Why Retirement Could Make Your Taxes Go Up

July 2, 2026

Many people assume their taxes will automatically go down in retirement because they are no longer earning a paycheck. But for some retirees, the opposite can happen. Retirement income from Social Security, traditional IRAs, 401(k)s, brokerage accounts, pensions, required minimum distributions, and even Roth conversions can stack together on the same tax return, potentially causing taxable income to rise even when spending goes down.

In this video, Troy Sharpe, CFP®, explains why taxes may not go down in retirement and how retirees can get caught off guard by required minimum distributions, Social Security taxation, Medicare premium increases, and poorly timed withdrawals. He also discusses why the years before RMDs begin can be one of the most important planning windows in retirement, especially for strategies like Roth conversions, asset location, and tax-smart income planning.

Below, you’ll find the full video transcript, where Troy walks through how retirement taxes work, why tax-deferred savings are not the same as tax-free savings, and how a coordinated retirement strategy can help create more visibility, flexibility, and fewer surprises over time.

Key Takeaways

  • Taxes do not automatically go down in retirement. Even if your spending decreases, your taxable income may rise because of Social Security, IRA withdrawals, brokerage income, pensions, and required minimum distributions.
  • Tax-deferred is not tax-free. Traditional IRAs and 401(k)s postpone taxes, but the IRS eventually requires those dollars to come out through RMDs.
  • RMDs can create tax surprises later in retirement. Required minimum distributions are based on your age and account balance, not how much income you actually need to live on.
  • Retirement income sources can stack on the same tax return. IRA withdrawals, capital gains, dividends, Social Security, and interest income can interact in ways that increase your overall tax bill.
  • Social Security may become taxable depending on your other income. Additional IRA withdrawals or investment income can cause more of your Social Security benefit to be taxed.
  • The years before RMDs begin can be a valuable planning window. This period may offer opportunities for strategic withdrawals, partial Roth conversions, or tax-smart investment repositioning before forced distributions begin.
  • Roth conversions can help, but only when planned carefully. Converting too much in one year can trigger higher taxes or Medicare premiums, so the strategy depends on timing, amount, and the overall retirement plan.
  • Asset location matters, not just asset allocation. Where you hold certain investments can affect taxable income, future RMDs, Social Security taxation, Medicare premiums, and what you leave to your family.
  • A tax return looks backward, but tax strategy looks forward. The goal is not to avoid every tax bill, but to create more visibility, flexibility, and fewer surprises throughout retirement.

About Troy Sharpe, CFP®

Troy Sharpe, CFP®, is the founder and CEO of Oak Harvest Financial Group. In this video, he explains how retirement income, taxes, investments, healthcare, and estate planning can interact, and why tax planning in the years before required minimum distributions begin may help retirees create more flexibility later in retirement.

Who This is For:

This video is for people who are approaching retirement, recently retired, or already living off their savings and wondering why their tax picture may be more complicated than they expected. It may be especially helpful if you have money in a traditional IRA or 401(k), expect to take required minimum distributions, receive Social Security, have investment income from a brokerage account, or are considering Roth conversions. If you want to understand how retirement income sources can interact — and how tax planning before RMDs begin may help create more flexibility later — this video and transcript are for you. 

Why Your Taxes May Not Go Down in Retirement

Your taxes may not go down in retirement because your income can come from several different sources that all stack together on the same tax return. Social Security, traditional IRA and 401(k) withdrawals, pensions, brokerage account income, required minimum distributions, capital gains, interest, dividends, and Roth conversions can all affect how much taxable income you report. In some cases, retirees may spend less but still owe more in taxes because RMDs, Social Security taxation, and Medicare premium thresholds are based on taxable income, not just lifestyle spending.

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Transcript:

Why Taxes Can Rise in Retirement

I’ve had this conversation in my office more times than I can count. A couple sits down across from me, they did everything right, saved for 30 years, paid off the house, raised the kids, retired right on schedule. And a few years in, something strange is happening. They’re spending less than they used to, they travel less, the big expenses are behind them, but their tax bill keeps climbing year after year. And they look at me and they ask the same question. We thought retirement was supposed to be the low tax part of life.

So what happened? That’s what I want to talk to you about today. Because if you did a lot of things right with your money, there’s a good chance this is something you should be planning for too. And the time to get ahead of it is before it starts, not after. Let me tell you why this happens and why the years right before it hits may be the most valuable planning window that you’ll ever have in retirement. So first, let me share an old story with you about how animals handle a storm coming across the plains. Cattle, they turn and run away from it.

