Resources for Purdue Employees Approaching Retirement

Retiring From Purdue: Tax Planning for the Years Ahead

Retiring from Purdue can create some valuable tax-planning opportunities, particularly in the first few years after retirement.

While you’re working, your paycheck decides much of your tax picture for you.

Retirement changes that.

Once your Purdue income stops, you’ll likely have much more control over where your income comes from and when it shows up on your tax return. This new control can create opportunities for managing and possibly lowering your retirement tax bill.

The tricky part is that the best answer may not be the same every year.

That’s why we generally look at retirement taxes several years at a time rather than trying to minimize the tax bill on a single tax return.

The goal is to make good use of the years when you have more flexibility, while keeping an eye on Social Security, Required Minimum Distributions, and other income that may eventually fill up your tax return for you.

Your Final Tax Year at Purdue

Your final year at Purdue can be a little clunky.

Depending on when you retire, you may still have most of a full year of Purdue wages hitting your tax return. Plus, there may also be vacation, sick-leave, or other retirement-related payouts, on top of investment income or other retirement money.

That can make the retirement year a very different planning picture than the first full year after you leave.

In a higher-income year, we’re typically looking for opportunities to maximize deductions, manage investment gains, or avoid recognizing unnecessary income into an already high tax bracket.

Bigger tax planning opportunities may come after the Purdue paycheck stops.

Note: Purdue also provides a Retirement Readiness resource for employees preparing to leave.

Tax Planning Opportunities After You Retire From Purdue

Once you enter your first full year of retirement, your tax return can look very different.

Your Purdue wages are gone. Social Security may not have started yet. And depending on how you fund your spending, you may have a lot more control over how much taxable income shows up each year.

This can create a valuable tax planning window.

We regularly see clients move into tax brackets that are meaningfully lower than the ones they were in while working. When that happens, the lower tax bill is nice, but the bigger opportunity is deciding how to take advantage of these new rates.

This is where it’s possible to take advantage of lower tax brackets by intentionally increasing your income.

In these cases, we may evaluate Roth conversions, taking withdrawals from pre-tax retirement accounts, realizing capital gains, or some combination of the three.

But we don’t automatically try to “fill up” a tax bracket just because there’s room.

We want to know what the rest of retirement is likely to look like.

For example, if Social Security will eventually begin and large pre-tax retirement balances are likely to create significant Required Minimum Distributions later, recognizing some income earlier may make sense.

This is why we avoid focusing on one single tax year and, instead, focus on the entire retirment timeline.

How to Think About Purdue Retirement Withdrawals

Once the Purdue paycheck stops, one of the biggest questions becomes: where should the new paycheck come from?

The answer isn’t as simple as withdrawing money from whichever account is easiest to access or by following generic rules of thumb.

You’ll likely move into retirement with some combination of pre-tax retirement accounts, Roth accounts, taxable investments, and cash.

Each type of account is going to affect your tax return differently. Pre-tax retirement distributions are generally taxable, while qualified Roth withdrawals can generally be received tax-free. Taxable investment accounts (brokerage accounts) fall somewhere in between depending on what is sold and how much gain is involved.

Knowing how the accounts are taxed is only the starting point though.

Taxes and Your Withdrawal Strategy

Deciding which account to withdraw from ultimately depends on your tax picture and what you’re trying to accomplish.

When I review this with clients, we try to answer two separate questions:

“Where should I get my spending money?”
“How much taxable income should I recognize this year?”

Sometimes they lead us to the same account.

Sometimes they don’t.

This is where retirement planning & tax planning can get a little counterintuitive.

Suppose you need $80,000 from your portfolio to support your lifestyle. That does not necessarily mean we want to create $80,000 of taxable retirement-account withdrawals.

We might fund some of that spending from cash or a taxable investment account while separately completing a Roth conversion to intentionally use part of a lower tax bracket.

In another situation, we may intentionally take more money from a pre-tax retirement account than you actually need to spend because reducing that account today could help with future RMDs.

Taxable Investments Deserve More Attention Than They Often Get

It’s also worth spending time looking at taxable investment accounts.

I’ve reviewed portfolios over the years where perfectly reasonable investments were creating unnecessary taxable income simply because of where they were held.

An investment can be a good investment and still be a poor fit for a taxable account.

A portfolio that regularly distributes significant taxable interest, dividends, or capital gains can quietly create tax drag year after year. It can also use up tax-bracket capacity that may have been more valuable elsewhere.

This is especially important once you retire when we’re trying to manage taxable income more intentionally.

Before focusing solely on Roth conversions or retirement-account withdrawals, we also want to understand what the existing portfolio is already putting onto the tax return.

In my opinion, the best tax-planning opportunity isn’t adding another strategy.

