Tax Planning Guide for Working Professionals and Retirees

Lifetime Tax Planning, Not Just April Prep

Most families think about taxes once a year — when they hand documents to a CPA and wait for the number. That is tax filing. It matters, but it is not the same as tax planning.

Tax planning looks ahead. It asks how decisions about income, withdrawals, retirement accounts, charitable giving, Medicare, and Social Security work together over time — not just this filing season.

The families we work with are often surprised to learn their CPA is doing the job correctly — filing based on what already happened. Investments may be doing fine. But no one is helping connect the moving parts throughout the year.

That gap is where meaningful planning happens.

In plain terms, small tax decisions often affect other parts of your plan. A move that helps in one area can quietly create a problem somewhere else. A Roth conversion that looks smart on its own may still raise Medicare premiums later if it lands in one of the income years Medicare uses for IRMAA. A retirement portfolio that looks efficient on paper may still create unnecessary taxable income because the investments are sitting in the wrong kinds of accounts. A large RSU vest may feel manageable until it creates an unexpected tax bill the next April.

Good tax planning is less about tax trivia and more about timing, coordination, and making sure your CPA, advisor, and investment strategy are working from the same roadmap.

IRMAA and Medicare Income Surcharges

IRMAA stands for Income-Related Monthly Adjustment Amount. It is an extra premium charged to people with Medicare Part B and Part D when income is above certain levels. In 2026, IRMAA begins above $109,000 for single filers and above $218,000 for married couples filing jointly.

How IRMAA Works

Medicare generally uses a two-year lookback when setting premiums. That means your 2026 Medicare premiums are usually based on your 2024 tax return.

This matters because a large Roth conversion, capital gain, or stock-compensation event can raise your Medicare premiums later, even if the income spike happened before Medicare started. For many people enrolling in Medicare around age 65, income in the two tax years before Medicare starts will shape the first premium bills.

IRMAA works in tiers. If your income crosses into a higher tier, you pay the full surcharge for that tier — it is not a gradual phase-in. That means even a small amount of extra income can raise your annual Medicare costs in a meaningful way.

Common IRMAA Triggers

• Roth conversions
• Large capital gains from investment sales or real estate
• Big stock-compensation years
• Inherited IRA distributions
• Social Security combined with IRA withdrawals and other income

IRMAA Shouldn’t Stop Good Planning

IRMAA is a cost, not an automatic reason to avoid otherwise smart planning. A Roth conversion that causes a year or two of higher Medicare premiums may still be worth it if it reduces future required withdrawals, lowers lifetime taxes, or leaves heirs a more tax-friendly account mix. The key is to model the tradeoff before acting.

When You Can Ask Medicare to Recalculate

If your income later falls because of a qualifying life-changing event, you may be able to ask Social Security to reduce the surcharge by filing Form SSA-44. Qualifying events include marriage, divorce or annulment, death of a spouse, work stoppage, work reduction, loss of income-producing property, loss of pension income, and certain employer settlement payments.

A lower-income year by itself does not automatically qualify. Lower investment income, smaller capital gains, or doing a smaller Roth conversion do not count on their own unless they are tied to one of Social Security’s listed life-changing events.

Equity Compensation: RSUs, ISOs, NSOs, and ESPPs

Stock-based pay from an employer can be a major source of wealth. It can also create some of the most complicated and time-sensitive tax issues a family faces.

There are several common types of company stock pay. Each one has its own tax rules, so the first step is knowing which type you have.

Restricted Stock Units (RSUs)

Restricted stock units, or RSUs, are one of the most common forms of stock compensation. When RSUs vest — meaning they become yours — the value of the shares is treated as ordinary income. Ordinary income is income taxed at your regular rates, the same as wages. The income usually appears on your W-2 and is subject to income tax, Social Security tax, and Medicare tax.

The most common problem is withholding. Companies often withhold federal taxes on RSUs at a flat supplemental wage rate of 22% — a rate used for bonuses and other non-salary pay. That rate may be well below the employee’s real marginal rate. For employees with supplemental wages above $1 million in a calendar year, the mandatory federal withholding rate increases to 37%. For North Carolina residents, the 2026 state income tax rate is 3.99%, but the withholding rate is 4.09%. Withholding rules do not always line up perfectly with what you will actually owe, so large vesting events can still create surprises.

For people in higher tax brackets, the gap between what was withheld and what is actually owed can be large. Tracking vesting schedules and adjusting estimated payments or paycheck withholding during the year can help prevent an April surprise.

After vesting, the cost basis in the shares — the value the IRS uses to measure your gain when you eventually sell — is usually the market value at vest. Any gain or loss after that point is generally treated as a capital gain or loss. Capital gains are profits from selling investments, taxed at lower rates than ordinary income if the investment has been held long enough.

Incentive Stock Options (ISOs)

Incentive stock options, or ISOs, can receive more favorable treatment under the regular tax system. There is usually no tax at grant or exercise for regular income-tax purposes, and gains may qualify for long-term capital gains treatment if the shares are held at least two years from the grant date and at least one year from the exercise date.

The complication is the alternative minimum tax, or AMT — a separate tax calculation the IRS uses to make sure certain high earners pay at least a minimum amount regardless of deductions. The difference between what you paid to exercise the options and what the shares were worth at that moment can count as extra income under the AMT system, even if you have not sold any shares and have not received any cash. That phantom income can create a real tax bill, depending on the total spread and your other income that year.

