Clients’ years shortly before and just after starting retirement are watersheds in their personal finance, when they pivot from earning an income to living off retirement accounts, other holdings and Social Security. The income they draw on, and when, can have big tax implications, advisors say.

“A common thing I hear from prospects and clients is the worry about being in a high tax bracket ‘later in life.’ Most people really miss the point of the large drop in tax rates once they retire,” said Robert Peterson, senior wealth advisor at Crescent Grove Advisors. “There’s a great window of opportunity from retirement until after age 70 to take advantage of some low tax-bracket years.

It’s generally best to limit income/withdrawals from pre-tax retirement plans, like 401(k)s, as they incur income tax in retirement, advisors say. Withdrawals from traditional IRAs may or may not be taxable, depending on how the contributions were made in working years. Withdrawals from Roth IRAs are tax-free.

Wealthy clients generally pay income tax on a portion—up to 85%—of their Social Security benefits when retired.

“While working,” Peterson added, “you’re typically in your peak earning years, and for our clients that’s a 37% federal bracket. Fast forward one year and you’re retired. What’s your income? If I’ve done my job right, I’ve built a long-term, tax-efficient portfolio, keeping [you] in a lower tax backet in the early years of retirement.”

Pre-retirees also can underestimate the cost of marketplace health insurance in the time before they can take Medicare. “If you can keep your income low enough, you can qualify for Advanced Premium Tax Credits,” Peterson said, “which can drastically reduce your healthcare costs before you’re old enough for Medicare.” But “if you or you and your spouse both elect Social Security at age 62, this could reduce or potentially eliminate your APTC eligibility since your modified adjusted gross income is used to determine your eligibility, and Social Security income is part of that.”

Postponing taking Social Security benefits after age 62—a popular tactic considered by new retirees, if not always acted on—can keep taxable income lower. “And you have room in the lower tax brackets to do Roth conversions,” said Thomas Pontius, senior financial planner at Kayne Anderson Rudnick in Los Angeles.

Converting to a Roth IRA from a 401(k) or traditional IRA does mean paying taxes on the funds, which you contributed pre-tax, in the year of the conversion.

“During early [retirement] years, when retirees’ overall income is lower due to no Social Security income or required minimum distributions, there may be an opportunity for considering Roth conversions using distributions from tax-deferred accounts at lower tax rates,” said Rohan Sharma, Ameriprise vice president of retirement income solutions in Seattle. “It can help limit RMDs in future years, reducing overall taxes on these assets and creating a source of tax-free income in later years.”

A Roth conversion “will have an upfront tax liability, but in the right situation could be a great estate planning tool” if saved and later bequeathed, added Richard Pianoforte, managing director at Fiduciary Trust International. “The client would eliminate their RMD and can use the Social Security income as a replacement. This could potentially put them in a lower tax bracket paying less taxes in the later years of their life.”

“If you have a larger IRA, consider taking distributions in your 60s while your bracket is lower,” Peterson said. “If we can distribute IRA funds at 10%, 12%, 22%, 24% and so on now versus higher rates of 35% or 37% in your 70s, this can many times be a great way to start to whittle your IRA before your RMDs start. This is highly specific to each client, as some have a very large part of their assets in tax-deferred accounts while others may have significantly more in after-tax accounts.”

“Understand where your distributions for living expenses are coming from and make sure they are more tax advantageous than Social Security,” Pontius said. “Living off qualified dividends, long term capital gains and passive real estate income may be better to use than interest income and distributions from traditional 401(k)s and IRAs that generate ordinary income.”