5 Tax Mistakes Retirees Make (And How to Avoid Them)

Retirement should be the reward for decades of hard work. But for too many retirees, an unexpected tax bill turns that reward into a rude awakening. After twenty-five years of helping clients navigate the transition into retirement, I've seen the same costly mistakes repeated over and over again.

The good news? Every one of these mistakes is avoidable — if you plan ahead. That's exactly why the Tax Strategies pillar is one of the five cornerstones of our TrueCourse™ Blueprint. Here are the five tax mistakes we see most often, and what you can do about each one.

1. Ignoring the Roth Conversion Window

The years between retirement and age 73 (when Required Minimum Distributions kick in) represent a golden opportunity that most retirees completely waste. During this window, your income is often at its lowest — which means your tax bracket is, too.

A strategic Roth conversion during these years lets you move money from a traditional IRA into a Roth IRA at a lower tax rate. The converted funds then grow tax-free for the rest of your life, and your heirs inherit them tax-free as well.

Let's put real numbers on this. Say you retire at 62 with $1.2 million in a traditional IRA. If you do nothing, those RMDs starting at 73 could push you into the 24% or even 32% bracket — especially combined with Social Security income. But if you convert $80,000–$100,000 per year in those early retirement years, you might pay only 12%–22% on those conversions. Over a decade, that difference can save you $150,000 or more in lifetime taxes.

The key is running the numbers carefully. Converting too much in a single year can bump you into a higher bracket and trigger Medicare surcharges (IRMAA). This is exactly the kind of scenario where our TrueCourse™ Blueprint pays for itself many times over.

2. Underestimating How Social Security Gets Taxed

Most people are shocked to learn that up to 85% of their Social Security benefits can be subject to federal income tax. This isn't some edge case — it affects the majority of retirees who have additional income from pensions, IRAs, or investment accounts.

The formula is based on your "combined income" (adjusted gross income + nontaxable interest + half of Social Security benefits). If that number exceeds $34,000 for single filers or $44,000 for married couples filing jointly, up to 85% of your benefits become taxable.

Here's where it gets tricky: a poorly timed IRA withdrawal can push you over that threshold and effectively create a tax rate of 40% or more on the next dollar of income. We've seen clients accidentally increase their tax bill by $8,000–$12,000 in a single year simply because they withdrew from the wrong account at the wrong time.

The solution is coordinated withdrawal sequencing — pulling from taxable, tax-deferred, and tax-free accounts in the right order each year. This is a core part of the income and tax planning work we do inside the TrueCourse™ Blueprint.

3. Missing RMD Deadlines or Miscalculating Amounts

Required Minimum Distributions aren't optional — they're required, and the penalty for missing one is steep. The IRS charges a 25% excise tax on any amount you fail to withdraw on time (reduced from the previous 50%, but still painful).

What catches people off guard is the complexity. If you have multiple IRAs, a 401(k) from a former employer, and maybe an inherited IRA, each account may have different RMD rules and deadlines. Inherited IRAs under the SECURE Act now require full distribution within 10 years for most non-spouse beneficiaries, adding another layer of planning.

We've had clients come to us after receiving a $15,000 penalty notice from the IRS because they forgot about an old 401(k) sitting at a former employer. That's money that could have funded a year of travel or a grandchild's education.

Our approach within the TrueCourse™ Blueprint is to consolidate accounts where appropriate, set up systematic withdrawal schedules, and review RMD calculations annually — not just at tax time, but as part of ongoing financial planning.

4. Ignoring State Tax Implications

Florida residents have a built-in advantage here — no state income tax. But we work with plenty of clients who are relocating to Florida specifically for tax reasons, and they often make the move without fully understanding the residency rules.

Simply buying a home in Florida isn't enough. Your former state may still consider you a resident (and tax you accordingly) if you maintain a driver's license, voter registration, or spend more than a certain number of days there. New York, California, and Connecticut are particularly aggressive about auditing former residents.

We've helped clients save six figures by properly establishing Florida domicile and documenting their residency change. It requires attention to detail — updating estate documents, changing bank accounts, tracking travel days — but the tax savings make it well worth the effort.

Even if you're already a Florida resident, state taxes matter when it comes to income from other states. Rental properties, business interests, or deferred compensation from a former employer in a high-tax state can still generate state tax liability.

5. Not Working with a Fiduciary Tax-Focused Advisor

This might be the most expensive mistake of all, because it enables all the others. Many retirees rely on a CPA who files their taxes each April but doesn't do proactive tax planning. And many financial advisors focus exclusively on investments without considering the tax consequences of their recommendations.

The result is a gap — nobody is looking at the complete picture. Your CPA doesn't know about the Roth conversion opportunity because they don't see your full financial plan. Your financial advisor doesn't consider the Medicare surcharge implications because tax planning isn't their focus.

At Strong Point Financial, the TrueCourse™ Blueprint integrates tax strategy with every other aspect of your retirement plan. We coordinate with your CPA and estate attorney to ensure every decision is tax-optimized. And because we're fiduciaries, we're legally obligated to act in your best interest — not sell you products that generate commissions.

Take the Next Step

If any of these mistakes sound familiar — or if you're not sure whether your current plan accounts for them — we'd love to have a conversation. Our complimentary consultation is designed to identify exactly these kinds of opportunities.

Call us at (800) 329-8475 or schedule online. There's no cost, no obligation, and no pressure. Just honest, expert guidance from a team that's helped hundreds of families retire with confidence.