The problem is that they can’t outrun the storm. So they end up being stuck inside of it a lot longer than they needed to be. Bison do the opposite. They sense the storm coming and they turn and they charge and they run right through it. And they come out the other side faster. So they spend less time in the rain, endure less pain, and generally get through the trouble faster.

The Bison and the Storm: Facing Taxes Early

Retirement taxes work the same way. Everybody’s instinct is to run away from the tax bill that’s in front of them today. And a lot of the time, running from the small bill now.

Is exactly what creates the big one later. So let’s turn and walk into it. Here’s an important distinction between the accumulation phase, your working years, and your retirement years. So your paycheck, of course, it came from one place, your employer.

Creating a Retirement Paycheck

In retirement, we have to replicate that paycheck. So a paycheck was predictable, it was durable, it was liquid, and it was growing. There’s no one financial tool in retirement that does all of those things. So we have to create a retirement paycheck.

that does those things that’s predictable, durable, growing and liquid, but we have to do it with a combination of tools, and it comes from multiple places. So maybe it’s Social Security, a pension, withdrawals from your IRA or 401k. You have dividends and capital gains from a brokerage account, interest from bonds, maybe a Roth conversion, adds to income. And eventually your required minimum distributions will begin. The tax code doesn’t treat all of those the same, but it does let them feed off each other.

How Retirement Income Stacks on Your Tax Return

And that’s the part you were never taught. Most retirees don’t get blindsided because one income source is confusing. They get blindsided because all of them land on the same tax return and start stacking on top of each other.

Why Social Security May Become Taxable

Social Security is the easiest place to see it. A lot of people assume Social Security is tax-free because they paid into it their whole lives. But depending on your other income, up to 85% of your benefit can become taxable at the federal level. In the words that matter,

Are your other income. So let’s say you pull an extra $10,000 out of your IRA. That money doesn’t just get taxed on its own. It can also drag more of your Social Security column. So the real cost of that withdrawal can be a lot higher than the $10,000 that you took. One decision, taxes showing up in two places. That’s really the whole game in retirement. It’s not just the tax on a dollar of income, it’s what that dollar triggers.

Everywhere else on return. Your brokerage account does the same thing. Qualified dividends and long-term capital gains get taxed at favorable rates, and that’s a genuine benefit. But they still count toward your income. They can still push more of your Social Security into the taxable column and still nudge your Medicare premiums higher. So capital gains are taxed at a lower rate is true, but it’s only half the story.

The IRA and 401(k) Tax Trap

Now the big one: your traditional IRA in 401k.

These accounts built a lot of wealth for a lot of people, and the tax deferral did its job for years. But tax deferred was never tax-free. It was tax postponed. If you’ve got a million dollars in a traditional IRA, you don’t actually have a million dollars. You have a million dollars before the IRS takes its cut. The tax was always going to get paid. The only real questions are when, at what rate, and how much control you have over the timing. Which brings me back to the couple in my office.

Spending down, taxes up. The reason is required minimum distributions. And RMD is the IRS telling you that you’ve deferred long enough and the money has to start coming out. And here’s the key. The amount isn’t based on what you need to live on. It’s based on your age and your account balance.

Required Minimum Distributions Explained

Let me put real numbers on it, because this is where it clicks for most people. Say you hit RMD age with a million dollars in your retirement account. Your first required withdrawal is somewhere around $37,000 to $38,000, whether you need it or not.

Now your account keeps growing typically, and the required percentage that you must distribute goes up every year as you get older. By your early 80s, that withdrawal may be $50,000, $60,000 or more. By your late 80s, it’s even higher. Those are round numbers to show you the shape of it, but the shape is real. As long as the account keeps growing enough to offset the withdrawals, those forced distributions can keep rising as you age. So picture it, your spending is flat, maybe even falling.

But your forced withdrawals are rising. That withdrawal is taxable income. It pushes more of your Social Security into the taxable column. It can bump you into a higher income bracket. And it can also raise your Medicare premiums two years down the road. And if you didn’t need the money, you still have to take it. You still have to pay the tax and then figure out what to do with what’s left.

Spending vs. Taxable Income

That’s the gap that catches people. Spending is what you choose to spend. Taxable income is what the code says you have to report. They’re not the same number.

And in retirement, they can move in opposite directions. So while the start date for when your RMD begins is important, what matters more is the decade or so before your RMDs begin. What you do in your 60s decides how much control you’ll have in your 70s and 80s. That decade is what I call the planning window. It’s the stretch after paychecks stop, but before required minimum distributions are in full swing. Your taxable income may be the lowest it’ll ever be again.

