We all know the old cliché—there are only two certainties in life, one of them being taxes. For many pre-retirees, saving on taxes is a priority, especially when planning for a comfortable retirement. The good news is that while you can’t avoid taxes entirely, you can take steps to avoid paying more than your fair share.
At Main Financial Group, we specialize in creating customized, tax-efficient financial plans to help you make the most of your hard-earned money. Our team of financial advisors in Brighton, MI, has extensive experience implementing effective tax strategies crucial for boosting savings and minimizing financial stress.
This article will explore practical tax strategies for pre-retirees in 2025, helping you prepare for the road ahead and maximize your wealth.
Understanding Your Tax Situation
A solid tax strategy begins with understanding your current tax situation, including how federal, state, and local tax brackets impact your income. Knowing which bracket you fall into and whether you’re close to moving into a higher one is key. Managing this effectively could save you a significant amount of money.
Want to see how different scenarios could affect your tax liability? Our Tax Tool Calculator can help you estimate your taxes and explore potential savings.
Taxable vs. Tax-Deferred vs. Tax-Free Accounts
Different types of accounts are taxed uniquely, impacting how you save for retirement or other goals. Taxable accounts, such as savings, money market, and brokerage accounts, are taxed annually on interest, dividends, or realized capital gains.
Most traditional retirement plans allow your investments to grow tax-deferred, meaning you won’t pay taxes yearly, but withdrawals are taxed as income. On the other hand, tax-free accounts let your money grow and be withdrawn without taxes, provided you meet specific conditions.
Taxation on Investments
Various investments held in taxable accounts are subject to different tax treatments. Understanding these distinctions can help you better manage your taxable income.
- Short-term capital gains: Profits from investments held for less than a year are taxed as ordinary income.
- Long-term capital gains: Gains from investments held longer than a year benefit from lower tax rates.
- Qualified dividends: These are dividends from stocks that meet specific criteria and are taxed at the lower long-term capital gains rate, making them a tax-efficient income source.
- Taxable interest: Income from sources like savings accounts or taxable bonds may be taxed as ordinary income.
To develop a tailored strategy based on your tax situation, consider working with one of Main’s financial planning professionals in Brighton, MI. Our expertise can help you understand how your investments and retirement accounts fit into your overall plan.
Key Tax Strategies for Pre-Retirees in 2025
Implementing smart tax strategies can help you save money and better prepare for retirement. Here are some practical tips to consider.
Maximize Contributions to Retirement Accounts
In 2025, retirement account contribution limits have gone up. For example:
- 401(k): The standard limit is now $22,500, with an additional $7,500 catch-up contribution for those aged 50 and older, totaling $30,000 annually.
- IRA: If eligible for a tax-deductible traditional IRA, the 2025 limit is $6,500, with a $1,000 catch-up contribution for those 50 and older, totaling $7,500.
Maximizing these contributions helps reduce your taxable income now and boosts your retirement savings.
Consider Roth IRAs and Conversions
A Roth IRA offers tax-free growth and tax-free withdrawals in retirement, making it an attractive option for those who anticipate being in a higher tax bracket. If most of your retirement savings are in traditional accounts, consider converting some funds into a Roth IRA.
While you’ll pay taxes on the converted amount now, future withdrawals from a Roth account are tax-free, which could provide significant savings later. It’s a good idea to talk to a retirement planning expert, like those with Main Financial Group, to review the potential tax implications and see if this strategy fits your circumstances.
Leverage Tax Loss Harvesting
Tax loss harvesting can be a powerful tool if you have investments in taxable accounts. By selling underperforming assets at a loss, you can offset gains in other investments, reducing your overall taxable income. If your losses exceed your gains, you can carry them forward to future tax years for more savings. However, be mindful of the wash-sale rule, which prevents you from claiming a loss if you buy back the same or similar investment within 30 days.
Health Savings Accounts (HSAs)
HSAs provide triple tax advantages: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. In 2025, the HSA contribution limit for individuals is $4,150, while families can contribute up to $8,300. If you’re 55 or older, an additional $1,000 catch-up contribution is allowed.
Municipal Bonds
Investing in municipal bonds can help minimize your tax burden if you’re in a high tax bracket. The interest earned on these bonds is typically exempt from federal taxes, and in many cases, it’s also exempt from state and local taxes if the bonds are issued in your state. Municipal bond money market funds can also provide a tax-efficient way to generate income.
Review Deductions and Credits
Take advantage of all the tax deductions and credits available to you. Examples include deductions for medical expenses, charitable contributions, and state-specific tax credits. Pre-retirees may benefit from tax credits for contributions to 529 education savings plans in Michigan.
Federal and state energy efficiency credits are also available for home upgrades, such as installing solar panels, energy-efficient windows, or better insulation. Additionally, tax incentives for purchasing electric or hybrid vehicles provide a way to save while adopting eco-friendly options.
Partner With Main Financial Group
Tax planning is a key component of retirement readiness, and partnering with a skilled financial advisor can make a significant impact.
Our team holds top-tier credentials, including CPA, Registered Financial Professional® (RFP®), and Certified Retirement Counselor® (CRC®). With this expertise, we’re equipped to guide you through your retirement journey with confidence.
As fiduciaries, we prioritize transparency and diligence in every client interaction. Whether your goals include reducing taxes, optimizing investments, or preparing for healthcare costs, we offer solutions that can position you for a secure and stress-free retirement. Since tax laws often change, our advisors stay up to date to provide comprehensive financial planning in Brighton, MI, and nationwide.
Don’t leave your future to chance. Contact us today for a complimentary consultation with one of our retirement planning advisors in Brighton, MI.