"Over 90% of the money we have is in pre-tax. I should have been thinking about this a long time ago."
That's a direct quote from a client — a smart, successful guy who had done everything right by conventional standards. Maxed out his 401(k) every year. Got the employer match. Watched the balance grow. And now, sitting across from me with retirement on the horizon, he was realizing that the IRS had been a silent partner in his savings plan all along.
He wasn't alone. In fact, this is the single most common planning gap I see in people who are otherwise well-prepared for retirement. They've saved diligently. They've invested wisely. And they have almost no idea how much of that money actually belongs to them.
Let's fix that.
The Silent Partner You Never Invited
Here's something the financial industry doesn't say loudly enough: when you contribute to a traditional 401(k) or IRA, you're not saving money tax-free. You're deferring taxes. There's a meaningful difference.
Every dollar in your pre-tax retirement accounts is owed to the IRS. You just don't know the exact amount yet, because that depends on your tax rate when you withdraw it, which depends on your total income in retirement, which depends on decisions you haven't made yet.
That uncertainty is the trap. Because here's what happens if you don't plan for it: the IRS will eventually force the issue.
At age 75, the government requires you to start taking Required Minimum Distributions (RMDs) from your pre-tax accounts, whether you need the money or not. The amount is calculated based on your account balance and your life expectancy, and it's fully taxable as ordinary income.
If you've spent 30 years accumulating a $2 million IRA, your RMDs could easily push $70,000–$90,000 per year into your taxable income, on top of Social Security, any pension, and any other income you have. That can push you into a higher tax bracket than you were in during your working years. It can trigger Medicare surcharges. It can cause more of your Social Security to become taxable.
The people who get hit hardest by this are often the most disciplined savers. The ones who did everything right. The ones who deserve to enjoy their retirement, not hand a disproportionate share of it to the IRS.
The Three Tax Buckets
To understand the opportunity here, you need to understand how retirement savings are taxed. There are three distinct buckets, and most people have almost all of their money in just one.
Bucket 1: Taxable (Brokerage Accounts) Money here has already been taxed. Growth is subject to capital gains rates, which are generally lower than ordinary income rates. No required distributions. Maximum flexibility.
Bucket 2: Tax-Deferred (Traditional 401(k), IRA, 403(b)) You got a tax break going in. Everything coming out is taxed as ordinary income. Subject to RMDs at 75. This is where most people have most of their money.
Bucket 3: Tax-Free (Roth IRA, Roth 401(k), HSA) No tax break going in. Tax-free growth. Tax-free withdrawals in retirement. No RMDs on Roth accounts. The most valuable bucket in retirement, and the one most people have the least of.
The problem isn't having money in Bucket 2. The problem is having all your money in Bucket 2 with no strategy for managing the tax liability that comes with it.
Tax diversification, spreading your assets across all three buckets, gives you something enormously valuable in retirement: control. The ability to choose, year by year, which bucket you draw from, in what amounts, to manage your taxable income strategically.
The Roth Conversion Window
Between the day you retire and the day your RMDs begin, there's a planning window that most people don't even know exists, and it's one of the most powerful tax-planning opportunities in retirement.
Here's how it works. When you stop working, your income typically drops significantly. You're no longer earning a salary. Your Social Security may not have started yet. Your RMDs haven't kicked in. For many people, this creates a period of unusually low taxable income, often the lowest they'll see for the rest of their lives.
That window is the ideal time to convert money from your traditional IRA to a Roth IRA.
A Roth conversion means you pay taxes on the converted amount now, at your current (lower) rate, and that money then grows and comes out tax-free for the rest of your life. No RMDs. No future tax liability. Just tax-free income.
The strategy is called "bracket filling." You look at your current tax bracket, find the gap between your current income and the top of that bracket, and convert enough to fill that gap, paying 12% or 22% now instead of 24% or higher later when RMDs force the money out anyway.
One of my clients was doing exactly this. He and his wife were in the 22% bracket with significant room before hitting 24%. Every year, they were converting a strategic amount from their IRA to their Roth, not because they needed the money, but because they understood that paying 22% now was almost certainly cheaper than paying 24–32% later when RMDs stacked on top of Social Security and other income.
"I'd much rather enjoy my money now while I can," he told me. "Because if I don't, the government's going to make me start taking it out anyway."
That's exactly right. The question isn't whether you'll pay taxes on that money. The question is when, and at what rate.
The IRMAA Trap
Here's the one that surprises almost everyone, even people who've done some tax planning.
Medicare premiums are not fixed. They're income-tested. If your income exceeds certain thresholds, you pay significantly more for Medicare Part B and Part D, a surcharge called IRMAA (Income-Related Monthly Adjustment Amount).
For married couples filing jointly, crossing the first IRMAA threshold (around $212,000 in MAGI) can cost an extra $3,000 or more per year in Medicare premiums. Cross the second threshold, and you're looking at $4,000–$5,000 in additional annual premiums. Per couple.
Here's the kicker: IRMAA is based on your income from two years prior. So your Medicare premiums in 2026 are based on your 2024 tax return. That means a large Roth conversion, a big IRA distribution, or even a one-time event like selling a rental property can trigger IRMAA surcharges two years later, often catching people completely off guard.
The lesson: tax planning and healthcare planning are not separate conversations. They're the same conversation.
What Good Tax Planning Actually Looks Like
Good tax planning in retirement is not about finding loopholes or being aggressive. It's about being intentional. It's about understanding the rules of the game and making thoughtful decisions about the sequence and source of your income.
Here's what that looks like in practice:
In the years before RMDs begin, you're evaluating Roth conversions annually, filling your bracket strategically, watching the IRMAA thresholds, and building your tax-free bucket while the window is open.
When you claim Social Security matters for your tax picture. Up to 85% of your Social Security benefit can be taxable depending on your combined income. The timing of when you start benefits, and what other income you're drawing simultaneously, affects how much of that benefit gets taxed.
Asset location, which accounts hold which types of investments, can meaningfully reduce your tax drag over time. Tax-inefficient assets generally belong in tax-deferred accounts. Tax-efficient assets belong in taxable accounts.
Legacy planning is also a tax conversation. The rules around inherited IRAs changed significantly with the SECURE Act, most non-spouse beneficiaries now have to withdraw inherited IRA funds within 10 years, potentially at high tax rates. If you have a large IRA and want to leave it to your children, a Roth conversion strategy now could save your heirs a significant amount in taxes later.
The Bottom Line
Taxes are the largest expense most retirees never fully plan for. Not because they're not smart enough, but because nobody ever walked them through the full picture.
The good news is that the tax code, for all its complexity, actually gives you a remarkable amount of control over your retirement tax situation, if you plan proactively rather than reactively. The window between retirement and RMDs is genuinely one of the best planning opportunities you'll ever have. But it closes. And once RMDs start, your options narrow considerably.
If you're within ten years of retirement and you haven't had a real tax planning conversation, one that looks at your full income picture, your account types, your Social Security strategy, and your legacy goals together, that conversation is overdue.
Your future self will thank you.
Jason Rindskopf is the founder of Two Waters Wealth Management and creator of the SMART Retirement Blueprint®. He works with high-achieving professionals and couples in the Charlotte, NC area who are within 10 years of retirement or recently retired. If you'd like to talk through your retirement tax strategy, book a complimentary consultation here.