Did you know you could save thousands of dollars in taxes just by planning your retirement timeline strategically?
For many retirees, the years between leaving the workforce and beginning major retirement income sources—like Social Security or Required Minimum Distributions (RMDs)—offer a unique and often overlooked opportunity: the “gap years.” These years can be a golden window for smart tax planning that lowers your lifetime tax burden and increases long-term financial security.
In this article, we’ll break down what gap years are, why they matter, and how to use them to your advantage with proven tax-saving strategies. We’ll also cover key cautions and outline actionable next steps to make the most of this planning period.
What Are Gap Years?
Gap years refer to the period after you stop working full-time but before you’re required to draw on significant income sources such as Social Security (which can be claimed anytime between age 62 and 70) or RMDs from traditional retirement accounts (starting at age 73 in 2025).
During these years:
•You’re often in your late 50s, 60s, or early 70s.
•Your taxable income is usually lower since you’re no longer receiving a salary and may be delaying Social Security.
This creates a window of lower tax brackets, making it ideal for strategic tax maneuvers.
Example: Imagine retiring at age 62 and delaying Social Security until age 70. You might live off cash savings, part-time income, or a modest draw from a taxable account. These low-income years are your gap years—and they’re packed with planning potential.
Why Are Gap Years Important?
1. Tax Savings Opportunity
Lower income during gap years means you may fall into the 12% federal tax bracket (up to $94,300 of taxable income for married couples in 2025), or possibly even lower. This opens the door to reduce taxes through proactive strategies.
2. Long-Term Wealth Preservation
By minimizing taxes now on retirement withdrawals or capital gains, you preserve more for later needs—whether that’s healthcare, travel, or leaving a legacy.
3. Mitigating Future Tax Burdens
When Social Security and RMDs kick in, your income could jump and push you into higher brackets. By planning in the gap years, you reduce the size of future taxable accounts and smooth out your lifetime tax liability.
4. Flexibility
This period offers a low-risk chance to test out spending plans, tweak investment strategies, and prepare for healthcare costs without the pressure of RMD deadlines.
5 Smart Strategies for Gap-Year Tax Planning
1. Roth Conversions
Convert a portion of your traditional IRA or 401(k) to a Roth IRA during low-income years.
•Pay tax on the conversion at your current low rate.
•Future withdrawals from the Roth will be tax-free.
Example: Let’s say you and your spouse have too much cash in a savings account, as well as a significant amount in investment accounts. Instead of distributing from the investment accounts, you live off of the extra cash for a year or two and convert as much as you can while staying in the 12% tax bracket (in 2025 for MFJ you can go up to $96,950 in that bracket). This solves your problem of too much cash, while allowing you to do conversions at a fairly low tax bracket.
2. Tax-Gain Harvesting
Sell appreciated assets in taxable accounts to realize gains while in the 0% capital gains tax bracket. This is especially useful if you have a concentrated position that you’ve been meaning to lower for awhile, but didn’t want to pay taxes on.
In 2025, if your income is below $47,025 (single) or $94,050 (married filing jointly), then you can sell your capital gains at a 0% tax bracket federally.
You essentially get to “reset” the cost basis of your assets without paying tax, potentially saving thousands down the road.
3. Maximize Deductions and Credits
Bundle large deductible expenses like charitable donations or medical costs into a single gap year to exceed the standard deduction ($14,600 single / $29,200 joint in 2025).
If you’re earning part-time income, you might even qualify for the Saver’s Credit for contributing to retirement accounts.
4. Delay Social Security Benefits
Delaying benefits until age 70 increases your payout by approximately 8% for each year you wait after full retirement age.
Perhaps most importantly, this deferral also keeps your income lower during the gap years, giving you room for Roth conversions or gain harvesting, while again letting your social security benefit grow.
5. Strategic Withdrawals
If you need money from your investment accounts, then you can withdraw from traditional IRAs or 401(k)s up to the top of your current low tax bracket. This reduces the size of your future RMDs and can help you avoid Medicare premium surcharges later on.
You could also pairn some distributions for income with some Roth conversions for a balanced approach.
Be Mindful: Common Pitfalls and Cautions
1. Tax Bracket Creep
Too much income in one year—even from conversions or capital gains—can push you into a higher tax bracket.
Tip: Use tax planning software or work with a CPA to model scenarios.
2. Medicare Premium Surcharges (IRMAA)
Income from gap-year strategies affects Medicare premiums two years later.
For 2025, surcharges start at $103,000 (single) or $206,000 (joint) in modified adjusted gross income.
Tip: Spread conversions and withdrawals over several years. I hardly ever recommend doing all the Roth Conversions you need to do in one single year.
3. Liquidity Needs
You’ll need cash to pay taxes on Roth conversions or realized gains.
Tip: Maintain a cash buffer or emergency fund to avoid tapping retirement accounts prematurely.
4. State Taxes
Some states have high income taxes that apply to Roth conversions and capital gains.
Tip: Research your state’s tax laws—or work with a local advisor.
5. Complexity
These strategies involve nuanced tax rules. A misstep can cost more than it saves.
Tip: Consult with a Certified Financial Planner (CFP) or tax professional.
Final Thoughts
Gap years are a powerful, underused planning tool for retirees. By recognizing this window—and acting strategically—you can reduce your tax burden, extend your savings, and improve your long-term financial outlook.
Don’t leave thousands of dollars on the table. Plan now, act with intention, and use your gap years to build a smarter, more secure retirement.