A POPULAR JOKE about retirement is that it can be hard work. That’s because financial planning is like a jigsaw puzzle, and retirement often means rearranging the pieces. In the past, I’ve discussed two key pieces of that puzzle: how to determine a sustainable portfolio withdrawal rate and how to decide on an effective asset allocation. But there’s one more piece of the puzzle to contend with: taxes. Especially if you’re planning to retire on the earlier side, it’s important to have a tax plan. When it comes to tax planning for retirement, there’s one key principle I see as most important, and that’s the idea that in retirement, the goal is to minimize your total lifetime tax bill. That’s important because a fundamental shift occurs the day that retirement arrives: In contrast to our working years, when taxes are, to a large degree, out of our control, in retirement, taxes are much more within our control. By choosing which investments to sell and which accounts to withdraw from, retirees have the ability to dial their income—and thus their tax rate—up or down in any given year. The challenge, though, is that tax planning can be like the game Whac-A-Mole. Choose a low-tax strategy in one year, and that might cause taxes to run higher in a future year. That’s why—dull as the topic might seem—careful tax planning is important. To get started, I recommend this three-part formula: Step 1 The first step is to arrange your assets for tax-efficiency. This is often referred to as “asset location.” Here’s an example: Suppose you’ve decided on an asset allocation of 60% stocks and 40% bonds. That might be a sensible mix, but that doesn't mean every one of your accounts needs to be invested according to that same 60/40 mix. Instead, to help manage the growth of your pre-tax accounts, and thus the size of future required minimum distributions, pre-tax accounts should be invested as conservatively as possible. On the other hand, if you have Roth assets, you’d want those invested as aggressively as possible. Your taxable assets might carry an allocation that’s somewhere in between. If you can make this change without incurring a tax bill, it’s something I’d do even before you enter retirement. Step 2 How can you avoid the Whac-A-Mole problem referenced above? If you’re approaching retirement, a key goal is to target a specific tax bracket. Then structure things so your taxable income falls into that same bracket more or less every year. By smoothing out your income in this way from year to year, the goal is to avoid ever falling into a very high tax bracket. To determine what tax rate to target, I suggest this process: Look ahead to a year in your late-70s, when your income will include both Social Security and required minimum distributions from your pre-tax retirement accounts. Estimate what your income might be in that future year and see what marginal tax bracket that income would translate to. In doing this exercise, don’t forget other potential income sources. That might include part-time work, a pension, an annuity or a rental property. And if you have significant taxable investment accounts, be sure to include interest from bonds. Then, for simplicity, subtract the standard deduction to estimate your future taxable income. Suppose that totaled up to $175,000. Using this year’s tax brackets, that would put your income in either the 24% marginal bracket (for single taxpayers) or 22% (married filing jointly). You would then use this as your target tax bracket. Step 3 With your target tax bracket in hand, the next step would be to make an income plan for each year. The idea here is to identify which accounts you’ll withdraw from to meet your household spending needs while also adhering to your target tax bracket. This isn’t something you’d map out more than one year in advance. Instead, it’s an exercise you’d repeat at the beginning of each year, using that year’s numbers. What might this look like in practice? Suppose you’re age 65, retired and not yet collecting Social Security. In this case, your income—and thus your tax bracket—might be quite low. To get started, you’d want to withdraw enough from your tax-deferred accounts to meet your spending needs but without exceeding your target tax bracket. This would then bring you to a decision. If you’ve taken enough out of your tax-deferred accounts to meet your spending needs and still haven’t hit your target tax rate, then the next step would be to distribute an additional amount from your pre-tax accounts. But with this additional amount, you’d complete a Roth conversion, moving those dollars into a Roth IRA to grow tax-free from that point forward. How much should you convert? The answer here involves a little bit of judgment but is mostly straightforward: You’d convert just enough to bring your marginal tax bracket up into the target range. Some people prefer to go all the way to the top of their target bracket, while others prefer to back off a bit. The most important thing is just to get into the right neighborhood. What if, on the other hand, you’ve taken enough from your pre-tax accounts to reach your target tax rate, but that still isn’t enough to meet your spending needs? In that case, you wouldn’t take any more from your pre-tax accounts, and you wouldn’t complete any Roth conversions. Instead, you’d turn to your taxable accounts, where the applicable tax brackets will almost certainly be lower. Capital gains brackets currently top out at just 20%. Thus, for the remainder of your spending needs, the most tax-efficient source of funds will be your taxable account. What if you aren’t yet age 59½? Would that upend a plan like this? A common misconception is that withdrawals from pre-tax accounts entail a punitive 10% penalty. While that’s true, it isn’t always true, and there’s more than one way around it. One exception allows withdrawals from a workplace retirement plan like a 401(k) as long as you leave that employer at age 55 or later. In that case, as long as you don’t roll over the account to an IRA, you’d be free to take withdrawals without penalty. If you’re retiring before age 55, you’ll want to learn about Rule 72(t). This allows for withdrawals from pre-tax accounts at any age, as long as you agree to what the IRS refers to as substantially equal periodic payments (SEPP) from your pre-tax assets. The SEPP approach definitely carries restrictions, but if you’re pursuing early retirement, and the bulk of your assets are in pre-tax accounts, this might be just the right solution.   Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.

