Morgan Stanley
  • Wealth Management
  • Jul 26, 2022

Tax-Smart Strategies for Your Retirement

Smart tax planning can help you save more for retirement and keep more of what you’ve already saved. Consider these tax-efficient retirement planning strategies.

Consider these strategies to help you reduce your taxable income, generate tax-advantaged growth potential in your retirement accounts and keep more of what you’ve worked so hard to save. 

Manage your Wealth

Find a Financial Advisor, Branch and Private Wealth Advisor near you

Max Out Your IRA Contributions

The deadline to make a contribution to an Individual Retirement Account (IRA) for any given tax year is the due date of your federal income tax return—typically on or around April 15—of the following calendar year for most individual taxpayers. Note the two primary types of IRAs:

  1. Traditional IRAs, contributions to which may be tax deductible; or
  2. Roth IRAs, for potential tax-free distributions if certain conditions are met.1 Roth IRAs are funded with after-tax contributions.

For the 2022 tax year, the maximum contribution to a Traditional or Roth IRA is the lesser of (a) your taxable compensation for 2022 or (b) $6,000 (or $7,000 if you are age 50 or older at any time during the calendar year). These limits apply to all of your Traditional and Roth IRAs combined.

If you are self-employed or a small business owner, consider establishing a Simplified Employee Pension Plan (SEP IRA) (which is an IRA-based retirement plan) and funding a SEP IRA with employer contributions made under that plan. Note that if your business employs any employees, the SEP IRA will likely have to cover the employees as well if they qualify. For 2022, the maximum employer contribution to a SEP IRA (or to your own SEP IRA) is the lesser of (a) 25% of your employees’ eligible compensation (or, if you are self-employed, 20% of your net earnings from self-employment), or (b) $61,000, and the deadline to contribute is the due date of the federal income tax return for your business, which typically has the same due date as your individual federal income tax return.3  

Consider a Roth IRA Conversion

Some individuals can't contribute directly to Roth IRAs if their income exceeds certain limits set by the tax code, but they may be able to convert a Traditional IRA to a Roth IRA. The taxable amount converted (including the tax-deductible contributions as well as tax-deferred earnings) is subject to ordinary income tax for the year the conversion is made but provides future federal tax-free growth potential. This strategy may work for taxpayers who will not need to take distributions from their Roth IRA during retirement and plan to leave their account to their children. Keep in mind, however, that such a conversion in 2022 may increase your adjusted gross income for 2022. 

Required Minimum Distribution (RMD)

Under the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, which was signed into law December 20, 2019, the required minimum distribution (RMD) beginning age is 70 ½ for individuals born before July 1, 1949 and 72 for individuals born after June 30, 1949. Speak with your Financial Advisor and your tax advisor about how you should approach taking RMDs in the context of your overall retirement plan. 

Give Your Distribution to Charity

The rules around Qualified Charitable Distributions (QCDs) generally allow individuals age 70½ or older to make a QCD of up to $100,000 per year directly from their IRAs to an eligible charitable organization.4

QCDs can be counted toward satisfying RMDs for the year if certain rules are met. However, if an individual makes a tax-deductible contribution after age 70 ½, the amount the individual can exclude from their taxable income as a QCD will generally be reduced. Keep in mind that, for an IRA distribution to qualify as a QCD, it must satisfy certain requirements (e.g., must be paid directly from your IRA to an eligible charitable organization, and not all charitable organizations qualify to receive QCDs). Make sure to work with your tax advisor to ensure that you satisfy all the QCD requirements and that QCDs have been correctly reported on your tax return. 

Consider a Smart Gift With Your Distribution

You can choose to take a distribution to fund a 529 education savings plan for grandchildren or other family members. While your distribution will be subject to tax, once you invest the funds in a 529 plan they can potentially grow tax-free. Any withdrawal used for qualified higher education expenses (as defined by the IRS) will generally be tax-free.5 Furthermore, Morgan Stanley now offers the Morgan Stanley National Advisory 529 Plan, the first 529 plan of its kind, available nationwide, exclusively to Morgan Stanley clients. You can select from goals-based asset allocation portfolios, guided by Morgan Stanley thought leaders, that align with your unique time frame, risk profile and goals, while gaining access to institutional caliber fund managers and pricing.

Save More in a Variable Annuity

If you’ve contributed the maximum allowable to your 401(k)s, IRAs and/or other tax-qualified retirement accounts, consider putting additional savings into variable annuities. Assets in a variable annuity maintain tax-deferred growth potential until they are withdrawn by the contract owner. When you retire, depending on your annuity contract, you may be able to elect to receive regular income payments for a specified period or spread over your lifetime. Many annuities also offer a variety of living and death benefit options, usually for additional fees.

If you have complex tax planning needs, your Morgan Stanley Financial Advisor can connect you to experienced tax professionals at leading U.S.-based providers across the country to help ensure your tax strategy is optimized.  

Have a Morgan Stanley Online Account?

Ready to Start a Conversation?

Find a Financial Advisor Near You.

Filter by investment need, ZIP code or view all Financial Advisors.

Check the background of Our Firm and Investment Professionals on FINRA's Broker/Check.