Retirement is supposed to feel lighter and less complicated. Unfortunately, taxes often get more complicated — not because you did anything wrong, but because your income starts coming from more places, with less automatic withholding. In many cases, retirees end up showing more taxable income than they expected because Social Security, portfolio income, pensions, and later Required Minimum Distributions (RMDs) can stack on top of each other.
This guide covers the big retirement tax themes we see most often:
- The big shift in thinking: moving from saving and deferring taxes to planning withdrawals
- RMDs and how to minimize their impact
- IRMAA (Medicare premium surcharges) and why it blindsides retirees
- Why a lifetime tax plan matters more than a “this year only” mindset
- Estate and beneficiary planning (how your family gets taxed after you’re gone)
- The retirement “tax trap”: why the thing you were taught to do can backfire later
The big shift
Your financial “education” flips from deferring taxes to managing distributions (and living off your assets)
For most of your working life, the tax education is consistent:
- Earn wages
- Max out pre-tax retirement accounts
- Defer taxes
- Let the account grow
- Repeat for 20–40 years
That framework makes sense while you’re building wealth. Your household engine is your paycheck. If you work more, earn more, or get raises, your plan naturally improves. Your retirement accounts grow in the background, and the tax strategy is mostly about saving more and getting deductions.
Retirement flips that education on its head — and that’s where the surprise starts.
1) You stop being “paid” to create savings
When you’re earning wages, growth comes from two places:
- your earned income (paychecks and raises)
- your investments compounding over time
After you retire, the wage engine is gone (or dramatically smaller). That means your lifestyle is no longer funded by “new money” from work — it’s funded by the assets you already built.
So your growth and cash flow now come from:
- Social Security
- pensions (if applicable)
- interest/dividends/capital gains
- withdrawals from retirement accounts
- one-time moves (Roth conversions, rebalancing, major purchases)
That’s a big mental shift: you’re no longer expecting your financial plan to be carried by earned wages. You’re expecting it to be carried by investment income and intentional withdrawals.
2) Your job changes from “deferring tax” to “creating taxable income on purpose”
In the working years, the tax goal is often:
- reduce taxable income through contributions and deductions
- push income into the future (deferral)
In retirement, you still care about deductions — but the core question changes. It’s no longer just:
- “What do we need to live on?”
It becomes:
- Which accounts do we pull from first?
- How much do we pull this year?
- How do we create income intentionally without creating a tax spike?
- How do we avoid stepping on Medicare/IRMAA landmines?
This is the moment most people realize:
“I spent decades learning how to avoid taxable income… and now I need to generate income to live.”
3) Distributions are taxed differently than paychecks
A paycheck is simple: withholding is built in and income is fairly predictable.
Retirement income is often a mix of tax systems happening at once:
- partially taxable (Social Security)
- taxable but optional (IRA withdrawals you choose)
- taxable and later required (RMDs)
- taxable based on timing (capital gains when you sell, not when the investment grows)
- tied to other costs (Medicare IRMAA surcharges based on income)
That’s why retirement tax forecasting can feel like spaghetti noodles on a plate. You aren’t just estimating one kind of income anymore — you’re managing multiple rule sets that interact with each other.
4) “Tax efficient” can change year-to-year — and that’s why this takes ongoing planning
A move that feels harmless can trigger a chain reaction:
- a larger IRA withdrawal increases taxable income
- that can increase how much of Social Security is taxable
- and it can push you into an IRMAA tier
- which raises Medicare premiums later
So retirement tax planning isn’t just “pay less tax.” It’s often about paying a reasonable amount of tax consistently, so you avoid expensive surprise years and protect your long-term plan.
The retirement “tax trap”: you spent decades deferring tax… and now the bill shows up
I’ve had multiple clients say a line that still surprises them when they hear themselves say it:
“I pay more taxes now that I’m retired than I did while I was working.”
They aren’t wrong — and it doesn’t mean they failed.