The Retirement Planning Window Before RMDs

In a low income year,

Is an opportunity. In that window, you may be able to take strategic withdrawals from your IRA before the IRS forces them out. You may be able to do partial Roth conversions. You may be able to realize some gains in a controlled way or move investments into the right kind of accounts. None of that happens by accident and none of it is right for everybody. But once Social Security, required distributions, dividends, and interest all start stacking together, your options begin to narrow quite fast.

The planning window is when you’ve got the most room to maneuver. Now, Roth conversions often come up a lot, so let’s discuss them.

Roth Conversions: When They Help and When They Hurt

A conversion moves money out of your tax-deferred accounts into a Roth where qualified withdrawals can come out down the road tax-free. The catch is that whatever you convert is taxable in the year that you do it. Convert $100,000, and that $100,000 stacks on top of everything else. More taxable Social Security, maybe higher Medicare premiums two years out.

So the question was never, are Roth conversions good? It’s how much, in which years, and at what cost, and how it fits the rest of the plan. Done well, a conversion can take real pressure off your future RMDs. Done carelessly, it just hands you a bigger bill for no reason. So that planning window is often the time where it can be more advantageous to consider strategic tax moves because you don’t have the forced distributions coming out of your retirement account.

There’s one more idea that ties all this together, and it’s the difference between asset allocation and asset location.

Asset Allocation vs. Asset Location

Allocation is what you own. Location is which account you own it in. Same investment, different account, completely different tax outcome. A taxable bond in your brokerage account throws off taxable interest every year. That same money in a municipal bond may be free of federal tax, but that tax-free interest can still count in the Social Security and the Medicare formulas.

So even though it’s tax-free from a federal income standpoint, it can still increase the tax that you pay on your benefits and your Medicare premiums. A high growth stock inside a traditional IRA grows without getting taxed each year, which sounds great, except the bigger it grows the account because of the equities, the bigger your future RMDs will be. That’s why two people with the exact same net worth can end up with completely different account values, completely different tax situations, and completely different ending amounts to pass to their family.

One has everything sitting in a traditional IRA and the other has a mixed. Same amount of money, but very different flexibility and different outcomes based on not only the tax planning, but where they chose to house their investments. So let me bring it back to the couple one more time.

Two Different Retirement Tax Outcomes

In one version, they do the natural thing. They live off the cash, the Birkridge account, they leave the IRA alone as long as possible. It feels smart. But the IRA keeps growing. Social Security kicks in, and then RMDs land on top of the dividends and interest.

Spending flat, taxes climbing. They spent their whole retirement reacting to the tax code instead of getting in front of it. In the other version, they look ahead in their 60s. They figure out what their RMDs are going to become. They decide whether to convert some IRA money while the bracket is low. They check that their investments are sitting in the right accounts for what they’re trying to accomplish. They’re not trying to dodge every tax bill. They’re controlling the timing and killing the surprises. That’s the whole difference. A tax return looks backwards.

tax strategy looks forward. So if you’re heading into retirement or you’re already there or maybe you’re planning for it years down the road, here are the questions worth sitting with.

Questions to Ask Before Retirement

How much of your money is in tax-deferred accounts versus Roth versus taxable? What kind of income is your brokerage account actually throwing off every year? How much of your Social Security? When do your required distributions start and how big could they get if your IRA keeps growing? Could your spending fall?

While your taxable income keeps rising? And the big one, are you making tax decisions one year at a time, or are you planning across the whole timeline? Because that’s really the point. There’s no single magic move here. It’s coordination. Income taxes, investments, healthcare, estate planning, all working together, so you end up with more visibility, more flexibility, and fewer surprises. So will your taxes be lower in retirement? Maybe. But it’s not automatic. And for a lot of people who did a lot of things right.

The real issue is not that they save too much. It’s that they reached retirement without a clear plan for how those savings would be taxed. That’s where planning matters.

Building a Coordinated Retirement Success Plan

At Oak Harvest, our retirement success plan is designed to help organize the major pieces of retirement: income, taxes, investment, healthcare, estate planning, coordinating all of those together, because those pieces should not be handled in isolation. They affect each other. And if you’re looking at your IRA, your social security, your brokerage account, your RMDs, possibly some Roth conversion opportunities.

And wondering how it all fits together, that’s exactly the kind of conversation we help families just like you work through. The goal is to not avoid every tax bill. The goal is to create more visibility and more flexibility so you have fewer surprises over the course of your retirement. If this was helpful, subscribe for more on retirement income taxes and social security. And if you’d like to start building your own retirement success plan, you can reach out to us at any time using the link below. Thanks for watching.