ISO planning often involves spreading exercises across years, paying attention to other income, and modeling AMT exposure before acting.

Nonqualified Stock Options (NSOs)

Nonqualified stock options, or NSOs, are more straightforward from a tax standpoint. The spread at exercise — the difference between the market value and the exercise price — is usually taxed as ordinary income. Planning usually comes down to timing: when to exercise, how much income that creates, and how that income fits with the rest of your tax picture that year.

Employee Stock Purchase Plans (ESPPs)

Employee stock purchase plans, or ESPPs, let employees buy company stock at a discount, often 15% below market price. The tax treatment depends on how long the shares are held.

If you sell the shares right away without meeting the required holding period, the discount is usually taxed as ordinary income. If you hold the shares long enough, the tax treatment may improve. In general, a qualifying disposition means selling the shares more than two years after the offering date and more than one year after the purchase date. In that case, part of the profit may be taxed as ordinary income and the rest may qualify for long-term capital gains treatment.

These holding-period rules apply to qualified ESPPs under Section 423 of the tax code, which is the most common type. If you are not sure whether your plan qualifies, check your plan documents or ask your HR department. Holding longer also increases single-stock risk, which is a real tradeoff worth weighing.

Concentrated Stock Risk

Equity compensation often creates heavy exposure to a single employer’s stock. Diversifying too quickly can trigger a large taxable event. Diversifying too slowly leaves too much wealth tied to one company’s future. Coordinating the pace of diversification with your tax picture, charitable intentions, and timeline matters.

Retirement Withdrawal Sequencing

How you draw income in retirement — from which accounts, in what order, and in what amounts — can have just as much impact on your lifetime tax bill as any single planning decision.

The Three Account Types

• Taxable accounts like brokerage accounts: interest and dividends may be taxed each year, and gains are taxed when investments are sold. Long-term capital gains are generally taxed at lower rates than ordinary income.
• Tax-deferred accounts like traditional IRAs, 401(k)s, and 403(b)s: contributions were made with pre-tax money, meaning taxes were delayed. Withdrawals are generally taxed as ordinary income.
• Tax-free accounts like Roth IRAs and Roth 401(k)s: contributions were made with after-tax money, and qualified withdrawals may be tax-free.

Why Sequence Matters

A simple approach is to spend taxable accounts first, then tax-deferred accounts, then Roth accounts. That approach is easy, but it often leaves large pre-tax balances in place for too long. Those balances can grow into large required withdrawals later, pushing income, taxes, IRMAA, and Social Security taxation higher than necessary.

A more deliberate approach may include Roth conversions in early retirement, capital gains harvesting in low-income years, and using multiple account types together to keep income in a target range year by year.

Capital Gains Management

In years when taxable income falls within the 0% long-term capital gains bracket, you may be able to realize gains in a taxable account without owing federal capital gains tax. Harvesting gains in low-income years and resetting cost basis can reduce future tax liability when those assets are eventually sold.

Even if your long-term capital gains rate is 0%, higher-income households may still owe the 3.8% Net Investment Income Tax, or NIIT. The NIIT is a surtax on investment income — including capital gains, dividends, and interest — that applies above $200,000 for single filers and $250,000 for married couples filing jointly. These thresholds are not adjusted for inflation, so they affect more households over time. This is an important threshold to factor into both gain harvesting decisions and Roth conversion analysis.

Tax-loss harvesting works the other way. It means realizing losses in a taxable account to offset capital gains elsewhere. If total losses exceed total gains for the year, up to $3,000 of net capital loss can offset ordinary income, and any remaining loss carries forward to future years.

Asset Location

Asset location means holding each type of investment in the kind of account where it is taxed most favorably. In many cases, investments that generate more taxable income each year — such as high-yield bonds or REITs — fit better in tax-deferred or tax-free accounts. More tax-efficient investments — such as broad index funds held for the long term — often fit better in taxable brokerage accounts. The goal is to slow down the tax clock on income you can control. The right setup depends on the full portfolio, but the direction of the principle is consistent.

HSA: A Triple-Advantage Account Worth Maximizing

If you have access to a Health Savings Account through a high-deductible health plan, it is one of the most tax-efficient accounts in the tax code. Contributions are deductible, the money grows tax-free, and withdrawals for qualified medical expenses are tax-free. That is three layers of tax advantage no other account type offers.

One underused strategy: pay current medical expenses out of pocket and let the HSA balance grow invested. After age 65, HSA funds can be used for any purpose — not just medical expenses — and are taxed like a traditional IRA withdrawal if used for non-medical costs. For qualified medical expenses, they remain tax-free at any age.

RMD Years and the Forced-Income Problem

Once required minimum distributions begin, you lose some control over taxable income. The IRS calculates the required withdrawal based on your account balance and life expectancy factor, whether you need the money or not. Large pre-tax balances often lead directly to large required withdrawals, which can push you into higher tax brackets, trigger IRMAA, and increase how much of Social Security is taxed. The best time to plan for RMDs is before they begin.

The Surviving-Spouse Tax Shift

When one spouse dies, the survivor usually moves to single filer status the following tax year. The same income may now face compressed brackets and lower IRMAA thresholds. This is one of the most important — and most planning-addressable — tax risks for married couples in retirement. A good retirement income plan should be workable not just for a couple, but also for the surviving spouse.

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