When you open your IRA statement, it’s hard not to feel excited when you see the number with all those zeroes behind it. But you know who else is excited? Uncle Sam. That’s because within all those zeroes is a debt he can’t wait to collect. 

When you take distributions from your IRA or other taxable accounts, that money will be taxed as ordinary income, meaning it will be subject to federal and state income tax. Depending on how you file and how much taxable income you have in a year, your federal tax bracket could be anywhere from 10–37%. That’s quite the haircut. 

Suddenly, it makes a lot more sense why Benjamin Franklin said, “In this world, nothing is certain except death and taxes.” But if you’re familiar with some of our other articles, you know that while you can’t avoid taxes in retirement, to some extent, you can control how much you pay and when. Being smart about it is key. Here’s what to keep in mind:  

1. Your heirs will pay taxes on their inheritance at their tax rate, not yours.

Many people assume their adult children will be able to take advantage of their lower retiree tax rate for inherited assets, but unfortunately that’s not the case. Your children will have to pay taxes at their own current tax bracket. That’s a penalty we call the kiddo’s tax. If you’re not already familiar, learn more here.

2. Similarly, your spouse won’t be able to utilize the lower, married filing jointly rate when you’re gone. 

It’s what we call the widow’s tax: the tax penalty surviving spouses experience when they have to begin filing their taxes at the higher single rate the first full year after their spouse’s death. Advanced planning can protect against this.

3. Be sure not to lose track of when you can start making withdrawals and when you have to make withdrawals. 

There are two reasons this is important. First, you don’t want to owe an early withdrawal penalty, which is 10% in addition to the income tax due if you withdraw before the age of 59 ½. (There are a handful of exceptions, like buying your first home, major health care costs, and college costs.) 

Second, you’ll want to make sure you have a plan for the year required minimum distributions kick in if you intend to wait that long to make withdrawals. That’s because your first distribution must be taken by April 1 of the year after you reach 70 ½ years old (or 72 if you were born after June 30, 1949). In subsequent years, you must take your distribution by December 31. That means if you’re not careful, you could end up with double distributions in that first year, which could unnecessarily inflate your tax burden. 

4. With tax planning, you have control over what your tax burden will be. 

While there is an age at which you must start taking distributions, there’s no reason you can’t start taking them sooner, so long as you’ve cleared the early withdrawal penalty threshold of age 59 ½. It may make sense to take smaller distributions over a longer period of time to help keep your income lower, and therefore, your tax burden lower too. Working with a retirement planner on a tax plan that takes into account your total income picture—including social security, other taxable sources, and nontaxable sources—will help you keep what you owe Uncle Sam as low as possible

5. Consider incorporating tax-advantaged accounts into your strategy. 

We don’t know what taxes will do in the future, but it’s probably safe to assume they’re not getting any lower. If you’re not already retired, your retirement planner may advise adding post-tax accounts to your investment strategy to help some of your money grow tax-free. If you’re currently retired, your retirement planner may also suggest shifting some of your money from taxable accounts to non-taxable ones during a lighter income year to take advantage of a lower tax bracket. More on tax advantaged accounts and tax draw strategies here.  

In conclusion—yes, you do have to pay taxes. But no, your tax bill doesn’t have to be that big. Some of the money in that beautiful IRA balance will have to go to Uncle Sam; it’s just a matter of how much and when. Thankfully, you can have some control over both. A retirement planner can help you grab the reigns.