You may not realize it, but taxes could become one of your largest expenses in retirement. Not market losses. Not inflation. Taxes. Many high net worth retirees enter retirement with strong portfolios but no coordinated tax strategy. They focus on returns yet overlook how withdrawals are taxed. Over time, this can quietly erode income and reduce portfolio longevity. In our experience, many families we meet have done an excellent job accumulating wealth, yet fewer have a clear, forward looking tax strategy for how that wealth will be distributed.[1] That gap creates what we refer to as the retirement tax trap.

During your working years, taxes are relatively straightforward. You earn income, pay tax, and continue to save and invest. Retirement introduces a new layer of complexity. You now control where your income comes from, and each source is taxed differently. The sequence and timing of withdrawals matter. Without a coordinated plan, you may unintentionally increase your tax burden. With a structured approach, you can make more informed and efficient decisions over time.

Many retirees assume their tax rate will decline once they stop working. In some cases, the opposite occurs. This is due to how different income sources interact. Required Minimum Distributions, or RMDs, are a common example. At a certain age, the IRS requires withdrawals from tax deferred accounts such as traditional IRAs and 401(k)s. These withdrawals are taxed as ordinary income and can increase total taxable income, particularly for individuals with substantial balances.[2] This can lead to higher marginal tax rates than expected.

Social Security taxation adds another layer. Depending on your combined income, up to 85% of Social Security benefits may be subject to federal income tax.[3] Many retirees are not aware of this until it occurs. This calculation is based not only on Social Security, but also on other income sources such as portfolio withdrawals and investment income, which can cause more of those benefits to become taxable.

Medicare premiums are also impacted by income levels. Higher income retirees may be subject to Income Related Monthly Adjustment Amount, commonly referred to as IRMAA.[4] This can increase Medicare Part B and Part D premiums, creating an additional expense that is directly tied to income decisions made within your financial plan. These thresholds are often overlooked, yet they can have a meaningful impact over time.

Taxable investment accounts introduce additional considerations. Capital gains, dividends, and interest income are each taxed differently. The timing of when gains are realized, and how they are coordinated with other income sources, can influence your overall tax liability. Without coordination, you may pay more in taxes than necessary, not because of poor investments, but because of inefficient planning.

Consider a common scenario. A retiree has accumulated significant assets in a traditional IRA. At age 73, RMDs begin. These withdrawals increase taxable income. That higher income may cause a larger portion of Social Security benefits to become taxable. It may also push the retiree into a higher Medicare premium bracket. Each component builds on the other. What begins as a required withdrawal can create a chain reaction across multiple areas of the financial plan. This example is for illustrative purposes only, but it reflects a pattern we frequently see in practice.[5]

While taxes cannot be eliminated, they can be managed with a coordinated strategy. A thoughtful plan considers how and when income is recognized across different accounts. Withdrawal sequencing plays an important role. Drawing from taxable, tax deferred, and tax-free accounts in a coordinated manner may help manage tax exposure over time. This is not about avoiding taxes, but about improving efficiency within the framework of current tax law.

In certain situations, Roth conversion strategies may also be considered. Converting a portion of tax deferred assets to Roth accounts during lower income years may provide long term tax diversification. This is often evaluated in early retirement before RMDs begin, when income levels may be more flexible. Each situation is unique, and the potential benefits and tradeoffs should be carefully analyzed within the context of a broader financial plan.[6]

Managing income thresholds is another important element. Small changes in income can have meaningful impacts. Staying below certain levels may help reduce the taxation of Social Security benefits or avoid higher Medicare premiums. These decisions require proactive planning and coordination across multiple areas of your financial life.

This matters in today’s environment. Tax policy continues to evolve, and many retirees hold a large portion of their assets in tax deferred accounts. This creates future tax exposure that must be addressed over time. High net worth families benefit from planning ahead rather than reacting to required distributions and tax triggers after the fact. The earlier a strategy is implemented, the more flexibility exists.

At PFS Wealth Management Group, we guide clients through a structured process that integrates investment, income, and tax planning. Tax strategy is not a separate conversation. It is part of a coordinated plan. When these elements are aligned, clients are better positioned to make informed decisions. That is where planning creates value through structure and discipline.

If you are approaching retirement or already retired, there is a simple question worth asking. Do you know how your retirement income will be taxed over the next 10 to 20 years? Not just this year, but over time. If the answer is unclear, you may be exposed to unnecessary tax risk. This is common, and it can be addressed with the right process.

We offer a Retirement Tax Review designed to help you better understand your current tax exposure and identify potential planning opportunities. In one meeting, you will gain clarity on how your income is currently taxed, identify potential risks related to RMDs, Social Security, and Medicare, explore strategies that may improve tax efficiency, and outline next steps based on your specific situation. To learn more, visit www.pfswealthgroup.com or email info@pfswealthgroup.com to request your Retirement Tax Review. Bringing extraordinary value to extraordinary families each and every day starts with a plan designed with purpose.

Required Disclosure:

Insurance products are offered through the insurance business PFS Wealth Management Group. PFS Wealth Management Group is also an

Investment Advisory practice that offers products and services through AE Wealth Management, LLC (AEWM), a Registered Investment Advisor. AEWM does not offer insurance products. The insurance products offered by PFS Wealth Management Group are not subject to Investment Advisor requirements.

Investing involves risk, including the potential loss of principal. Any references to protection, safety or lifetime income, generally refer to fixed insurance products, never securities or investments. Insurance guarantees are backed by the financial strength and claims paying abilities of the issuing carrier. This radio show is intended for informational purposes only. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. Please remember that converting an employer plan account to a Roth IRA is a taxable event. Increased taxable income from the Roth IRA conversion may have several consequences. Be sure to consult with a qualified tax advisor before making any decisions regarding your IRA

PFS Wealth Management Group is not permitted to offer and no statement made during this show shall constitute tax or legal advice. Our firm is not affiliated with or endorsed by the U.S. Government, Medicare, or any other governmental agency. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by PFS Wealth Management Group. 

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Footnotes:

[1] Based on internal observations from client and prospective client meetings conducted by PFS Wealth Management Group. This is not a scientific study and may not be representative of all investors.

[2] Source: https://www.irs.gov/credits-deductions/modified-adjusted-gross-income?utm_source=chatgpt.com

[3] Source: https://www.irs.gov/publications/p915  

[4] Source: https://www.cms.gov/newsroom/fact-sheets/2026-medicare-parts-b-premiums-deductibles?utm_source=chatgpt.com

[5] Hypothetical example for illustrative purposes only. Results will vary based on individual circumstances and market conditions.

[6] Roth conversions may have immediate tax consequences and should be evaluated in the context of a comprehensive financial plan.