We’re in our 60s with $9 million saved for retirement — excited but worried about the large tax liability coming up

Retiring with a sizable nest egg is a hard-won achievement, but it comes with a tax puzzle that many couples underestimate. Enjoying the fruits of years of discipline and sacrifice is a dream worth protecting, and a sound tax strategy is the tool that ensures the government collects only what it is legally owed, not a dollar more.

Paying One’s Fair Share of Tax, Not More

Planning ahead to handle taxes can benefit retiring couples in a host of ways, from their finances, to their long term health care.

A 62-year-old and his 58-year-old wife posted on Reddit’s r/ChubbyFIRE community with this exact problem. He still enjoys his job, which pays a $180,000 annual salary. His employer contributes $22,000 per year to his traditional 401(k), and he directs $30,000 annually into his personal Roth 401(k). His wife retired in 2021 and draws a $70,000 per year pension with a 2% cost-of-living adjustment. Two rental properties complete the picture, generating a net $2,000 per month in passive income.

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The husband wants to join his wife in retirement at 63, but tax concerns are holding him back. His financial planner does not advise on taxes, leaving the couple to navigate a complex landscape on their own. His traditional 401(k) holds $4.3 million, his Roth 401(k) $400,000, and his wife’s 401(k) another $2.2 million. Beyond those accounts, $2.5 million in liquid investments sits untouched. Their combined income, $180,000 in salary, $70,000 in pension, and $24,000 in annual rental income, consistently outpaces their spending. Their financial planner has even urged them to spend more freely, and the couple has responded with pricier vacations and new luxury cars.

A snapshot of their assets, earnings, and liabilities shows the following:

Some Tax Strategies To Use While Enjoying Life

Depending on the couple’s long-term goals, several strategies are available. Each addresses a different piece of the tax puzzle, and most can be combined for compounding effect.

• Relocation: Retirees often move to states like Florida for the weather, but the bigger financial draw is the absence of state income tax. Florida, Texas, Nevada, and several other states levy no income tax at all. For couples residing in California or New York, state and local taxes take a substantial bite from income. Some retirees go further and relocate abroad to countries with a lower cost of living, such as Greece, Thailand, or Portugal, though the logistics and tax implications of expatriation deserve their own dedicated discussion. One development worth noting: the One Big Beautiful Bill Act, signed into law on July 4, 2025, raised the federal SALT deduction cap from $10,000 to $40,000 for joint filers with incomes under $500,000 (through 2029). For couples still living in a high-tax state, this may soften the sting somewhat while they evaluate a move.
• Maximize an HSA: The couple currently has no Health Savings Account. An HSA is triple tax-advantaged: contributions go in pre-tax, the balance grows tax-deferred, and qualified medical withdrawals are tax-free. For 2026, the IRS allows up to $4,400 for self-only coverage or $8,750 for family coverage, with an additional $1,000 catch-up contribution available to those 55 and older. To contribute, the husband must be enrolled in an HSA-eligible high-deductible health plan (HDHP), and eligibility ends upon Medicare enrollment at 65. At 62, he has a narrow window remaining to build this account. Even modest contributions over the next few years can compound tax-free for decades and be used in retirement to cover Medicare premiums and other qualified medical costs.
• Turn a Hobby Into a Business: If either spouse pursues a hobby that could legitimately qualify as a business, the tax benefits are meaningful. Business-related expenses including transportation, materials, and promotion become deductible and can be pooled with other 1099 passive income to reduce the net taxable base. Establishing an active business before full retirement also creates a documented income history that can support a lower bracket in subsequent years. One practical boundary: the IRS generally allows a company to take losses in three out of five consecutive years before reclassifying the activity as a hobby, giving roughly a five-year window to assess whether the venture is worth continuing.
• The OBBBA senior deduction: Beginning with the 2025 tax year and running through 2028, individuals age 65 and older can claim an additional $6,000 deduction on top of the standard deduction. For a qualifying married couple, that totals up to $12,000 in extra deductions annually, regardless of whether they itemize. The benefit begins to phase out for joint filers with modified adjusted gross income above $150,000. Given that the husband plans to retire at 63, and both spouses will reach 65 during the window this provision is active, this temporary deduction could meaningfully reduce the tax cost of Roth conversions during those years.

Portfolio Considerations

With $6.5 million sitting in tax-deferred accounts and a significant runway before required distributions kick in, the couple has a genuine planning window. A few moves are worth considering now.

• Municipal bonds: While the husband is still employed and the $2.5 million in liquid investments remains untouched, shifting a portion of that portfolio into tax-free municipal bond funds is worth exploring. Municipal bond coupon payments are exempt from federal income tax, and for couples residing in a high-tax state, a state-specific muni fund or bond portfolio can be double or even triple tax-free. That benefit is most powerful during high-income years, which describes this couple’s situation exactly.
• Roth conversion ladder: With $6.5 million in pre-tax retirement accounts, the couple faces a significant deferred tax liability once required minimum distributions begin. One way to reduce that burden is to begin converting portions of the traditional 401(k) balances into Roth accounts after retirement. There is no annual dollar cap on Roth conversions (only on direct contributions), so the couple can convert strategically each year during the gap between retirement and the start of RMDs, paying ordinary income taxes on each converted amount. The goal is to convert enough in lower-income years to reduce the eventual RMD base without pushing into a higher bracket. Each converted amount must remain in the Roth account for five years before it can be withdrawn tax-free and penalty-free, so starting conversions promptly after retirement maximizes the benefit.
• Withdrawal order: When funds are needed in retirement, the Roth 401(k) balance should generally be tapped before the pre-tax accounts, since those withdrawals are tax-free. The liquid taxable investments come next, where long-term capital gains rates typically apply. The traditional 401(k) and the wife’s 401(k) should be left to grow as long as possible, consistent with the Roth conversion strategy above.
• Required minimum distributions: Under the SECURE 2.0 Act, required minimum distributions from traditional 401(k) accounts now begin at age 73 for those born between 1951 and 1959. For those born in 1960 or later (including the wife, who is currently 58), the starting age rises to 75, effective in 2033. Roth 401(k) accounts are no longer subject to RMDs during the owner’s lifetime as of 2024, a change that gives the couple’s $400,000 Roth 401(k) additional flexibility. Mandatory RMDs on the large pre-tax balances will, when they arrive, likely push the couple into a higher bracket, making pre-retirement and early-retirement Roth conversions all the more valuable. The OBBBA’s temporary senior deduction, available through 2028, creates a favorable window to accelerate those conversions at a lower effective tax rate.

This article should be considered as opinion only. Those seeking retirement planning and tax advice should consult a qualified financial or accounting professional.

Editor’s note: This article was updated to reflect 2026 HSA contribution limits ($4,400 self-only, $8,750 family), add the SECURE 2.0 provision that will raise the RMD starting age to 75 in 2033 for those born in 1960 or later, and incorporate two provisions of the One Big Beautiful Bill Act signed into law on July 4, 2025: the temporary $6,000 senior deduction (2025 through 2028) and the elevated SALT deduction cap of $40,000 for joint filers through 2029.

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