➡️ Take the free Retirement Readiness Score Quiz to get a quick snapshot of how prepared you may be for retirement and where planning gaps could exist. https://click2retire.com/get-your-score 

Want to See How Retirement Taxes Could Affect Your Plan?

If you are wondering how your IRA, 401(k), Social Security, brokerage account, RMDs, or Roth conversion opportunities fit together, schedule a free visit with our team. We can help you start building a Retirement Success Plan designed to coordinate your income, taxes, investments, healthcare, and estate planning. [link]

 

Key Retirement Tax Terms Explained

Required minimum distributions, or RMDs, are mandatory withdrawals the IRS requires from many tax-deferred retirement accounts once you reach a certain age.

Tax-deferred accounts include traditional IRAs and 401(k)s. These accounts may allow you to postpone taxes while the money grows, but withdrawals are generally taxable later.

Roth conversions move money from a tax-deferred account into a Roth account. The converted amount is taxable in the year of the conversion, but qualified Roth withdrawals may be tax-free later.

Asset location refers to which type of account holds each investment. The same investment may create different tax results depending on whether it is held in a taxable brokerage account, traditional IRA, or Roth IRA.

 

Retirement income source

Why it may affect taxes

Social Security

Up to 85% may be taxable depending on other income

Traditional IRA / 401(k) withdrawals

Generally taxable as ordinary income

RMDs

Required withdrawals based on age and account balance, not spending needs

Brokerage account dividends

May be taxed and can affect other income thresholds

Capital gains

May receive favorable tax rates but still count toward income

Roth conversions

Create taxable income in the year of conversion

Pension income

Often taxable and can stack with other retirement income

Bond interest

May increase taxable income depending on account type

 

Frequently Asked Questions

Will my taxes automatically go down in retirement?

Not always. Many people assume retirement means lower taxes because they are no longer receiving a paycheck, but retirement income can come from multiple sources, including Social Security, IRA or 401(k) withdrawals, pensions, dividends, capital gains, interest, and required minimum distributions. When those income sources stack together on the same tax return, your taxable income may be higher than expected.

Why would my taxes go up if I am spending less?

Spending and taxable income are not always the same thing. You may choose to spend less in retirement, but the tax code may still require you to report income from sources like required minimum distributions, Social Security, investment income, or retirement account withdrawals. That is why some retirees can see their spending go down while their tax bill continues to rise.

What are required minimum distributions?

Required minimum distributions, or RMDs, are mandatory withdrawals the IRS requires from many tax-deferred retirement accounts once you reach a certain age. The amount is based on your age and account balance, not necessarily how much money you need to live on. That means you may be forced to take taxable withdrawals even if you do not need the income.

How can RMDs affect my retirement taxes?

RMDs can increase your taxable income in retirement. As your account balance grows and the required withdrawal percentage rises with age, those distributions may become larger over time. This can potentially push more of your Social Security into the taxable column, increase your overall tax bill, and even affect Medicare premiums.

Is Social Security taxable in retirement?

It can be. Depending on your other income, up to 85% of your Social Security benefit may be taxable at the federal level. IRA withdrawals, pensions, interest, dividends, capital gains, and other income sources can all influence how much of your Social Security is taxed.

What is the retirement tax planning window?

The retirement tax planning window is often the period after paychecks stop but before required minimum distributions begin. For some retirees, this may be a lower-income period that creates opportunities to consider strategies such as partial Roth conversions, strategic IRA withdrawals, or repositioning investments across different account types.

Are Roth conversions always a good idea?

No. Roth conversions can be helpful in the right situation, but they are not automatically the best move for everyone. A conversion creates taxable income in the year it is completed, which can affect your tax bracket, Social Security taxation, and Medicare premiums. The key questions are how much to convert, when to convert, and whether the strategy fits into your broader retirement plan.

What is the difference between asset allocation and asset location?

Asset allocation refers to what you own, such as stocks, bonds, or other investments. Asset location refers to which account those investments are held in, such as a traditional IRA, Roth IRA, or taxable brokerage account. The same investment can have very different tax consequences depending on where it is held.

Why does tax-deferred not mean tax-free?

Traditional IRAs and 401(k)s allow you to postpone taxes while your money grows, but the taxes do not disappear. They are generally paid later when the money is withdrawn. That is why tax-deferred accounts can create tax challenges in retirement if withdrawals are not planned strategically.

How can retirees create more flexibility with taxes?

Retirees may be able to create more flexibility by looking ahead instead of making tax decisions one year at a time. Coordinating retirement income, investment accounts, Social Security, Roth conversions, healthcare costs, and estate planning can help reduce surprises and give retirees more control over when and how income is taxed.

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