Here's how to optimize your tax savings in retirement using the 'bucket strategy' technique.

• Financial experts advise that many retirees overlook taxes when withdrawing funds from pre-tax accounts, which can result in costly mistakes.
• You can reduce your lifetime tax burden by strategically receiving more income in lower-earning years to fill your federal tax brackets.
• To optimize the accumulation phase, it's crucial to consider taxes by diversifying contributions across pretax, Roth, and brokerage accounts.

Financial experts advise that many retirees overlook taxes when withdrawing funds from a pretax account, which can result in costly mistakes.

A Northwestern Mutual study from January found that only 3 out of 10 Americans have a plan to reduce taxes on their retirement savings, based on a poll of approximately 4,600 U.S. adults.

One way to minimize financial burden is through the "bucket strategy," as advised by certified financial planner Sean Lovison, founder of Purpose Built Financial Services in the Philadelphia metro area.

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By strategically receiving more income in lower-earning years, you can reduce your lifetime tax burden and fill your "buckets" or federal tax brackets, advised Lovison, a certified public accountant.

If you're in the 12% tax bracket before collecting Social Security, you may have an opportunity to save on taxes later through Roth individual retirement account conversions, according to him.

Converting money from a pretax or nondeductible IRA to a Roth IRA eliminates the need for taxes on future withdrawals, but requires payment of upfront taxes on the converted balance.

To reduce pretax balances, you could convert enough to move into the 22% or 24% tax bracket. Otherwise, you may end up in the 32%, 35%, or 37% tax bracket after Social Security and RMDs kick in, according to Lovison.

Starting in 2023, the beginning date for Required Minimum Distributions (RMDs) will be age 73, and this age will increase to 75 in 2033. At the same time, pretax 401(k) and IRA balances are steadily increasing.

Lovison stated that a pressing concern currently receives little consideration from the public.

Focus on taxes in the 'accumulation phase'

Investors frequently overlook taxes when withdrawing from pretax retirement accounts, according to CFP Judy Brown of SC&H Group in the Washington, D.C., and Baltimore area. As a certified public accountant, she emphasizes the importance of considering taxes in retirement planning.

"They believed they had $1 million in their 401(k), but it's actually $700,000 after taxes," she stated. "Many people recognize the importance of tax planning when they receive their distributions."

Tax planning is crucial during the "accumulation phase" to maximize your nest egg growth. By contributing to pretax, Roth, and brokerage accounts, you can achieve "tax diversification," according to Brown.

She stated that those accounts would offer "a variety of tools to manipulate" your adjusted gross income during retirement.