Pre-Retirement Planning: Immediate Tax Moves and One-Time Decisions

Retiring within the next year creates urgent planning windows for Roth conversions, stock options, and deferred compensation decisions. The partial-year income in your retirement year offers unique opportunities to convert traditional IRA money at lower rates before RMDs begin.

What makes this year critical:

• Roth conversion opportunity. Your income will likely be lower in the year you retire (partial-year salary). That dip creates room to convert traditional IRA money to Roth at a lower rate. Once RMDs begin at age 73, this window narrows.
• Health insurance transition. Moving from employer coverage to COBRA to Medicare has tax implications. COBRA premiums are deductible only as an itemized medical expense above the 7.5% AGI floor, so most people get no tax benefit. Costs before Medicare eligibility at 65 can be substantial.
• Stock options and deferred compensation. Exercising options or receiving deferred comp in a high-income year versus a low-income year can mean tens of thousands in tax differences. Timing relative to your retirement date matters enormously.
• Estimated tax payments. Once you stop receiving a paycheck with withholding, you're responsible for quarterly estimated payments to avoid underpayment penalties.

What a CPA does here: They model the tax impact of retirement timing itself -- whether retiring in December versus January changes your bracket, and how much to convert before year-end.

The tradeoff: This planning window is short. Once you've started Social Security and RMDs, some flexibility disappears permanently.