Financial Planning Fridays #176: The 3 Biggest Tax Mistakes Retirees Make
Tax planning in retirement can be just as important to long-term wealth as investment returns. This video covers three common mistakes retirees make: waiting too long to address required minimum distributions, unintentionally triggering higher Medicare premiums, and withdrawing from accounts in the wrong order. Coordinating these decisions as part of a broader plan is offered as a way to help manage lifetime taxes.
Tax planning in retirement can be just as important to long-term wealth as investment returns. This video covers three common mistakes retirees make: waiting too long to address required minimum distributions, unintentionally triggering higher Medicare premiums, and withdrawing from accounts in the wrong order. Coordinating these decisions as part of a broader plan is offered as a way to help manage lifetime taxes.
Key takeaways
- Waiting until required minimum distributions begin at age 73 to address pre-tax retirement accounts can lead to larger withdrawals and higher tax brackets later.
- Large one-time withdrawals, property sales, or Roth conversions in a single year can unintentionally raise Medicare premiums through IRMAA.
- The order in which retirees withdraw from taxable, pre-tax, and Roth accounts can affect their tax bracket and how long their portfolio lasts.
- Coordinating investments, withdrawals, Roth conversions, and taxes together, rather than in isolation, is central to retirement tax planning.
Hi friends. Today I want to talk with you about something that doesn't always get as much attention as investments or market headlines, but can have just as much of an impact on your long-term financial success: tax planning in retirement. We often tell clients it's not just what you earn, it's what you keep. And retirement comes with a unique set of tax rules and timing decisions that can either help you build lasting wealth or quietly erode it over time. So today, let's go through the three biggest tax mistakes retirees make and how you can avoid them.
Mistake number one, waiting too long to address required minimum distributions. Most retirees have a large portion of their wealth in pre-tax IRAs and 401(k)s. Those dollars haven't been taxed yet, and eventually the IRS requires you to take money out, whether you need it or not. The mistake many people make is waiting until RMDs start at age 73 to do anything about it. By that point, the account may have grown significantly, meaning larger withdrawals and potentially higher tax brackets. A smarter strategy is to plan early and, in some cases, begin gradual Roth conversions when your income temporarily drops, often between your retirement and the time you start Social Security. Planning here can save thousands or even millions of dollars over your lifetime.
Mistake number two, triggering higher Medicare premiums without realizing it. Many retirees don't realize that Medicare premiums are tied to your income. So a big withdrawal, selling a property, doing a large Roth conversion in a single year, or taking distributions all at once can quietly bump you into a higher tier. The key here is coordination. Investments, withdrawals, Roth conversions, and taxes must be planned together, not in isolation.
Mistake number three, not planning withdrawals in the right order. Taxes aren't just about how much you withdraw, but which accounts you withdraw from and when. There's a meaningful difference between taking money from taxable brokerage accounts, pre-tax retirement accounts, or Roth accounts. The smartest withdrawal strategy isn't the same for everyone, but almost always involves balancing income sources over time to smooth out tax brackets and protect long-term compounding. A well-structured withdrawal order can significantly extend the life of your portfolio.
So, what's the takeaway? Taxes in retirement are not a one-time decision. They're a long-term strategy. And with a thoughtful plan, many retirees can pay far less in taxes than they expect while giving themselves more flexibility, more peace of mind, and more control over their financial future. We are now updating all of our retirement tax plans for our clients for 2026. If you or someone you care about would benefit from a second look at how taxes fit into their retirement strategy, we would be happy to help. Thank you for watching and I look forward to talking with you next Friday morning.
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