It’s fixing an inefficient portfolio that’s been creating unnecessary taxes for years.

Retiring From Purdue Before 65: Taxes and Health Insurance

Retiring before Medicare adds another layer to the tax-planning conversation. Fortunately, there are quite a few options for health insurance before Medicare kicks in at age 65.

If you purchase health insurance through the Marketplace, eligibility for premium tax credits and other savings is tied to household Modified Adjusted Gross Income (MAGI).

That means a tax-planning decision can also change what you pay for health insurance.

This is one reason we don’t evaluate Roth conversions based only on the federal tax brackets.

A conversion might look great when we calculate the tax bill by itself. But if adding another $30,000 or $50,000 of income also reduces Marketplace assistance, the true cost of the conversion can be higher than the tax return alone suggests.

When we’re working with someone retiring before 65, we want to compare both sides of the equation:

What does recognizing additional income cost us today, including taxes and healthcare, and what could it save us later?

That’s a much more useful question than simply asking how large of a Roth conversion will fit inside a particular tax bracket.

It’s also why the years before 65 often need to be planned together. A larger conversion in one year, a smaller one in another, or using different accounts for spending can sometimes produce a better overall result than repeating the same strategy every year.

Why We Look at RMDs Years Before They Begin

For most folks, Required Minimum Distributions can feel like something that’s years away, a problem to be dealt with later.

We generally don’t wait until later to look at them.

Under current law, most people have to begin taking minimum distributions from their traditional (pre-tax) retirement accounts, while Roth IRAs and most workplace Roth accounts typically do not require RMDs for the original owner.

What interests us isn’t just the RMD itself.

It’s what the RMD could do when it lands on top of everything else already showing up on the tax return.

By then, you’re likely receiving Social Security and other retirement income. Higher taxable income caused by RMDs can also affect Medicare costs.

That’s why we like to project forward while there’s still time to plan and make changes.

If someone retires with a significant amount of money in pre-tax retirement accounts, we may estimate what those balances and future RMDs could look like if nothing changes.

Then we can ask a more useful question:

Do we like where this tax picture appears to be heading?

If the answer is no, the years between retirement and RMDs may give us an opportunity to gradually reduce pre-tax balances through Roth conversions or withdrawals rather than waiting for required withdrawals to make the decision for us.

All of this matters for another reason too: the tax picture can change considerably after the death of a spouse.

A surviving spouse may eventually be filing as a single taxpayer while still owning much of the same household retirement wealth. That can make large pre-tax balances even more difficult to manage.

For married clients, that’s another reason we don’t look at Roth conversions or pre-tax withdrawals only through the lens of today’s joint tax return.

Frequently Asked Questions About Taxes After Retiring From Purdue

Is the year I retire from Purdue usually a good year for a Roth conversion?

Not necessarily.

If your retirement year still includes substantial Purdue wages, investment income, or other payouts, adding a large Roth conversion may push more income into an already high tax bracket.

In many cases, the first full calendar year after retirement deserves just as much attention, and sometimes considerably more.

Should I try to keep my taxable income as low as possible after retiring?

Not always.

A lower-income year can create an opportunity to intentionally recognize income at a relatively attractive tax rate.

We may choose to use some of that room for Roth conversions, planned retirement-account withdrawals, or capital gains rather than simply trying to report the smallest amount of taxable income possible.

Which account should I spend from first in retirement?

There isn’t one answer that works for everyone.

We look at how pre-tax, Roth, taxable, and cash accounts interact with the broader tax plan.

Sometimes the best account for spending is not the same account we want to use for tax planning.

Can Roth conversions affect health-insurance costs before Medicare?

Yes.

For retirees using Marketplace coverage, additional taxable income can affect eligibility for premium assistance.

That’s why we generally look at the tax cost and the healthcare cost together rather than evaluating a conversion based only on the federal tax brackets.

Why think about RMDs years before they begin?

Because the years before RMDs begin may give you more control over how much taxable income you recognize.

If future RMDs appear likely to create a much higher level of taxable income, we may have opportunities to gradually address that problem while there is still time to do so.

Want a Second Set of Eyes on Your Retirement Plan?

Good retirement tax planning usually requires looking several years ahead.

The goal is to understand how your income may change as your Purdue paycheck stops, healthcare changes, Social Security begins, and Required Minimum Distributions eventually enter the picture.

Our Retirement Review is designed to help you understand where you stand today, what may need attention, and how we may be able to help.

Start Your Retirement Review

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Written by Cody Lachner, CFP®, EA
Founder & Financial Advisor, Next Adventure Financial

Next Adventure Financial is an independent investment adviser and is not affiliated with or endorsed by Purdue University.

Last reviewed: August 2026

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