By Murray Miller, Financial Strategist | RolloverRight.com

Most people spend decades carefully building their retirement savings. Very few spend any time thinking about what happens to those savings on the way out. That oversight, and I say this as gently as I can, is often where the real money gets lost. Not to bad investments. Not to market crashes. To taxes that didn’t have to happen.

The Tax Bill Nobody Sees Coming

Here’s a conversation I’ve had more times than I can count.

A client walks in, sharp, successful, done everything right. They’ve maxed their 401(k) for twenty years.

• They have $1.3 million saved.
• They feel good. They should feel good.
• That’s a meaningful number built through genuine discipline.

Then we start talking about what retirement actually looks like. And I ask them: “Do you know how much of that $1.3 million you’ll actually get to keep?”

Most people haven’t thought about it that way. They think of the account balance as their money. And it is, but not all of it. A significant portion of a traditional 401(k) or IRA balance belongs to the IRS. You’ve been deferring that tax bill for decades. At some point, it comes due.

On $1.3 million in a traditional pre-tax retirement account, depending on your state of residence, your other income sources, and how withdrawals are structured, you could be looking at an effective tax take of 28% to 35% or more over the course of your retirement. That’s $364,000 to $455,000 gone. Not to market losses. Not to fees. To taxes on retirement accounts that could have been reduced with the right plan in place.

The good news, and there genuinely is good news here, is that with the right strategy implemented at the right time, a significant portion of that tax burden is not inevitable. It’s a planning problem. And planning problems have solutions.

Download the Rollover Decision Brief to understand how the tax picture affects your specific retirement numbers.

Why the Tax Problem Gets Worse Before It Gets Better If You Don’t Plan

Let me walk you through what happens to a typical retiree who doesn’t address this proactively.

They retire. They start drawing from their pre-tax 401(k) or IRA to cover living expenses. Each withdrawal is fully taxable as ordinary income. So far, that’s manageable. They’re probably in a moderate tax bracket, withdrawing what they need, paying taxes on it.

Then, at age 73, Required Minimum Distributions kick in.

The IRS doesn’t let you keep money in a traditional pre-tax retirement account indefinitely. At 73, they require you to start taking out a minimum amount each year, calculated based on your account balance and life expectancy. You don’t get to choose whether to take it. You don’t get to choose how much, only whether to take more than the minimum.

Here’s where it gets painful. If you’ve let a $1.3 million IRA grow untouched for ten years while living on other income, it might be $2 million or more by the time RMDs begin. The required distributions on a $2 million pre-tax IRA can easily push a retiree who thought they were in a moderate tax bracket into a significantly higher one. Suddenly Social Security becomes more taxable. Medicare premiums increase through IRMAA surcharges. The tax tail starts wagging the retirement dog.

This is not a hypothetical. I see it regularly. And almost without exception, the clients who land in this situation had no idea it was coming. Poor planning around taxes on retirement accounts is one of the most consistent and preventable sources of wealth erosion I encounter.

The Window Most People Miss Entirely

Between the day you retire and the day your Required Minimum Distributions begin, there is often a window, sometimes several years, sometimes a decade or more, during which your taxable income is lower than it has been in decades and lower than it will be again.

You’re no longer earning a salary. Social Security may not have started yet, or may be only partially taxable. RMDs haven’t kicked in. You may be in the 12% or 22% federal tax bracket for the first time since your early career.

This window is one of the most valuable planning opportunities of your entire financial life. And most people let it pass without doing anything intentional with it.

What can you do in this window?

Roth conversions. You can move money from your pre-tax IRA or 401(k) into a Roth IRA, paying income tax on the converted amount now, at your temporarily lower rate, in exchange for tax-free growth and tax-free withdrawals forever after. Done in the right amounts over several years, this can permanently reduce your future RMDs, reduce your lifetime tax burden, and create a pool of tax-free assets that gives you extraordinary flexibility in managing income later.

Strategic withdrawals. Even if you don’t need the money, deliberately taking taxable withdrawals up to the top of a lower tax bracket, essentially “filling the bracket,” can reduce the size of your pre-tax accounts and smooth out the tax hit over many years rather than concentrating it in the RMD years.

Tax-loss harvesting and asset repositioning. Moving taxable investments with embedded gains into more efficient structures when your tax rate is lower can reduce future capital gains exposure.