IF YOU OWN a home or are planning to buy one, there are a few things you need to know from the tax standpoint that could save you money: 1. Mortgage Interest If you have a mortgage, you can typically deduct the interest you pay on the loan up to $750,000 ($1,000,000 if taken before December 16, 2017) but only if you itemize your deductions (schedule A) You can also deduct points you paid if you itemize. Many people miss deducting points on their tax returns when they purchase a house, but you have to meet some criteria like:

1. The points relate to a mortgage to buy, build or improve your principal residence
2. Points were reasonable amount charged in that area
3. You provide funds (at or before closing) at least equal to the points charged
4. The points clearly show on the settlement statement

In general, points to get a new mortgage or to refinance an existing mortgage are deducted ratably over the term of the loan.  Note that the deductible points not included on Form 1098 (the mortgage interest form) should be entered on Schedule A (Form 1040), Itemized Deductions, line 8c “Points not reported to you on Form 1098.” 2. Property taxes Property taxes can be deducted on your tax return if you itemize deductions. The total amount of taxes (including state and local income taxes) is capped at $40,400 for 2026. This cap is temporary and will increase by 1% annually through 2029 before reverting to $10,000 in 2030. If you make between $500k to $600k of modified adjusted gross income, the $40.4k deduction is reduced by 30% for each dollar you make. At $600k MAGI, the deduction drops to $10k, potentially raising marginal tax rates to 45.5% (!) for singles due to “SALT torpedo” if you are in the $500-600k range. If you are at that range, it’s recommended to mitigate this by lowering AGI/MAGI by maximizing pre-tax 401(k)/403(b), HSA, FSA contributions, timing RSU sales, tax loss harvesting, or deferring income/accelerating expenses for business owners. 3. Improvements Improvements are significant enhancements made to your home that increase its value. Many people overpay on taxes when they ultimately sell their house because they don’t keep track of these improvements. Here are some examples provided by the IRS: > Putting an addition on your home > Replacing an entire roof > Paving your driveway > Installing central air conditioning > Rewiring your home > Building a new deck > Kitchen upgrades > Lawn sprinkler system > New siding > Built in appliances > Fireplace Now, these costs aren’t deducted, but they are added to your home’s cost basis. This could lead to lower capital gains taxes when you sell your property (more on this later). Repairs, on the other hand, don’t impact your basis and don’t affect your taxes (e.g. repairing a broken fixture, patching cracks, etc) You will need to document every improvement, as this can help you save money on taxes. Keep your receipts and invoices (upload them to Google Drive) and record the dates and descriptions of the work done. Taxes when selling your house When you sell your house, here’s the formula: Selling price  > Selling expenses (like realtor fees) > Adjusted cost basis (how much you purchased it for + all these capital improvements I talked about above + any closing costs you paid when you acquired the home (legal fees, recording, survey, stamp taxed, title insurance) = Gain/Loss You will need to pay capital gains tax if there is a gain, but, luckily there is a gain exclusion (Section 121 exclusion) that can also help you save on taxes: 4. Gain exclusion If you sell your primary residence, you may be able to exclude up to $250,000 ($500,000 for married) of the gain from taxes if you meet some conditions. > Ownership (must have owned the home for at least 24 months within the 5 years prior to sale. For married couples only one spouse needs to meet this requirement) > Residence (you must have used the home as your main residence for at least 24 non-consecutive months during the 5 years before the sale. For married couples both spouses must meet requirements. > Look-back (you must not have claimed the exclusion on another home within the 2 years before this sale) Now, many people don’t know this but there is actually a partial exemption.  1. Work related move (i.e. you started a new job at least 50 miles farther from home) 2. Health related move (you moved to obtain, provide, or facilitate care for yourself or a family member) 3. Unforeseeable events (casualty, divorce, death, financial difficulty) 4. Special circumstances So, instead of claiming the full exclusion, you can exclude a prorated portion of the $250,000/$500,000 limit based on how long you owned and lived in the home. By the way, you can rent out a home for 2 years and still qualify for the exemption, as long as you lived there for the required period before selling (many people do this). 5. Tax example selling a home You bought a home for $200,000 (including all other costs) in 2018. You built a new deck, new roof and siding totaling $50,000. You now sold your home for $500,000. You are single. Selling costs are $20,000 (agent fees, etc) Sale price: $500,000 -$20,000 of selling costs (200,000 + 50,000) = -$250,000 (adjusted basis) Total Gain = 230,000 Exclusion = $250,000. Total taxes paid = $0. But what if you didn’t keep track of all your renovation costs like new siding or a deck? You would’ve had to pay taxes on $20,000 of capital gains!  Overall, knowing how these things work can literally save you thousands in taxes. Do you have any tips with homeownership? Share some in the comments!   Bogdan Sheremeta is a licensed CPA based in Illinois with experience at Deloitte and a Fortune 200 multinational.

