Upticks: What to Know About the Retirement Tax “Time Bomb”
By Luke Sullivan on June 18, 2025
Think your taxes will drop in retirement? Not always. Jake and Cory reveal how Required Minimum Distributions, taxes on Social Security, and IRMAA can trigger a retirement tax time bomb. Help defuse it by learning about Roth conversions, smart withdrawals, and tax-efficient planning. Real stories, practical tips, and a clear framework to help you retire with more of your money.
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Read an overview of the conversation below
The Retirement Tax Time Bomb
Many retirees are shocked to discover that their tax burden might not necessarily decrease after they stop working. In fact, as Jake puts it, “some retirees will actually pay more in taxes in retirement than they expect.” This phenomenon, often referred to as the “retirement tax time bomb,” stems from the accumulation of tax-deferred savings in accounts like 401(k)s and IRAs. When retirees begin withdrawing from these accounts, they may find themselves in unexpectedly high tax brackets.
Cory adds, “The taxes, Jake, are the number one expense that people have to deal with in retirement.” This is due to several compounding factors: Required Minimum Distributions (RMDs), the taxation of Social Security benefits, and Medicare surcharges known as IRMAA (Income-Related Monthly Adjustment Amount). These elements can combine to create a significant and often overlooked financial burden.
The key takeaway is that taxes in retirement are not just a nuisance—they can be a financial threat if not proactively managed. As Jake warns, “You’ve got this fizzling bomb… every year that you get older, this bomb is getting closer to exploding.”
Strategic Planning Tools to Defuse the Bomb
Jake and Cory emphasized that proactive financial planning could help clients avoid costly surprises. They highlighted four key strategies that advisors can use to “defuse the bomb” of future tax burdens and income shortfalls:
- Roth Conversions: Converting traditional IRA or 401(k) assets into Roth accounts can help clients lock in today’s tax rates and create a source of tax-free income in retirement. Jake noted that timing is everything—strategic conversions during lower-income years can significantly reduce lifetime tax liability.
- Strategic Withdrawals: Rather than defaulting to Social Security or taxable accounts first, advisors should help clients plan the order and timing of withdrawals across all account types. Cory emphasized that this sequencing can minimize taxes and extend portfolio longevity.
- Tax Bracket Management: By carefully managing income to stay within specific tax brackets, clients can avoid triggering higher marginal rates or Medicare surcharges. This might involve harvesting capital gains, deferring income, or accelerating deductions in a given year.
- Charitable Giving Strategies: For charitably inclined clients, tools like Qualified Charitable Distributions (QCDs) or Donor-Advised Funds (DAFs) can provide meaningful tax benefits. Jake pointed out that these strategies not only support causes clients care about but also reduce taxable income in high-income years.
Real-World Applications and Case Studies
Cory shares a story of a client in their late 50s who began planning 15 years ahead of their RMD age. “We mapped out… what the tax strategy looks like. We’re evaluating the return each year and are literally having a conversation each year.” Another advanced strategy discussed is Net Unrealized Appreciation (NUA), which applies to individuals with company stock in their 401(k). Jake explains, “We were able to sell or liquidate that stock at long-term capital gains rates, which can be lower than the clients’ ordinary tax bracket.” These stories underscore the importance of proactive and personalized planning. As Jake puts it, “This is very difficult to do on your own… we’ve had thousands of meetings going over these exact strategies.”
A Three-Phase Framework for Retirement Tax Planning
- Pre-Retirement (Late 40s to 60s): This is the time to consider Roth conversions and tax-efficient investing. Cory explains, “What investments you own in what type of accounts and how you’re saving the money” can make a big difference. Brokerage accounts, Roth IRAs, and asset location strategies all come into play here.
- Early Retirement (60s to Early 70s): This phase focuses on strategic withdrawals and deciding when to begin Social Security. Jake advises, “Meet with us before you turn on Social Security so that we can crunch the numbers and give you some strategy.”
- Post-RMD Age (73+): At this stage, QCDs and estate planning become crucial. Cory notes, “You don’t want to pass the time bomb along to your children either.” Gifting strategies and managing legacy goals can help reduce the tax burden for heirs.
Jake summarizes the myth that many retirees believe: “I’ll be in a lower tax bracket when I retire.” Without planning, the opposite could be true. Cory adds, “They could end up in a situation where their taxes may be very similar to what they were while they were working… and now they’ve got to take required distributions.”
When Is an Ideal Time for Roth Conversions?
In response to a listener’s question, Jake and Cory tackle a common concern. While there’s no one-size-fits-all answer, they offered two practical approaches. Jake shared a strategy from our lead financial planner Jake Cross—splitting the conversion into two parts: one early in the year and one in the fourth quarter. This can allow for flexibility in managing tax brackets and reacting to any unexpected income changes. Cory added that market downturns can also present ideal opportunities, as converting when asset values are low could lead to greater long-term tax-free growth. The key takeaway? Timing matters, but consistency and annual review are even more important. As Jake put it, “We should be having that conversation with you every single year.”
The retirement tax time bomb is real—but it doesn’t have to catch you off guard. With proactive planning, strategic decision-making, and the right guidance, you can take control of your financial future and minimize your lifetime tax burden. Don’t wait until it’s too late to start defusing the bomb. Schedule a consultation with our team today and let’s build a retirement strategy that works for you and your legacy.
Thank you for tuning in, we hope you have a great week!