The common thread is this: the tax you pay in a low-rate year is always cheaper than the tax you pay in a high-rate year. The early retirement window is a low-rate window. Using it deliberately is one of the highest-return activities in retirement planning. Our Retirement Transition Planning process is built around identifying and maximizing exactly this window.

The Roth Conversion Strategy in Plain English

I want to spend a little more time here because Roth conversions are simultaneously one of the most powerful tools available to pre-retirees and one of the most misunderstood.

A Roth IRA is funded with after-tax dollars. The money grows tax-free. Withdrawals in retirement are tax-free. There are no Required Minimum Distributions during your lifetime. And Roth assets pass to heirs in a significantly more tax-advantaged way than pre-tax accounts.

A Roth conversion is the process of taking money from a pre-tax account, a traditional IRA or 401(k), and moving it into a Roth IRA. You pay ordinary income tax on the amount converted in the year of the conversion. After that, the converted amount and all future growth are tax-free.

The math works best when:

• You convert in a year when your income, and therefore your tax rate, is lower than it will be in future years
• The converted funds have a long time to grow tax-free before you need them
• Your estate planning goals include leaving tax-advantaged assets to heirs
• Future tax rates are expected to be higher than current rates, a view many tax planners hold given current federal debt levels

Here’s the practical approach I use with clients. Rather than converting everything at once, which would create a massive tax bill in a single year, we convert in deliberate annual amounts, sized to fill up lower tax brackets without crossing into higher ones. A married couple filing jointly might convert $60,000 to $80,000 per year over five or six years, staying within the 22% bracket each time, rather than triggering the 32% or 37% bracket with a single large conversion.

Done right, this strategy can keep hundreds of thousands of dollars away from taxes on retirement accounts over a retirement lifetime. I showed you the $300,000 to $500,000 figure earlier. That’s not hypothetical. That’s what I’ve modeled for real clients in real situations.

If you’re rolling over a 401(k) as part of this process, read the 401(k) Rollover to IRA guide first. How the rollover is structured directly affects your Roth conversion options.

The Account Withdrawal Order Nobody Tells You About

One of the most impactful and least discussed retirement tax strategies is simply the order in which you draw from different account types.

Most retirees have money in three different kinds of accounts, each with different tax treatment:

Pre-tax accounts (traditional 401(k), traditional IRA): Every dollar withdrawn is taxed as ordinary income.

After-tax accounts (taxable brokerage accounts): Withdrawals of principal aren’t taxed; gains are taxed at capital gains rates, which are usually lower than ordinary income rates.

Tax-free accounts (Roth IRA, Roth 401(k)): Withdrawals are completely tax-free.

The conventional wisdom says: spend pre-tax accounts first, let the Roth grow. The reality is more nuanced.

The optimal withdrawal sequence depends on your tax bracket in any given year, your RMD situation, your Social Security taxation threshold, your Medicare premium exposure, and your estate planning goals. In many cases, a blended approach, drawing from multiple account types in the same year, calibrated to keep you in a specific tax bracket, produces better outcomes than any rigid sequence.

I worked with a retired physician a few years ago who had $2.1 million in a traditional IRA, $380,000 in a Roth, and $290,000 in a taxable brokerage account. His instinct was to spend down the taxable account first, then the IRA. When we modeled it properly and compared it to a coordinated withdrawal sequence with partial Roth conversions layered in, the difference over his projected retirement was over $400,000 in additional after-tax income. Same accounts. Same balances. Different order.

The sequence matters. A lot. This is also closely connected to sequence of returns risk, because the accounts you draw from and when you draw from them directly affects how vulnerable your portfolio is to a bad early market. The sequence of returns risk guide covers that interaction in detail.

Social Security and Taxes: The Surprise Most Retirees Don’t See Coming

Here’s something that genuinely surprises people when they first hear it: up to 85% of your Social Security benefit can be subject to federal income tax, depending on your total income.

The IRS uses a figure called “combined income,” your adjusted gross income plus non-taxable interest plus half your Social Security benefit, to determine how much of your benefit is taxable. Above certain thresholds, the taxation kicks in and increases.

For many retirees drawing from a large pre-tax IRA, every additional dollar of IRA withdrawal doesn’t just get taxed at their marginal rate. It can also cause more of their Social Security to become taxable. This is called the “torpedo” effect, and it can create an effective marginal tax rate on certain income that’s far higher than the stated bracket would suggest.

