How Women Can Avoid Unnecessary Tax Consequences

By: Susan Koe, CFP®

As women, we tend to face more retirement and tax planning challenges than men. Is this a surprise? Not really. Higher health care costs, longer expectations, and more time out of the workforce contribute greatly to this. Unfortunately, women are also less likely than men to have a financial plan. According to a 2023 Fidelity Investments survey, “stress” is the number one word women use to describe their feelings about money.

Regardless of the anxiety surrounding financial planning, there are things you can do to potentially lessen your tax burden and avoid unnecessary taxes. You should focus on the possible steps during every life transition that help you achieve these outcomes. In addition to the retirement planning challenges you may face as a woman, a comprehensive financial plan that includes the most relevant tax strategies can be helpful.

4 Tax Planning Tips for Women During Life’s Transitions

1. Roth IRAs

As a financial planner, it’s exciting when I get the opportunity to discuss Roth IRAs with someone that’s just starting their career. These individuals have decades for their investments to grow tax-deferred and ultimately be tax-free at distribution. The premise behind a Roth IRA or Roth 401(k) is that you pay taxes now rather than later. Substantial savings can lead to this ideal situation, especially for younger investors. For example, let’s assume a 25-year-old contributes $6,000 yearly to a Roth IRA instead of a Traditional IRA. Assuming average market returns, individuals will have about $790,000 in their Roth IRA at age 65. If they choose a Traditional IRA, their after-tax balance at age 65 would be $630,000. Notice the importance of this decision; it saved them $160,000.

2. Roth Conversions

In the right situation, Roth conversions can also offer substantial tax savings. The case with the right conversions involves taking assets in a pre-tax account such as a Traditional or rollover IRA, and moving them to a Roth account. Consequently, you pay the taxes in the year the conversion occurred. This strategy works well for investors that are newly retired.  

In those first few years of retirement, investors are often in a lower tax bracket. The placement in lower tax brackets happens when there is a delay in their Social Security and they have not yet reached the Minimum Required Distribution age. Doing Roth conversions in those lower tax years will also lower the Required Minimum Distribution that will need to be taken later on.

Roth conversions also work well for investors looking to pass wealth tax-free to loved ones. However, these conversions do not make sense for everyone, so please make sure you consult with a financial advisor before.

3. IRMAA (Medicare – Income Related Monthly Adjusted Amount)

Income Related Monthly Adjusted Amount is a surcharge on Medicare beneficiaries who earn over $109,000 annually. The tax is added to the Part B and Part D premiums. For example, in 2026, for an Individual making under $109,000, the monthly Part B Medicare premium is $202.90. This amount jumps to $405.80 per month for someone making over $137,000!

The income from your income tax returns two years prior determines your IRMMA. For example, your 2024 income tax return is used for your 2026 Medicare premiums. It is important to remember this because your earnings establish the amount you will pay when you start Medicare at age 65 or 63. As you can see, the IRMMA brings up obvious tax planning opportunities. You can and should appeal your IRMAA determination if you have had a life-changing event, such as a job loss or divorce.

4. Tax Diversification

Old school advice was to sock away as much as possible in pre-tax deferred accounts such as Traditional or SEP IRA’s. The issue with this plan is that it leaves you with no control over your tax situation. Each dollar that comes out of those accounts is taxed as ordinary income. A better approach is to work toward having assets in the following tax categories: taxable accounts, tax-deferred accounts, and tax-free accounts. Doing so gives you more flexibility in meeting your retirement income needs and can potentially allow for more significant tax savings.

Plan for Unnecessary Tax Consequences

For women, a comprehensive financial plan that includes tax strategies for each stage of life can be incredibly beneficial. From taking advantage of Roth IRAs and Roth Conversions to diversifying your assets based on tax categories, there are plenty of strategies at your disposable to manage life’s many transitions.

Financial decisions during life transitions can have lasting tax implications—but they don’t have to be navigated alone.

A thoughtful, coordinated approach can help you evaluate your options and align your strategy with your broader financial goals.

Connect with an EP Wealth advisor to discuss how tax planning strategies may fit into your overall financial plan.

 

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