The Five Year Tax Window Before Retirement
Why Roth conversions, HSA contributions, retirement-plan catch-ups, pensions, annuities, and Medicare should be evaluated together
By Anthony V. Lupoli, CPA/PFS, CFP®, MAcc
If retirement is within five years, the tax return you file next April is not the only tax question that matters. You may still have earned income, employer benefits, retirement-plan access, an HSA, a pension election, or control over when other income begins. Each of those choices can affect the others.
That is why I think of the years before retirement as a five-year tax window. It is not a special rule in the tax code. It is a practical planning period when you may have more ways to shape income, savings, and benefits before your paycheck stops and new income sources begin.
The goal is not to chase the lowest possible tax bill in a single year. It is to understand the tradeoffs across several years so your retirement date, account contributions, Roth conversions, health coverage, pension choices, and future withdrawals support the same plan.
Why Five Years Can Matter
Retirement changes the composition of your income. Salary and bonuses may disappear. Pension payments, Social Security, portfolio withdrawals, business income, or deferred compensation may begin. Required minimum distributions may arrive later. Medicare can introduce income-related premium adjustments.
Those changes rarely happen on the same date, which creates both complexity and planning flexibility. A Roth conversion that looks reasonable by itself may raise taxable income enough to affect Medicare premiums two years later. Delaying a pension may create room for conversions, but it also changes cash flow. Starting Social Security changes the amount that must come from the portfolio. Retiring early can open a lower-income year, but it can also end access to an employer plan or change HSA eligibility.
The problem is not a lack of choices. It is making one choice without seeing what it touches. You have worked too long to reach retirement with options, only to have separate decisions work against one another.
Start With an Income and Tax Map
Before choosing a strategy, lay out the next several calendar years. A useful map should show expected wages, bonuses, business income, deferred compensation, pension start dates, Social Security options, investment income, retirement-account withdrawals, charitable plans, and major one-time events such as a business sale or property transaction.
Then add the items that are easy to overlook: health-insurance changes, Medicare enrollment, capital gains, tax-exempt interest, employer stock, and the expiration of employee benefits. The purpose is not to predict every dollar. It is to identify years when taxable income may rise or fall and decisions may need to be sequenced.
This map becomes the common starting point for the strategies below. Without it, a recommendation to convert, contribute, claim, roll over, or elect an income option is missing context.
Five Decisions to Evaluate Before Retirement
1 Roth Conversions
A Roth conversion moves money from a pre-tax IRA or eligible retirement account to a Roth account. The converted amount that has not already been taxed is generally included in income for that year. A conversion may be worth evaluating when current taxable income is temporarily lower than it is expected to be later, when a household wants more tax diversification, or when future required distributions are a concern. It is not automatically the right move.
The calendar matters. A conversion can affect the current tax bracket, deductions or credits tied to income, taxation of Social Security, estimated taxes, and Medicare premiums. Social Security generally uses recent federal tax-return information to determine whether higher-income beneficiaries pay an income-related adjustment for Part B and prescription-drug coverage. In many cases, that means income from two years earlier is relevant.
The better question is not simply, “Should I convert?” It is, “How much, in which year, paid from what source, and what else changes if I do?” The IRS confirms that untaxed amounts converted from a traditional IRA are taxable, and the Social Security Administration explains how income can affect Medicare premiums.
2 HSA Contributions and Medicare Timing
For someone who remains eligible to contribute, a health savings account can be especially useful before retirement. Contributions may be deductible or excluded from income, growth is tax-deferred, and distributions for qualified medical expenses can be tax-free. The account can also remain available after employment ends.
For 2026, the HSA contribution limit is $4,400 for self-only coverage and $8,750 for family coverage. An eligible individual who is age 55 or older may contribute an additional $1,000. Those amounts include employer contributions, and eligibility depends on the type of health coverage and the months you qualify.
The retirement interaction is Medicare. You generally cannot make or receive HSA contributions for months in which you are enrolled in Medicare. If you enroll in premium-free Medicare Part A after age 65, Part A coverage can generally be retroactive for up to six months, but not earlier than the month you first became eligible for Medicare. That retroactive coverage can affect HSA contribution eligibility, so contributions may need to stop several months before a Medicare application is filed. This is exactly the kind of rule that can turn a reasonable stand-alone decision into an avoidable correction if retirement, Social Security, Medicare, and payroll contributions are not coordinated. See IRS Publication 969 and Medicare's enrollment guidance for current eligibility and timing details.
