E46: How Nurses & CRNAs Can Lower Taxes in Retirement

Jennifer, a CRNA, saved over a million dollars in her 403(b) after 25 years of diligent contributions, doing “everything right” and living below her means. Yet, she made a “200,000 mistake” she only discovered at age 65. When her required minimum distributions (RMDs) kicked in, combined with Social Security, she jumped from the 12% to the 24% tax bracket, paying “over $40,000 a year in taxes” that “she could have avoided”. This episode will show you how to avoid Jennifer’s expensive mistake and provide a roadmap to potentially save “tens of thousands in retirement taxes”.

The CRNA Tax Trap

 Most CRNAs face a unique tax problem in retirement. After 20 or 30 years of maxing out 403(b) or 401k contributions, combined with high Social Security benefits from good earnings, hitting age 73 means RMDs begin. Add these together, and “boom, you’re in a higher tax bracket in retirement than you were when you were working”. For example, a CRNA couple with $2 million in 403(b) accounts would have $75,000 in RMDs alone by age 73. With Social Security benefits, they could jump from the 12% to the 22% or even 24% tax bracket. This is “the CRNA tax trap”. Traditional advice is to defer taxes, but for many CRNAs, “later is here and it’s very expensive”.

The Solution: Tax Bracket Filing & Three Buckets 

The solution is “tax bracket filling”. Instead of paying low taxes early in retirement and high taxes later, you “smooth things out” by strategically filling up lower tax brackets during your early retirement years. To do this, you need to think about your retirement money in three buckets:

• Tax-deferred money: Your 403(b), 401k, traditional IRA.
• Tax-free money: Your Roth IRA, Roth 403(b).
• Taxable brokerage account: “The secret weapon most CRNAs don’t use enough”.

The Secret Weapon: Taxable Brokerage Accounts & 0% Capital Gains 

Consider Tom and Lisa, a CRNA couple who retired at 60. They had $1.8 million in 403(b) accounts and $400,000 in a taxable brokerage account. From ages 60 to 67, they primarily lived off their taxable account, taking advantage of the “0% capital gains rate”. If you are married filing jointly, you can realize up to about $94,000 in capital gains and pay zero federal tax. This is “perfect for early retirement years when you don’t have other income coming in”. Tom and Lisa needed $80,000 a year to live, and the half of that money that was gains (not original investment) incurred “zero federal income tax”.

Roth Conversions: Paying Taxes on Purpose 

Tom and Lisa didn’t stop there. They also converted $50,000 every year from their traditional accounts to Roth, strategically keeping themselves in the 12% tax bracket. They were “paying taxes on purpose, but they were paying them at a low rate instead of waiting and paying them at a high rate later”. By turning 67 and starting Social Security, they reduced their Roth conversions to about $30,000 a year, still filling that 12% bracket but more carefully due to Social Security income. This strategy saved them over $150,000 in lifetime taxes.

Asset Location: Where You Put Your Investments 

“Asset location” is about where you put your investments, not what investments you choose.

• Tax-deferred accounts (403(b), 401k): Put your bonds and REITs, which generate income taxed at regular rates.
• Taxable accounts: Put your “growth stocks and index funds” as they are “very tax efficient” and don’t generate much income until sold.
• Roth accounts: Put your “highest growth potential investments” because “these will never be taxed again”.
  This simple strategy can save thousands in “tax drag,” which is when your investments are less efficient due to taxes.

Medicare Surcharges (IRMAA)

 If doing larger Roth conversions, “you need to watch out for something called Irma,” the Medicare surcharge. If your income goes above certain thresholds (e.g., $106,000 for singles, $212,000 for married couples in 2025), you pay higher Medicare premiums. The key is “timing your conversions strategically”.

Your Retirement Phases & Action Plan 

Think about retirement in three phases:

• Phase One (Early Retirement, e.g., before age 65): Live primarily off your taxable accounts to leverage the 0% capital gains rate. Start Roth conversions and delay Social Security if possible.
• Phase Two (Ages 65 to 73): You’re now receiving Social Security. Continue smaller Roth conversions, carefully watching Medicare income thresholds. This phase prepares you for phase three.
• Phase Three (Age 73+): RMDs begin. You’re in “spend down mode.” Use Roth accounts for discretionary spending and focus on legacy planning.

Biggest Mistakes to Avoid 

Brett identifies four common mistakes CRNAs make:

1. “Set it and forget it” approach: Maxing out 403(b)/401k for decades without considering future tax consequences.
2. Ignoring asset location: Putting tax-inefficient investments in taxable accounts.
3. “All or nothing” thinking: Either avoiding all taxes or not caring about them. The smart approach is “strategic tax planning”.
4. Not planning for RMDs: Allowing traditional accounts to grow too large and missing conversion opportunities.

A Fee-Only Financial Advisor: The Power of Professional Help 

What should you do right now?

1. Calculate your tax diversification: How much do you have in each of the three buckets?.
2. Model different withdrawal strategies: Understand what happens with different retirement ages or conversion choices.
3. Evaluate Roth conversion opportunities: Can you fill a lower tax bracket?.
4. Consider professional help: A fee-only financial advisor who understands tax planning can often “save you more than they cost”. Tom and Lisa didn’t do it alone; they worked with someone to model scenarios and plan for their specific situation.

Take Control: Your Retirement Tax Roadmap

The goal is not to pay zero taxes. It’s to pay “the right amount of taxes at the right time”. Sometimes, “it makes sense to pay taxes today to avoid paying higher taxes tomorrow”. Remember to also consider your state taxes, as rules vary and affect your strategy.

This isn’t just about saving money; it’s about “peace of mind” and knowing you have a plan. “You worked hard for your money, you sacrificed, you worked long hours, you missed family events. You deserve to keep more of what you earned”. Tax planning is a marathon; early starts compound savings, but it’s never too late to begin. Diversify your taxes just like you diversify your investments, and don’t make Jennifer’s mistake. You deserve to retire “on your terms” and with confidence.

Ready to see how Oak Capital Advisors can help? Schedule a Meeting.

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