Signed into law on July 4, 2025, the One Big Beautiful Bill provides seniors with a $6,000 tax deduction boost ($12,000 for couples). Your tax savings can be significant, but only if you’re below the income thresholds. Phaseouts start at $75,000 adjusted gross income (AGI) for single filers and $150,000 for joint filers.
These tax deductions are scheduled to expire at the end of 2028, so seniors have only three years to take advantage of this sizable tax benefit. If you’re not sure how, see our list below of the five tax-smart retirement liquidity strategies that may help you keep more of your retirement income.
5 RETIREMENT LIQUIDITY OPTIONS IN 2025
While retirees need more accessible cash than ever, they also need to be careful not to trigger taxes that shrink their savings. If you’re not strategic about how you access your money, you can increase your taxable income, which may:
- Push you into a higher tax bracket
- Raise your Medicare premiums
- Increase your taxes on Social Security benefits
To avoid this, let’s get into the strategies on how to create retirement income without extra taxes. To get the most tax-efficient cash flow in retirement, consider using multiple strategies instead of just one.
STRATEGY #1: ROTH CONVERSIONS DURING A LOW-TAX WINDOW
Roth conversions are when you move money from traditional retirement accounts into a Roth IRA account. Traditional IRAs and 401(k)s are tax-deferred accounts. They’re funded with money you haven’t paid taxes on yet (but will at withdrawal), while Roth accounts are funded with post-tax dollars.
Roth conversion timing in 2025 to 2028 may be the most strategic because the One Big Beautiful Bill extended lower tax brackets for retirees from earlier tax cuts. If you move money now, you’ll get charged today’s low tax rates. If you move or withdraw money from your pre-tax accounts later, you’ll have to pay whatever the going tax rate is at that time. Once money is in a Roth, it grows tax-free forever.
Traditional IRAs also force you to take money each year after a certain age. Roth IRAs don’t.
STRATEGY #2: TAP HOME EQUITY WITHOUT TRIGGERING ORDINARY INCOME TAX
The difference between what your house is worth and what you still owe is called equity. When you borrow from your home equity, the IRS doesn’t treat that money as income earned. Instead, it sees it as a loan or a transfer, so you don’t have to pay taxes on that money.
Your home equity retirement strategy can include:
- Getting a home equity loan
- Taking out a home equity line of credit (HELOC)
- Completing a reverse mortgage
- Downsizing your home and keeping any leftover money (note that sales proceeds may be subject to capital gains taxes)
STRATEGY #3: USE TAXABLE BROKERAGE ACCOUNTS BEFORE TAX-DEFERRED ACCOUNTS
Taxable brokerage accounts are regular investment accounts used to buy and sell stocks, bonds, ETFs, mutual funds and other investments. These accounts don’t have special tax rules or contribution caps and are funded with money you’ve already paid taxes on.
You generally pay capital gains taxes when you sell investments in a taxable brokerage account for more than you paid, not ordinary income taxes on the withdrawal itself. Long-term capital gains (for assets held over a year) are often taxed at lower rates than ordinary income, and in some cases may qualify for a 0% rate depending on your taxable income.
By using taxable assets first, you can preserve tax-deferred accounts for later, delay larger taxable withdrawals and keep flexibility for Roth conversions or RMD planning.
STRATEGY #4: STAGGER RMDS AND SOCIAL SECURITY TO CONTROL TAXABLE INCOME
Required minimum distributions (RMDs) are forced withdrawals you must take from tax-deferred accounts once you reach a certain age — currently age 73, but will rise to 75 in 2033.
Every dollar withdrawn counts as taxable income. The bigger your tax-deferred account is, the bigger your RMD will be, potentially triggering large tax bills. If you take your Social Security income at the same time, and RMDs push your income over certain thresholds, you may also have to pay taxes on those benefits.
Staggering your RMDs and Social Security benefits may help keep your taxable income lower and spread your taxes out over time. You can do this primarily by:
- Delaying starting your Social Security benefits for a few years.
- Taking small, planned amounts of money from your traditional IRA or 401(k) before your RMD age to lower your account balance and RMD later.
- Doing Roth conversions before you reach the RMD age.
STRATEGY #5: UNLOCK LIQUIDITY FROM LIFE INSURANCE VIA LIFE SETTLEMENT
Seniors with life insurance policies often purchased them to safeguard against risks that no longer apply, such as caring for children who are now independent. While some maintain these policies as part of their legacy plan, many seniors on fixed retirement incomes find the premiums to be an expensive drain on their savings.
If you cancel a policy or it lapses after nonpayment, you get nothing back for all the years you paid into it. If you surrender the policy to the insurer, you get only a fraction of its worth. But if you sell it in a life settlement, you could get as much as seven times your policy’s surrender value.
Even better are the life settlement tax benefits. You only pay taxes on the amounts above what you paid into the policy. That means you can get a lump sum of cash with a much smaller tax impact than many of the other ways of getting money in retirement.
WHY LIQUIDITY MATTERS MORE THAN EVER IN RETIREMENT
Liquidity in retirement matters more today because retirees face higher costs and greater market volatility, making it essential to have readily accessible cash without triggering unnecessary taxes.
You likely started planning for retirement decades ago, but you could never have foreseen the steep rise in the cost of indispensable services like healthcare and long-term care. Persistent inflation has also driven up the prices of everyday goods, reducing the purchasing power of the dollars you saved in a different economic environment.
With strategic retirement planning under the new tax laws, you can more easily build liquidity and cover rising costs.
THE WINDOW WON’T STAY OPEN FOREVER
Many retirees have a short window to take advantage of today’s lower tax brackets. By combining smart withdrawals, home equity tools and options like life settlements, you can take advantage of tax-efficient liquidity that helps protect your savings and stretch your retirement income further.
Have a life insurance policy you no longer need? Before you lapse or surrender it, find out what it might be worth. Reach out to Life Settlement Advisors today to learn about using life insurance for retirement cash.
