Many Americans struggle to make ends meet in retirement, and even those with decent savings often face their share of financial woes. At a time when every dollar counts, avoiding taxes on your income can really change your financial picture. And while you may not be able to avoid taxes entirely, you can take steps to keep them as low as possible.


1. Open a Roth IRA

Many workers opt for traditional IRAs as opposed to the Roth version because of the up-front tax savings involved. With a traditional IRA, the money you contribute goes in tax-free, but when the time comes to take withdrawals in retirement, your distributions are not only taxed, but taxed as ordinary income. Roth IRAs work the opposite way. With a Roth, you'll pay taxes on the money you contribute initially, but withdrawals in retirement are completely tax-free. Though there are income limits for putting money into a Roth, if you're eligible to contribute, doing so could pay off when you're more strapped for cash down the line.

Another benefit of Roth IRAs is that unlike traditional IRAs, they don't come with required minimum distributions. What this means is that any year you don't need to tap your savings, you can let it sit and grow, thus earning you even more money to use at your discretion.

2. Invest in municipal bonds

By the time you reach or near retirement, there's a good chance you'll have pulled a good chunk of your money out of stocks and into more conservative investments, like bonds. But while the interest you'll earn from corporate bonds is taxable, if you invest in municipal bonds, the interest payments you receive will be exempt from federal taxes. And, if you buy municipal bonds issued by your home state, you'll avoid state and local taxes as well. As long as you stick to highly rated companies, municipal bonds are a relatively safe option for generating tax-free retirement income.

3. Avoid short-term capital gains

Selling investments at a profit is a good way to bring in extra money during retirement, but if you're not careful, you could lose a chunk of your earnings to the IRS. Short-term gains, which are gains on investments held for one year or less, are taxed as ordinary income. Long-term gains, meanwhile, are taxed at a lower rate. If you're looking to sell off investments in retirement, be sure to hang onto them for at least a year and a day to qualify for the more favorable long-term capital gains rate. Also, keep in mind that if your income is low enough, you may not pay any taxes at all on long-term capital gains.

4. Rack up deductions

While you may not manage to avoid paying taxes on your income, you can lower the amount of your income that's subject to taxes by taking advantage of deductions. Healthcare, for example, is a major expense for countless retirees. In fact, the average healthy 65-year-old couple today can expect to spend $377,000 on medical care over the course of retirement. The good news, however, is that if your healthcare costs for the year exceed 10% of your adjusted gross income (7.5% for 2016 if you're 65 or older), you can claim a medical expense deduction on your tax return.

Similarly, you can take a tax deduction for whatever charitable contributions you make during the year, and that includes goods, which you may have an easier time parting with than actual cash. All you need to do is retain a receipt for your donation so there's proof if the IRS needs it.

Finally, if you have investments in your portfolio that haven't been performing particularly well, selling them at a loss could result in a helpful deduction. While your losses will initially be used to offset your gains for the year, any excess loss you take can be used to offset up to $3,000 of income. And if your net loss exceeds $3,000, you can carry the remainder to future tax years and use it to your advantage then.

Taxes can be a real burden when you're retired and living on a fixed income. The more steps you take to avoid taxes in retirement, the more money you'll have at your disposal when you need it the most.