Meet Bob. A retired architect in McLean, VA, Bob’s days used to be filled with blueprints. Now, he’s sketching out something far more personal: a retirement plan that works for him, not against him. He’s paid off his mortgage, downsized into a sleek condo, and taken full advantage of tax laws most people overlook. This isn’t luck—it’s strategy. And you can do the same.
The Home Stretch: Downsizing and Mortgage Freedom
For many pre-retirees like Bob, the home becomes both a sanctuary and a strategic financial asset. By the time you approach retirement, one of the smartest financial moves is to either eliminate your mortgage or be within striking distance.
Here’s why that matters:
- No mortgage = lower monthly expenses
- Freeing up home equity can bolster your retirement savings
- Downsizing = less maintenance and more lifestyle freedom
And there’s a powerful tax perk: capital gains exclusion.
If you’ve lived in your home for 2 of the past 5 years, you can exclude up to $250,000 (single) or $500,000 (married filing jointly) in capital gains when you sell your home. That’s real money back in your pocket, tax-free.
📘 Pro Tip from JS Morlu: Use that home sale equity to create a diversified investment strategy or cushion your emergency fund. We can help model what that looks like.
The Deduction Shift: How Retirees Win with the Standard Deduction
When Bob sold his house and moved into a smaller property—without a mortgage—he also simplified his taxes.
The standard deduction for 2025 is generous:
- $30,000 for married couples filing jointly
- $15,000 for single filers
- Plus an extra $1,600 per person 65+ or $2,000 if unmarried and 65+
This shift often makes itemizing obsolete. Retirees can simplify their filing and still walk away with meaningful savings.
But here’s the catch: these higher deductions are part of the Tax Cuts and Jobs Act, which sunsets after 2025 unless extended by Congress. It’s a “use-it-while-you-have-it” situation.
Understanding Required Minimum Distributions (RMDs): Don’t Let Taxes Sneak Up on You
Once you hit age 73, Uncle Sam wants his share from your tax-deferred accounts—IRAs, 401(k)s, and the like.
If Bob had $300,000 in his IRA at age 73, his 2025 RMD would be calculated like this:
- IRS Life Expectancy Factor (age 73): 26.5
- RMD = $300,000 ÷ 26.5 = $11,321
📌 Penalty alert: Forget to take your RMD? The IRS can slap a 25% penalty—reduced to 10% if corrected timely.
Roth IRAs? They’re exempt during your lifetime. Yet another reason Roth conversions before retirement can be golden.
Giving With a Tax-Savvy Twist: Qualified Charitable Distributions (QCDs)
If you’re age 70½ or older, you can donate directly from your traditional IRA to charity—up to $108,000 in 2025—without it counting as taxable income.
Bonus: QCDs count toward your RMD.
Rules to follow:
- Must be a direct transfer (you can’t touch the money)
- Only from traditional IRAs
- Post-70½ IRA contributions could reduce the tax-exempt benefit
QCDs help you support causes you love while keeping your AGI—and Medicare premiums—lower.
Social Security & The Tax Trap of “Too Much Income”
Social Security is only tax-free until you hit specific income thresholds.
Here’s how “combined income” is calculated:
Adjusted Gross Income (AGI) + Nontaxable Interest + 50% of Social Security Benefits
For single filers:
- Under $25,000 → 0% taxable
- $25,000–$34,000 → up to 50% taxable
- Over $34,000 → up to 85% taxable
Married filing jointly:
- Under $32,000 → 0%
- $32,000–$44,000 → up to 50%
- Over $44,000 → up to 85%
🎲 Bob once won $5,000 playing blackjack in Vegas. That seemingly fun windfall pushed his income over a threshold—suddenly, more of his Social Security became taxable and his Medicare premiums increased. Let this be your lesson: even small changes in income can have ripple effects.
How Medicare Premiums Are (Really) Calculated
Medicare premiums aren’t flat—they’re based on your Modified Adjusted Gross Income (MAGI) from two years prior.
Here’s the 2025 breakdown:
| MAGI (Individual) | Monthly Medicare B Premium |
| Up to $106,000 | $185.00 |
| $106K–$133K | $259.00 |
| $133K–$167K | $370.00 |
| $167K–$200K | $480.90 |
| $200K–$500K | $591.90 |
| Over $500K | $628.90 |
Retirees like Bob who cash in big stocks, inherit IRAs, or have high pensions may unknowingly land in a higher premium tier—costing thousands more per year in health care.
Tax Withholding & Estimated Payments: Avoid IRS Surprises
Here’s what you need to know:
- Traditional IRA and 401(k) withdrawals = taxed as ordinary income
- Roth withdrawals = tax-free (if you’re 59½+ and account is 5+ years old)
Avoid penalties by:
- Opting for tax withholding on distributions
- Making estimated quarterly payments
Your state might also want a slice—especially if you’ve moved from a tax-friendly state to one with income taxes.
Future-Proofing: Roth Conversions, Estate Plans & Income Management
Bob’s winning formula involved:
✅ Roth conversions early in retirement, when his income (and tax rate) was low
✅ Municipal bonds for tax-free interest
✅ An up-to-date estate plan, including beneficiary updates and revocable trusts
And most importantly—ongoing consultation with a financial advisor.
📞 Need Help? Let’s Build Your Retirement Tax Plan Together
Whether you’re like Bob or just beginning your transition to retirement, JS Morlu’s team of experienced CPAs and wealth advisors is here to help you maximize savings, minimize surprises, and build the future you’ve worked so hard to achieve.
📅 Book your complimentary retirement tax consultation today
Retirement isn’t just a destination—it’s a strategy. Let’s make yours brilliant.
