A Financial Advisor’s Guide for Active Retirees and WA Educators in Spokane, Deer Park, and Chewelah
Every April, I meet with clients who bring me their tax returns, freshly completed and neatly organized. They’re rightfully proud – taxes are done, they might even be getting a refund, everything’s submitted on time.
“Looks good, right?” they ask.
And here’s what I always say: “Your tax return tells me what happened last year. But it doesn’t tell me what could happen differently next year.”
Picture this common scenario: A couple brings me their perfectly filed return. No errors, no red flags. But when we dig deeper, we discover they’ve been paying thousands more in taxes than necessary for years because nobody ever discussed Roth conversion strategies during their lower-income early retirement years.
The return itself was perfectly correct. But that doesn’t mean their overall tax approach was optimized.
A clean tax return can hide significant opportunities. A big refund might signal inefficiency, not success. And the numbers that look fine on your 1040 might mask problems that won’t show up until it’s too late to address them easily.
April is tax season, which makes it the perfect time to talk about what tax documents reveal – and more importantly, what they don’t.
What can a clean tax return hide about my retirement finances?
I see this pattern frequently with retirees in Spokane, Deer Park, and throughout Stevens County. Everything’s filed correctly. No errors. The return looks perfectly fine.
But when we review their broader financial picture, we often discover:
- Missed Roth conversion opportunities during years when their income was lower than usual, which could have potentially reduced their lifetime tax burden significantly.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
- Inefficient required minimum distribution (RMD) timing that creates tax issues they could have avoided with better planning five years earlier.
- Unintentional increases in Social Security taxation because of how they’re coordinating various income sources.
- Overlooked qualified charitable distribution strategies that would satisfy their giving goals while potentially reducing their taxable income.
None of these show up as “errors” on a tax return. The return itself is perfectly correct. But that doesn’t mean the tax strategy is optimized for their situation.
A tax return is a historical document. It tells you what already happened. It doesn’t reveal what’s possible, what you’re missing, or what challenges may be building that won’t become obvious for years.
Does a big tax refund mean I’m doing taxes correctly?
Getting a big tax refund feels good. It’s like found money, right?
Not exactly.
A tax refund means you overpaid throughout the year. You essentially gave the government an interest-free loan of your money for twelve months. That’s not efficiency – that’s suboptimal cash flow management.
Now, I’m not saying refunds are terrible. Sometimes they happen. Life circumstances change mid-year, withholding estimates are off, or you made a strategic choice that resulted in overpayment.
But if you’re consistently getting large refunds – especially in retirement – it’s worth examining whether your withholding strategy makes sense for your situation.
For Washington State educators receiving PERS or TRS pensions, this is particularly relevant. Your pension withholding, your Social Security withholding (if you choose to have taxes withheld), and your investment account distributions all need coordination. If they’re not aligned, you might owe significantly at tax time or you’re giving too much of your money to hold throughout the year.
The goal in retirement isn’t the biggest refund. It’s the most efficient use of your resources throughout the year while avoiding underpayment penalties.
Note: This article provides general information about taxes and should not be considered personalized tax advice. Always consult with a qualified tax professional regarding your specific tax situation.
What’s the most important tax question retirees should ask?
Most retirees ask, “How much do I owe this year?”
That’s important. But there’s a more valuable question:
“What’s my strategy for the next 10-20 years of taxes?”
See, retirement taxation isn’t just about this year’s return. It’s about the accumulation of tax decisions over decades. And the choices you make in your 60s can dramatically affect your tax burden in your 70s and 80s.
Consider this scenario, common among retirees I work with in Chewelah and throughout the Spokane area:
Someone retires at 62. They’re living partly off savings, keeping their taxable income relatively low. Maybe they’re delaying Social Security to maximize their benefit. Their tax bracket is lower than it’s been in decades.