Managing this requires knowing the thresholds, modeling your income sources carefully, and where possible, keeping taxable income below the levels that trigger additional Social Security taxation. Roth conversions done in earlier years, when Social Security hasn’t started yet, are one of the most effective ways to reduce the size of future IRA withdrawals and stay below those thresholds.

This is exactly the kind of interaction between income sources that a well-built retirement income plan models explicitly. It’s also exactly the kind of thing a generic calculator on a financial website will never show you. The retirement withdrawal rate guide covers how these interactions affect sustainable income planning.

Medicare Premiums: The Hidden Tax on Higher Retirement Income

While we’re talking about taxes on retirement accounts, I want to flag one that surprises almost everyone the first time they encounter it.

Medicare Part B and Part D premiums are not fixed. They’re income-based. High-income retirees pay significantly more through what’s called IRMAA, the Income-Related Monthly Adjustment Amount.

In practical terms: if your modified adjusted gross income exceeds certain thresholds, currently starting around $106,000 for individuals and $212,000 for married couples filing jointly, your Medicare premiums increase substantially. At the highest income tiers, a married couple can pay over $10,000 more per year in Medicare premiums than a couple with lower income.

This matters for retirement tax planning because a large IRA withdrawal in a single year, whether you needed it or not, can push you into a higher IRMAA tier for the following two years. So a $50,000 Roth conversion done carelessly could trigger $8,000 in additional Medicare premiums you weren’t expecting.

Doing Roth conversions and strategic withdrawals with IRMAA thresholds in mind is one of the details that separates a carefully constructed retirement income plan from a good-intentioned but incomplete one.

What About State Taxes?

Federal taxes get most of the attention, but state income taxes on retirement income vary dramatically and can meaningfully affect the math.

Some states, Florida, Texas, Nevada, and several others, have no state income tax at all. Others exempt pension income but tax IRA withdrawals. Others tax everything. A handful of states have special provisions for military retirement income or public employee pensions.

If you’re considering relocating in retirement, and many of my clients are, the state tax picture is a legitimate financial consideration, not just a lifestyle one. Moving from a high-tax state to a no-income-tax state can be worth tens of thousands of dollars over a retirement lifetime, depending on your income level.

I’m not suggesting anyone move purely for tax reasons. Quality of life, family proximity, climate, and healthcare access all matter far more for most people. But when a move is already being considered, running the actual numbers on the state tax differential is absolutely worth doing.

If your retirement income includes a pension, keep in mind that some states treat pension income and IRA withdrawals very differently from a tax perspective. The pension vs. lump sum guide touches on how state tax treatment factors into that decision.

A Story About Getting This Right Just in Time

A couple came to me about three years before the husband’s planned retirement. He was a senior sales executive, she was a retired teacher with a modest pension. Between his 401(k) and her IRA, they had just over $1.5 million, virtually all of it in pre-tax accounts.

They weren’t in crisis. They were actually in pretty good shape. But when I modeled what their tax picture was going to look like at 73, when RMDs kicked in on top of Social Security and her pension, the numbers were uncomfortable. They were going to be paying taxes on retirement account income they didn’t particularly need, at rates they’d never anticipated.

We had three years. That was enough.

Over those three years, including two years after his retirement before Social Security began, we executed a deliberate series of Roth conversions, converting approximately $90,000 per year. We kept them in the 22% bracket each year. We reduced the pre-tax balance significantly before RMDs began.

The projected outcome: they avoided being pushed into the 32% bracket in their RMD years, kept more of their Social Security below the 85% taxation threshold, and reduced their projected Medicare IRMAA exposure. Total estimated lifetime tax savings compared to doing nothing: just over $340,000.

Three years of intentional planning. That’s what it took.

Find out if we’re a good fit and let’s look at what your tax picture actually looks like before it’s too late to do anything about it.

The Timeline: When to Start Thinking About This

5 or more years before retirement: The highest-value window. You still have earned income, options for additional Roth contributions, and time to reposition assets with minimal urgency. This is when the most comprehensive planning can happen.

2 to 5 years before retirement: Still excellent. This is the window where Roth conversion strategies can be modeled and begun, withdrawal sequencing can be designed, and Social Security timing can be coordinated with the tax plan. Most of my clients begin this work here.

