Taxes do not retire when you do. In fact, for many households the tax bill in retirement is bigger than they expected, because no one built a plan for the withdrawal phase. Here are five of the most common, and fixable, mistakes.
1. Ignoring the order of withdrawals
Pulling from the wrong accounts in the wrong years can needlessly spike your taxable income. A coordinated withdrawal strategy across your taxable, tax-deferred, and tax-free buckets can smooth your bracket for decades.
2. Getting surprised by RMDs
Required Minimum Distributions begin at age 73. If your tax-deferred balance is large, RMDs can force six-figure withdrawals whether you need the money or not, often the moment your other income is already high.
3. Triggering taxation of Social Security
Up to 85% of your Social Security benefit can become taxable once your combined income crosses federal thresholds. Managing your other income can keep more of your benefit in your pocket.
4. Overlooking IRMAA
Higher income raises your Medicare Part B and D premiums through IRMAA surcharges, using a two-year income lookback. One large withdrawal or Roth conversion done carelessly can raise your Medicare costs two years later.
5. Never doing Roth conversions
The years between retirement and age 73, when income is often lowest, can be the best time to convert tax-deferred dollars to tax-free at a low rate. Skipping that window can leave a much larger lifetime tax bill.
Each of these is avoidable with a written tax plan. The goal is simple: pay taxes on your terms, in your lowest-rate years, instead of the IRS choosing for you.