This creates opportunities for Roth conversions – moving money from traditional retirement accounts to Roth accounts. They’ll pay taxes on the conversion, but at these lower rates. Then that money can grow tax-free, and they won’t pay taxes on it again in the future.
But many people don’t consider this. They’re just trying to minimize their current year’s taxes. So they do nothing.
Fast forward to age 73 (the current RMD age). Now they’re required to take large distributions from their traditional retirement accounts. Their pension is in full swing. Social Security has started. Suddenly they’re in a higher tax bracket than they expected, paying taxes they might not have needed to pay if they’d planned strategically a decade earlier.
The tax return from age 62 looked great – low income, minimal taxes owed. But that “great” return was actually a missed opportunity that may have cost them significantly over time.
What should I look for beyond my tax refund amount?
When someone brings me their tax return, here’s what I review beyond whether they owed or got a refund:
- Income sources and how they’re taxed. I want to see the mix of ordinary income, capital gains, qualified dividends, pension income, Social Security. Each is taxed differently, and the mix matters for planning purposes.
- Opportunities. Are you in a tax bracket this year that creates planning opportunities? Should we consider Roth conversions, tax-loss harvesting, or strategic charitable giving?
- Future inflection points. When will RMDs start? When will Social Security benefits begin? How will Medicare IRMAA premiums factor in? These aren’t on your current return, but they’re coming.
- Coordination gaps. Is your federal withholding aligned with your state situation? For Washington residents, we don’t have state income tax, which is beneficial – but it also means federal planning becomes even more important because you can’t offset one with the other.
- Estate and legacy implications. How you take distributions now affects what you pass to heirs. Leaving large traditional IRAs to your children can create significant tax challenges for them down the road.
Note: Estate planning involves legal strategies and documents. This article provides general information only. Always consult with a qualified estate planning attorney for your specific situation.
How do Washington educators’ pensions affect their tax situation?
If you’re a Washington educator with a PERS or TRS pension, understanding how your pension is taxed is important – and it’s more nuanced than most people realize.
Your pension is fully taxable at the federal level. There’s no state tax in Washington, which helps. But that federal tax obligation needs planning, especially when coordinating with Social Security and your retirement account withdrawals.
Many educators I work with are surprised to learn that if they have substantial income from pensions and retirement accounts, up to 85% of their Social Security benefits can become taxable. The formula is complex, but the bottom line is: the way you structure your retirement income sources affects how much of your Social Security you actually get to keep.
This is where strategic planning can make a meaningful difference. Decisions about when to start Social Security (early at 62, at full retirement age, or delayed until 70) combined with how much you withdraw from retirement accounts during those years can result in dramatically different tax outcomes depending on your specific situation.”
Your tax return shows what you did last year. It doesn’t show whether you structured things optimally or whether better options existed.
Get our EDUCATOR’S GUIDE written just for you!
How do Medicare premiums connect to my tax return?
Here’s something that doesn’t show up obviously on your tax return but affects your financial health significantly: your Medicare premiums.
If you’re on Medicare, your premiums are based on your income from two years prior (this is called IRMAA – Income-Related Monthly Adjustment Amount). Higher income means higher premiums – substantially higher in some brackets.
So if you take a large distribution in 2025, you might not feel the Medicare premium impact until 2027. By then, that decision is already made.
I’ve heard of retirees inadvertently pushing themselves into higher IRMAA brackets because they took distributions without understanding the two-year lag effect. Their tax return looked fine in the year they took the distribution. But then they’re surprised when their Medicare premiums jump significantly two years later.
This is another example of how looking only at the current year’s tax return misses the bigger picture of financial health.
Why does timing matter so much for retirement taxes?
In retirement, timing can create dramatically different tax outcomes.
When you start Social Security. When you take distributions from retirement accounts. Whether you bunch charitable donations. When you sell appreciated assets. Whether you’re working part-time in early retirement.
All of these timing decisions create significantly different tax results. And none of them are obvious just from looking at last year’s tax return.
