027. While deferring your first RMD to 2027 could lower your taxable income for 2026, it would mean taking two RMDs in 2027, potentially increasing your tax bill that year.

One exception that may let you delay your RMD from an employer-sponsored 401(k) or (403(b) plan is to stay on the job.

Utilize Qualified Charitable Distributions (QCDs)

If you’re 70 ½ or older, don’t have enough deductions to itemize, and are charitably inclined, a QCD could be a tax-efficient solution.

This allows you to keep the benefits of the standard deduction while lowering your taxable income, which could also potentially reduce taxes on your Social Security benefits and lower your Medicare premiums.

Have significant savings? A financial advisor can help you optimize it

For tax year 2025, a QCD allows you to donate up to $108,000 from your IRA directly to a qualified charity. The upside of this strategy is that while the amount you donate is not deductible as an itemized deduction, you don’t have to pay federal taxes on the amount distributed to the charity. That donation counts toward the year's RMD. A number of states also permit taxpayers to deduct or receive a tax credit for qualified gifts to charity.

“One of the big things we see retirees miss tax opportunity-wise is choosing the right way to make a charitable donation,” Howard Hook, senior wealth advisor at EKS Associates in Princeton, NJ, told Yahoo Finance. “If done correctly, you can save a significant amount of taxes,” he added.