Most people walk into a retirement planning conversation with taxes on their mind. They want to know how to pay less, shelter more, and keep the IRS at arm’s length for as long as possible. It’s an understandable instinct. But after years of working with retirees, I’ve come to believe that leading with tax planning is one of the most expensive mistakes you can make. Taxes matter enormously in retirement — but only when they’re addressed in the right order.

That’s why in our retirement planning process, taxes come last. Not because they’re unimportant, but because every other decision you make in retirement has a tax implication. Social Security, Medicare, long-term care, your IRA withdrawals, your income plan, your estate — all of it connects back to taxes. If you start with the tax strategy before you’ve sorted out the rest, you end up optimizing one piece of the puzzle while the others fall apart around it. I’ve watched it happen more times than I can count.

The Tax Threads Running Through Every Retirement Decision

When most people think about retirement taxes, they think about their IRA or 401(k). And they’re right to — that’s where the biggest opportunity usually lives. But taxes show up in places people don’t expect, and it’s worth understanding how they weave through each piece of the retirement picture.

Take Social Security. Many retirees are surprised to learn that their monthly benefit can be subject to federal income tax. Despite some confusion following recent legislation, Social Security benefits are still taxable for higher-income retirees. The 2025 “One Big Beautiful Bill” introduced a senior tax deduction of up to $6,000 per person — or $12,000 for a married couple — intended to offset some of that burden, but the underlying tax on benefits remains in place. For retirees with modest income and little else coming in, this may not be a significant issue. For those with substantial retirement income, it’s a number worth knowing.

Medicare adds another layer. The Income Related Monthly Adjustment Amount, known as IRMAA, is essentially a Medicare surcharge that kicks in when your modified adjusted gross income exceeds $218,000 for a married couple. What catches people off guard is that Medicare uses your income from two years prior to determine whether you owe the surcharge. That lag matters more than most people realize, and I’ll come back to it in a moment.

Long-term care is another area where taxes play a meaningful but often overlooked role. Retirees who plan to self-fund their long-term care by drawing from an IRA face a real problem: every dollar they pull out is taxable income. If you need $80,000 a year to cover a memory care facility at age 84, and that money is coming out of a traditional IRA, you have to withdraw significantly more than $80,000 to end up with $80,000 after taxes. Long-term care insurance, by contrast, pays benefits that are entirely tax-free. For the right person in the right situation, that difference is enormous.

The IRMAA Trap Nobody Talks About

One of the most common and costly mistakes I see involves IRMAA. A retiree learns about the surcharge, understandably wants to avoid it, and spends the first decade of retirement carefully managing their income to stay below the threshold. They do Roth conversions, but only up to the limit. They’re disciplined. They’re proud of their planning.

Then they turn 73, and required minimum distributions begin.

At that point, the IRS dictates how much they must withdraw from their traditional IRA every year, and they no longer have a choice. If they haven’t converted enough of that money into Roth accounts earlier in retirement, those RMDs push them directly into IRMAA territory — and keep them there for the rest of their lives. They spent eight or ten years carefully avoiding a surcharge, only to pay it indefinitely because they were thinking about this year’s tax bill instead of their lifetime tax picture.

This is exactly why the goal of tax planning in retirement isn’t to minimize what you pay this year. It’s to minimize what you pay over the course of your lifetime.

Roth Conversions: The Right Strategy at the Right Amount

For most retirees with significant traditional IRA balances, Roth conversions are worth serious consideration. The question isn’t whether to convert — it’s how much, and how fast.

To illustrate this, consider the plan we built for Tom and Susan, a couple approaching retirement with approximately $1.8 million in traditional IRA money, $500,000 already in Roth accounts, and a monthly spending goal of $10,500. After accounting for their Social Security income and the income annuities we added to bridge the gap, we looked at how much room remained in their tax brackets before hitting the IRMAA threshold. That remaining space became the foundation for their Roth conversion strategy.

In their case, converting up to the IRMAA limit — keeping their modified adjusted gross income below $218,000 — made the most sense. It avoided the Medicare surcharge they were uncomfortable with, steadily moved money into tax-free Roth accounts, and based on our projections, was estimated to result in over $500,000 more in after-tax wealth passing to their children compared to doing no conversions at all.

We also modeled a more aggressive approach: converting up to the top of the 24% tax bracket, which for a married couple sits around $420,000 of taxable income. This strategy gets the conversions done faster, eliminates the RMD problem almost entirely, and leaves the couple in very low tax brackets for the remainder of their lives. It does trigger some IRMAA costs along the way, but for retirees with larger IRA balances or serious concerns about rising tax rates in the future, the faster approach often makes more sense. Tom and Susan ultimately chose the more conservative path, but both options were legitimate depending on their priorities.

Income First, Taxes Second

I want to share a story that illustrates why we build retirement plans from the bottom up, starting with income and layering taxes on top — never the other way around.

I had clients come in who were completely sold on Roth conversions. They had done their research, understood the strategy, and were committed to converting as aggressively as possible. The problem was that in their effort to maximize conversions, they had quietly stopped living their retirement. They weren’t taking the trips they had told us they wanted to take. They weren’t helping their adult children the way they had hoped to. Every time they considered spending money on something meaningful, the answer was that they couldn’t afford to create more taxable income because it would interfere with the conversion strategy.

That is a failure of planning, not a success of it.

The right approach is to start with the life you want to live. What does it cost to live comfortably, including the things that matter to you — the travel, the grandchildren, the experiences? Once we’ve built an income plan that funds that life, we look at what room remains in the tax brackets and use that space for Roth conversions. In Tom and Susan’s case, their income plan came first, their conversions were layered on top, and they were able to do both without sacrificing one for the other.

The Widow’s Tax and the Inheritance Question

Taxes in retirement don’t just affect you — they affect what you leave behind, and how your surviving spouse will fare if they outlive you.

When one spouse passes away, the surviving spouse shifts from filing taxes as a married couple to filing as a single taxpayer. That change is more significant than most people realize. The top of the 24% federal tax bracket for a married couple filing jointly sits around $420,000. For a single filer, that same bracket tops out at roughly $210,000 — half as much. The income doesn’t change. The tax rate does. This is what’s commonly called the widow’s tax, and it’s one of the strongest arguments for doing Roth conversions while both spouses are alive and while the married filing jointly brackets are still available to you.

The inheritance question matters too. When your children inherit a traditional IRA, current law requires them to empty the account within ten years. Every dollar they withdraw is taxable income to them, potentially at their peak earning years. A Roth IRA inherited under the same rules requires the same ten-year distribution — but those withdrawals are entirely tax-free. For families where leaving a meaningful inheritance is a priority, the difference between a traditional and Roth IRA at the end of life is not a small detail. It can be the difference of hundreds of thousands of dollars.

Tax Planning vs. Tax Preparation

I want to draw one distinction before closing, because I think it matters. What I’ve described throughout this post is tax planning — the forward-looking, strategic work of arranging your finances in a way that minimizes what you owe over your lifetime. Tax preparation is something different. That’s the backward-looking work of filing what already happened. Tax preparation costs you money. Tax planning makes you money.

As financial planners, we do tax planning. We don’t prepare returns. But the planning we do — mapping out Roth conversions, modeling the widow’s tax, coordinating income and IRMAA thresholds — is the work that shows up years later as real dollars that stayed in your family instead of going to the government.

Taxes are the last worry we address in retirement planning because they deserve to be seen in full context, not in isolation. When you understand how they connect to everything else — your income, your Medicare, your estate, your spouse’s future — you make better decisions. Not just for this tax year, but for every year that follows.