Retirement is a financially tricky period of life. Once you leave the workforce and say goodbye to a steady paycheck, managing your finances can become all the more stressful, even if you're entering your golden years with a decent chunk of cash in a 401(k) or IRA. You'll be moving to a fixed income, all while grappling with a host of unknown costs, from healthcare to the general impact of inflation.

And then there are taxes to worry about. Unfortunately, being retired doesn't exempt you from paying them, and just as they can be a major burden for workers, they can also wreak havoc on seniors. In fact, 54% of Americans 50 or older say that paying taxes in retirement is a big concern, according to a new Nationwide survey.

Older man and woman looking at a document and wearing serious expressions

Image source: Getty Images.

If you're worried about dealing with taxes in retirement, there are steps you can take to owe the IRS less during your later years. And that means you'll get to keep more of your income for your own needs.

1. Save in a Roth retirement plan

Traditional IRA and 401(k) contributions go in tax-free, so there are immediate savings in funding one of these accounts. The flip side, however, is that withdrawals from a traditional retirement plan are taxable. So if, during a given year of retirement, you decide to remove $10,000 from your account, you may only wind up with closer to $7,500 once taxes are accounted for.

On the other hand, if you put your retirement savings in a Roth IRA or Roth 401(k), your withdrawals will be completely tax-free. And while you will lose the up-front tax break on your contributions, since they're made with after-tax dollars, you'll benefit from more flexibility when you really need it.

2. Fund an HSA

Saving for future healthcare bills in a health savings account, or HSA, is another great way to lower your tax burden in retirement. It's no secret that healthcare is a major expense for seniors. With an HSA, you get to contribute funds on a pre-tax basis, invest them for tax-free growth, and then take tax-free withdrawals in retirement (or whenever you choose to access that cash). All of this assumes, of course, that you use your HSA money for qualified healthcare expenses. But if you do, you'll have a tax-free source of cash to cover costs like doctor visit co-pays, prescriptions, and Medicare deductibles.

3. Invest in municipal bonds

If you have a traditional brokerage account that you carry into retirement, filling the bond portion of it with municipal bonds is a smart way to limit the impact of taxes on your income. Municipal bond interest is always tax-free at the federal level, and if you buy bonds issued by your home state, you'll avoid state and local taxes as well. Municipal bonds can also be a good source of steady, predictable income thanks to their semiannual interest payments -- something you'll no doubt appreciate once the paycheck you collected your entire career goes away.

4. Move to a state that doesn't tax Social Security benefits

If you expect Social Security to be a big source of income in retirement, then it helps to keep as much of those benefits as possible. If you're a moderate earner or higher in retirement, your benefits will likely get taxed to some degree at the federal level. You can avoid state taxes on those benefits, however, by living somewhere that doesn't impose them.

The following 13 states have a Social Security tax:

  • Colorado
  • Connecticut
  • Kansas
  • Minnesota
  • Missouri
  • Montana
  • Nebraska
  • New Mexico
  • North Dakota
  • Rhode Island
  • Utah
  • Vermont
  • West Virginia

Most of these states, however, offer exemptions for low or even moderate earners, so if you are planning to retire in one of them, take a look at its specific rules on Social Security taxation.

Nobody likes paying taxes, but they can be especially intrusive in retirement. Make an effort to lower yours, and you'll have one less financial worry after you stop working.