The education isn’t wrong either. Deferring tax is powerful. It helps people save more, build wealth, and reduce taxes during high-earning years. The part that often gets missed is what happens later if those accounts grow large:
The trap is that deferring tax doesn’t remove tax — it can concentrate it
Traditional retirement accounts (like pre-tax 401(k)s and traditional IRAs) are essentially an agreement with the IRS:
- You get a tax break now
- The money grows tax-deferred
- Later, withdrawals are generally taxable — and eventually mandatory (RMDs)
That last part is what makes retirement feel upside-down. You were trained to avoid taxable income, and then later you’re required to create it.
Why it goes against what you’d “traditionally” think is efficient
Most people assume their income will drop in retirement and taxes will naturally drop with it — especially if they retire before Social Security and before RMD age.
But many retirees experience the opposite as they age:
- Social Security starts
- Portfolio income continues
- Pensions may pay out
- Then RMDs force additional taxable income on top of everything else
The strategic shift: stop thinking “this year” and start thinking “lifetime”
Retirement tax planning is often less about getting the biggest deduction and more about controlling when income shows up.
Sometimes the most efficient lifetime strategy includes moves that feel backwards at first glance:
- intentionally creating taxable income in a lower-income year
- doing partial Roth conversions before RMD age
- withdrawing from pre-tax accounts earlier than “required” to smooth tax brackets
- making “uncomfortable” moves now to prevent forced income later
We don’t take strict positions here because everyone’s facts differ — but the key concept is consistent: retirement tax efficiency is usually about timing.
Required Minimum Distributions (RMDs): when they start and why they matter
When do RMDs start?
For many retirement accounts, your RMD starting age depends on your birth year — for many people today it’s 73, and for younger cohorts it can be later. Your plan should confirm the exact starting age that applies to you, because it drives the entire retirement tax forecast.
Why RMDs “change the game”
RMDs can be based on the value of the account and require a percentage to be disbursed each year. Imagine having a significant Individual Retirement Account that has never been distributed from and now being required to withdraw 5% or more every year.
RMDs don’t care if you need the money. They create taxable income, which can ripple into:
- Higher marginal tax brackets
- More taxable Social Security
- Higher Medicare premiums via IRMAA
- Less flexibility to do planning later
If you can reduce your exposure to RMDs, and control the tax bracket RMDs are expected to land within, can you reduce your overall tax exposure for the rest of your life?
RMD calculations are a critical portion of tax planning during younger years when projecting your lifetime tax plan.
IRMAA: the Medicare surcharge most retirees don’t see coming
IRMAA is the income-related monthly adjustment amount. It creates a surcharge added to Medicare Part B and Part D premiums when income is above certain thresholds. IRMAA is calculated based on your income from two years ago. If you would like to learn more about IRMAA, we have another blog article here.
IRMAA is often left out of the conversation as it doesn’t land on the individual’s tax return. This is why retirees feel blindsided after:
- a Roth conversion year
- a large IRA distribution year
- selling investments for a big purchase
- a “one-time” event that spikes income
Planning note: IRMAA doesn’t mean “don’t do Roth conversions.” It means “do them with eyes open,” ideally as part of a multi-year plan. The cost of IRMAA should be calculated into your lifetime tax plan.
Social Security taxation: the “weird math” that surprises people
Many retirees are surprised to learn Social Security can become partially taxable as other income rises.
The practical takeaway:
- The taxability of Social Security is often driven by what else you do (RMDs, capital gains, Roth conversions, etc.).
- A lifetime plan often focuses on smoothing income to avoid stacking too much in one year.
- As tax on social security can be completely avoided in some situations, some plans take drastic approaches prior to someone reaching social security and Medicare ages.
If you would like to learn more about how social security is taxed, we have another blog article here.
Estate and beneficiary planning: two different “tax worlds”
For many retirees, estate tax won’t be the main issue but beneficiary planning still is, because of income taxes and how accounts transfer. When planning for those who wish to leave money behind for their beneficiaries, you can’t just worry about how much tax you pay. To be efficient, you must plan for how much your beneficiaries will pay as well.