Picture this scenario: A retired teacher is planning to sell some stock to fund a home improvement project. If she sells it in December, she’ll pay significant capital gains taxes.
But if she waits just a few weeks until January when her other income has dropped for the new year, she could potentially pay zero in capital gains by staying in the 0% capital gains bracket.
Same stock sale. Same amount of money. But wildly different tax consequences just based on timing.
Her tax return from the previous year wouldn’t have revealed this opportunity. It took forward-looking planning.
What do comprehensive tax planning strategies look like in retirement?
A comprehensive financial plan doesn’t just react to last year’s taxes. It proactively plans for the next decade of taxes.
This means modeling different scenarios. What if you delay Social Security? What if you start Roth conversions? What if you move to a different state later? What if one spouse passes away and the survivor faces higher taxes as a single filer?
It means coordinating tax planning strategies with estate planning strategies, healthcare planning, and income planning. These aren’t separate areas – they all interact with each other.
And it means reviewing things regularly, because tax laws change, your circumstances change, and what made sense five years ago might need adjustment now.
For Washington educators transitioning into retirement, this is especially important because you’re often coordinating multiple income sources (pension, 403(b)/457 accounts, Social Security, possibly part-time work) that all have different tax treatments.
Your tax return each year tells you how last year’s coordination worked. But comprehensive planning helps you coordinate strategically going forward.
What’s the real cost of tax inefficiency over time?
Tax inefficiency in retirement isn’t just annoying. It can be expensive over time.
If you’re paying $5,000 more per year in taxes than necessary because of suboptimal planning, that’s $50,000 over 10 years. That’s $100,000 over 20 years.
That’s money that could have funded travel, helped grandchildren, supported causes you care about, or simply given you more financial breathing room to live abundantly.
And here’s the challenging part: many of these inefficiencies are preventable with planning, but they’re very difficult to fix retroactively. Once you’ve taken a distribution, once you’ve started Social Security, once you’ve crossed certain income thresholds – those decisions are made. You can’t go back and re-do them.
This is why reviewing just the tax return isn’t sufficient. You need forward-looking strategy, not just backward-looking compliance.
Moving Forward: Next Steps
If you’re in retirement or approaching it and you’ve been focused primarily on just getting your taxes done correctly each year, it might be time to think bigger.
Are there Roth conversion opportunities you’re not considering? Is your withholding strategy efficient for your situation? Are you coordinating your income sources in a tax-smart way? Do you understand how future RMDs will affect you?
These aren’t questions your tax return answers. But they’re questions that matter significantly for your long-term financial health and your ability to live abundantly in retirement.
Working with someone who understands both the tactical (getting this year’s return filed correctly) and the strategic (optimizing your multi-decade tax situation) can make a meaningful difference in how much of your retirement savings you actually get to keep and use.
The goal isn’t just to file correctly. The goal is to plan wisely so you can live abundantly.
Ready for a Tax Strategy That Goes Beyond This Year’s Return?
If you’re a Washington State educator approaching retirement or an active retiree who wants to explore whether your taxes are truly optimized – not just filed correctly – I’d be honored to help.
At Deep Creek Financial Planning, we work to coordinate your income sources, plan for tax efficiency over decades, and help you work towards keeping more of what you’ve worked so hard to build.
Schedule a 30-minute Discovery Call
Learn more: DeepCreekFinancialPlanning.com
Serving active retirees and WA educators throughout Spokane, Deer Park, and Chewelah.
To your abundant life,
Caleb Stapp
Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA\SIPC. Deep Creek Financial Planning is not a registered broker-dealer or investment advisor.
This article provides general information about retirement and tax planning and should not be considered personalized financial or tax advice. Before making any financial or tax decisions,consult with qualified professionals who understand your specific situation. Past performance does not guarantee future results. Client stories and quotes are compilations and not from any one person. No strategy assures success or protects against loss.