I'VE RECENTLY MADE the most significant change to my own portfolio in thirty five years. For the first time I've moved away from pure market-cap investing, tilting meaningfully toward Europe and Southeast Asia and bringing my US technology concentration down to around fifteen percent. I'm retired. I don't need to chase the outperformance that concentration might deliver, and I don't need the potential volatility that comes with it. This is a personal position rather than any kind of recommendation; it's nothing more than a risk management decision made at a point in life where I simply don't need the risk. What prompted it was a growing discomfort with something I suspect many everyday investors haven't fully reckoned with: the S&P 500 is no longer quite the animal it once was. A broad market index fund casts a wide net across the economy, and the S&P 500, which tracks the 500 largest US businesses by market value, has long been held up as the sensible default: low cost, well diversified, a bet on the whole rather than any one part of it. A sector fund works differently; it makes a deliberate, concentrated bet on a specific industry. If you believe technology is going to outperform the market as a whole, it gives you the ability to concentrate your capital into exactly the sector your research or gut instinct suspects is going to be the place to be and let it run. The theory behind each is straightforward enough. A broad market fund captures a larger slice of the investment universe and is generally considered the lower-risk path. A sector fund comes with a well-understood trade-off: higher potential returns in good times, sharper drawdowns when sentiment turns. Investors who consciously choose a technology sector fund know what they're signing up for. The risk profile is understood, accepted, and priced into the decision. The problem is that the line between these two things has become a bit fuzzy, and most everyday investors haven't noticed. A handful of technology and technology-related companies (Apple, Microsoft, Nvidia, Amazon, Meta, Alphabet) have grown so dominant in their market valuations that they now represent a disproportionate share of the entire index. During the last year, the top ten holdings have accounted for roughly a third of the total weight of all 500 companies. The mechanism behind this is simply how the index works. The S&P 500 is market-cap weighted, meaning the bigger the company, the bigger its slice of the pie. As technology companies scaled their dominance through the 2010s and into the 2020s, their weight within the index ballooned accordingly. The index didn't change its rules; the market just rewarded one particular group of companies so heavily that they came to dominate the scoreboard. This means the investor who bought the S&P 500 believing they were spreading risk broadly across the American economy (energy, healthcare, financials, industrials, consumer staples) owns something that looks quite different to the story they were sold. You buy five hundred companies and a third of your money lands in ten stocks, most of them operating in the same broad technological ecosystem. That is a concentration risk, whether it is labelled as one or not. It's a sector fund “light”, acquired by stealth through the natural mechanics of market-cap weighting. The issue is that millions of everyday investors are carrying a version of that same risk without necessarily knowing it. Although I've used the S&P 500 as an example here, it isn't alone. Most broad-based indexes including developed world trackers will exhibit the same characteristics to varying degrees, because the same companies sit near the top of those indexes too. The MSCI World, often marketed as the global diversifier, allocates somewhere in the region of seventy percent to US equities, and within that, the familiar names reappear. You can cross borders on paper without ever really leaving the room. None of this is an argument against the S&P 500. The concentration reflects real, earned dominance; these companies grew to the top of the index because they genuinely deserved to. And whether my reallocation turns out to be the right call is genuinely unknowable. The concentrated index could continue to outperform for another decade and I'll have left returns on the table, a real possibility I've made my peace with. The point isn't that I've found the correct answer. The point is that I had the information to make a considered choice, weighed it against my own circumstances, and acted accordingly. That's all any investor can do. The uncomfortable truth is that a great many people haven't been given the chance to do the same. They're holding a product that has quietly changed its character, and nobody has thought to mention it. Better information doesn't guarantee better decisions, but it at least puts the decision where it belongs: with the person whose money it is. ___ Mark Crothers is a retired small business owner from the UK with a keen interest in personal finance and simple living. Married to his high school sweetheart, with daughters and grandchildren, he knows the importance of building a secure financial future. With an aversion to social media, he prefers to spend his time on his main passions: reading, scratch cooking, racket sports, and hiking.