I often ask my clients, “Would you rather pay 12% tax today or 22% tax tomorrow?” This is often a question we must also evaluate with our beneficiaries. Maybe both beneficiaries are already realizing the 24% bracket and additional income would put then in the 32% bracket. Would you rather pay 12% tax or have your beneficiary pay 32% tax? It really does depend on all the factors put together.
Beneficiaries and inherited retirement accounts
The IRS has specific guidance for IRA beneficiaries and required distributions. Those rules can accelerate taxes for your beneficiaries if the inherited account forces larger distributions over a shorter window — especially when the beneficiary is already in a high bracket.
This is where families get caught:
- A beneficiary inherits a large IRA
- They don’t understand the distribution timeline
- They create avoidable tax spikes (or miss required distributions)
Even when the estate tax isn’t relevant, inherited retirement accounts can create a meaningful tax bill for your kids.
The surviving spouse year is often a turning point
This is part of the more difficult part of tax planning but has to be approached gently in discussion but often aggressive in action. When a spouse passes away, it is a life-changing event on the personal side. It also creates the need to update the tax plan of the couple which is not a fun conversation for either side.
There are significant changes from a tax perspective of the surviving spouse in the long term:
- Tax brackets typically start at lower values and compress
- Some income sources may be reduced which can create a cash flow problem
- Some income sources may stay the same which can create a taxable income problem
- RMD timelines may be altered
After one spouse passes, the filing status changes can make taxes feel meaningfully different and often surprising if not planned properly.
Other retirement tax items to keep on your radar as you become retired
If you want a short checklist of “common surprises” we haven’t covered above, these are some of the more common ones we see:
- Big capital gain years: selling investments, rebalancing, or liquidating a position for a major purchase can create a one-year income spike.
- Healthcare timing (pre-Medicare): if you retire before 65, your taxable income can affect ACA premium credits and lead to repayment surprises.
- Charitable giving strategy: the way you give can change the tax result (especially when you take the standard deduction).
- HSA rules: HSAs can be very tax-efficient, but Medicare enrollment changes contribution eligibility and withdrawals need to be handled correctly.
- Part-time work / consulting: even “small” income can cascade into higher taxes and Medicare costs.
- State tax surprises: selling property, owning rentals, or earning income in another state can create filing requirements even if you live in Florida.
This isn’t a complete list; there are about 20 more but stay tuned for additional articles and information.
Wrap-up: Retirement taxes aren’t harder — they’re just different
The biggest surprise in retirement isn’t that taxes exist — it’s how they show up. Your plan shifts from earning wages and deferring tax to living off multiple income sources, each with its own rules. Social Security, portfolio income, pensions, and later RMDs can stack together, and that stacking is what creates the “how did my taxes get so high?” moment.
If there’s one theme to remember, it’s this: retirement tax efficiency is usually about timing. The moves that matter most often happen in the years before RMDs begin — when you still have flexibility to control how much taxable income you create and when you create it. That same planning also helps avoid IRMAA surprises and keeps your strategy consistent from year to year.
Finally, don’t forget the family side of the plan. Even if estate tax won’t apply, beneficiary planning absolutely can — especially with inherited retirement accounts. A good lifetime plan considers not only your tax rate, but the tax impact on the people you leave money to.
If you’re approaching retirement (or already there) and you want clarity, the next step isn’t guessing. It’s putting a simple, multi-year plan on paper: RMD timing, IRMAA awareness, Social Security taxation, and withdrawal sequencing — so you can fund retirement with fewer surprises and more confidence.
Disclaimer
This article is for general informational and educational purposes only and is not tax, legal, or financial advice. The article is written from the perspective of a Florida individual where other states may have different laws. This article has not been updated since the date of writing. Links are provided to easily confirm where the information came from. Use it to help you ask better questions about your situation. For advice tailored to you, consult a qualified tax professional.
Author
Nathan Gauger is the Managing Partner of Blue Heron CPAs and focuses on retirement tax planning—helping retirees make confident decisions around Roth conversions, RMDs, Social Security timing, and Medicare-related costs like IRMAA. His goal is simple: make sure your tax plan supports the life you want in retirement, not just the return you file this year.
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