The year of retirement: Not too late, but the urgency is higher. The income floor needs to be established, the Roth conversion window identified, and the withdrawal sequence locked in before the first year of distributions begins.

Already retired: Still meaningful options remain, particularly around withdrawal sequencing, bracket management, and partial Roth conversions if the window is still open. The earlier you start, the more runway you have. But later is always better than never.

Schedule a complimentary conversation to find out where you are in this timeline and what options are still available to you.

Key Takeaways

• Most of a traditional pre-tax retirement account belongs partly to the IRS. The question is how much, and planning determines the answer
• The early retirement window, before RMDs and full Social Security, is often the lowest-tax period of a retiree’s life and one of the most valuable planning opportunities available
• Roth conversions done in the right amounts over several years can reduce lifetime taxes on retirement accounts by hundreds of thousands of dollars
• Withdrawal order across pre-tax, after-tax, and tax-free accounts has enormous impact. A coordinated sequence consistently outperforms any rigid rule
• Social Security taxation and Medicare IRMAA surcharges are hidden tax amplifiers that a good retirement income plan addresses explicitly

Frequently Asked Questions

1. Is it too late to do Roth conversions if I’m already 70?

Not necessarily, though the calculus changes. At 70, you’re close to RMD age, and once RMDs begin you can’t convert them directly to a Roth. However, if you have pre-tax assets beyond your RMD amount, you can still convert the excess. The key question is whether you have enough runway for the converted funds to grow tax-free in a way that justifies the conversion tax. For a healthy 70-year-old potentially looking at 20 more years, there’s often still a compelling case, particularly for assets intended to pass to heirs, who will benefit from the tax-free inheritance.

2. What’s the biggest Roth conversion mistake people make?

Converting too much in a single year without modeling the full tax impact. I’ve seen people read about Roth conversions, get excited, and convert $300,000 in one year, pushing themselves into the 37% bracket, triggering IRMAA surcharges for the next two years, and making 85% of their Social Security taxable simultaneously. The conversion math worked in a vacuum. In the context of their full income picture, it was an expensive mistake. The antidote is simple: model the full picture before you convert a single dollar.

3. How does the SECURE Act affect my retirement tax planning?

Significantly, and in ways that affect both you and your heirs. The SECURE Act and its follow-on legislation changed the RMD starting age, currently 73, moving to 75 in 2033, and eliminated the “stretch IRA” for most non-spouse beneficiaries, replacing it with a 10-year distribution rule. That second change is enormous for estate planning purposes: your heirs who inherit a traditional IRA now have to withdraw all of it within 10 years, potentially at high tax rates during their own peak earning years. Roth IRAs inherited under the same rules still require distribution within 10 years, but those distributions are tax-free. This makes leaving Roth assets to heirs dramatically more valuable than leaving pre-tax assets.

4. Should I stop contributing to my traditional 401(k) and switch to a Roth 401(k) in my final working years?

Possibly, and this is worth modeling carefully. If you’re in your peak earning years and in a high tax bracket, the traditional 401(k) deduction still has real value. But if your employer offers a Roth 401(k) option and you expect to be in a similar or higher tax bracket in retirement, or you have significant pre-tax balances already, contributing to the Roth 401(k) in your final working years can accelerate tax diversification without having to execute separate conversions. It’s a nuanced decision that depends on your specific bracket situation, your existing account balances, and your retirement timeline.

5. What happens to my retirement accounts when I die, and how do taxes work for my heirs?

This is where pre-tax and after-tax accounts diverge dramatically. A traditional IRA or 401(k) passed to a non-spouse heir comes with a deferred tax liability that heir must pay, and under current law, they must pay it within 10 years, potentially during their highest-earning years. A Roth IRA passed to the same heir is inherited tax-free, with the same 10-year distribution window but zero income tax on any of it. A taxable brokerage account receives a stepped-up cost basis at death, meaning your heirs inherit it at the current market value with no capital gains tax on the appreciation that occurred during your lifetime. Understanding these differences is essential for anyone doing estate planning alongside retirement planning, which frankly should be everyone.

Murray Miller is a Financial Strategist with over 40 years of experience helping business owners, executives, military officers, healthcare professionals, and high-earning professionals build tax-efficient retirement income plans. He has personally navigated the transition from accumulation to distribution and knows firsthand how the tax picture can change everything.

Schedule a complimentary conversation to look at the tax picture inside your retirement accounts.