3 Retirement Account Catch Up Provisions
The final working years may offer additional contribution room. In 2026, participants age 50 or older may be able to make an $8,000 catch-up contribution to a 401(k), 403(b), governmental 457(b), or similar eligible plan. For many participants who turn 60 through 63, the higher limit is $11,250. Certain long-service employees may qualify for a separate 403(b) catch-up, depending on the plan. IRA owners age 50 or older may make a $1,100 catch-up contribution.
One 2026 detail deserves attention: For plans with Roth features that offer catch-up contributions, participants with more than $150,000 of prior-year FICA wages from the employer sponsoring the plan generally must make their catch-up contributions on a Roth basis in 2026. Plan terms and payroll systems matter, so confirm the treatment with the employer and plan administrator before the last payrolls of the year.
Maxing out every account is not always the answer. Pre-tax contributions may reduce current taxable income, while Roth contributions create different tax treatment. Higher savings can also compete with cash needed for a mortgage payoff, a business transition, a tax bill from a Roth conversion, or the first years of retirement. The right contribution mix depends on the same multi-year income map. Current limits and special rules are summarized in the IRS catch-up contribution guidance.
4 Pension Elections
A pension decision can be one of the most consequential and least reversible choices in a retirement plan. Depending on the plan, you may need to compare a single-life benefit, joint-and-survivor options, a period-certain option, or a lump sum. Each choice changes household cash flow, survivor protection, liquidity, investment responsibility, and taxes.
The highest monthly benefit is not necessarily the best household outcome. A married couple may place more value on income that continues for a surviving spouse. Someone with other reliable income may value flexibility differently. A lump sum can create control, but it also transfers longevity and investment responsibility to the retiree. The source of other income, life expectancy assumptions, spouse benefits, inflation features, plan strength, and estate goals all belong in the analysis.
Pension and annuity payments from qualified employer plans may be fully or partly taxable depending on the participant's basis and the form of payment. The IRS overview of pension and annuity taxation provides general federal guidance, but the election itself should be reviewed against the full retirement plan before it becomes irrevocable.
5 Annuities and Other Guaranteed Income Sources
An annuity may provide contractually guaranteed income for a stated period or for life, depending on the contract and subject to the claims-paying ability of the issuing insurance company. That can help address longevity risk, but the word “annuity” covers many products and terms. Fees, surrender periods, inflation protection, liquidity, beneficiary provisions, tax treatment, and the insurer's claims-paying ability all matter.
Before adding or changing an annuity, first account for the income already available from Social Security and pensions. Then identify the actual income gap and decide how much liquidity the household needs. An income stream can be valuable, but using too much of the portfolio to create it may reduce flexibility for health costs, family needs, or an unexpected transition.
This is another decision that should not be made from a product illustration alone. It should be compared with available pension elections, portfolio withdrawals, tax consequences, survivor needs, and the rest of the retirement-income plan.
A Simple Plan for the Five Year Window
You do not need to solve every retirement decision at once. You do need a process that keeps the decisions connected.
1. Map the transition. List the expected income, benefits, account access, and major decisions for each year before and after the planned retirement date.
2. Model the interactions. Compare a small number of realistic paths. Test how contribution choices, conversions, pension or annuity income, Social Security, Medicare, and portfolio withdrawals affect taxes and cash flow together.
3. Sequence the work. Identify what must happen this year, what depends on another decision, and what can wait. Revisit the map when compensation, health coverage, markets, tax law, or family priorities change.
That process does not eliminate uncertainty. It replaces a collection of isolated choices with a plan you can understand and update.
What to Gather Before You Decide
A useful review usually starts with:
· The last two years of federal and state tax returns
· Current pay statements and expected bonuses or deferred compensation
· Retirement-plan statements, contribution elections, and plan summaries
· HSA balance, year-to-date contributions, and health-coverage details
· Pension estimates showing available payment options and survivor benefits
· Existing annuity contracts, including fees, guarantees, and surrender terms
· Social Security estimates and a tentative Medicare enrollment timeline
· Expected retirement spending, large purchases, business events, and charitable goals
The documents are important, but the central question is personal: What do you want retirement to look like, and which decisions could narrow your options if they are made in the wrong order?
Use the Window While Your Options Are Still Open
The five years before retirement are not valuable because they guarantee a tax-saving opportunity. They are valuable because there may still be time to compare choices before income, benefits, and account access change.
A coordinated plan can help you see which decisions deserve attention now, which can wait, and how the available paths compare. The aim is not a perfect prediction. It is a retirement transition in which your tax strategy, income, investments, health coverage, and major benefit elections support the same direction.
Your next step: Complete AVL Advisory's free Wealth Assessment to identify which retirement decisions may deserve attention first. If you have a defined decision in the next 12 to 24 months, you can also book a 15-minute introduction to explain what is changing and learn what the planning process could look like from here.
