Retirees often face unexpected tax bills due to common mistakes. According to the IRS and financial experts, five key errors can lead to costly headaches: ignoring Required Minimum Distributions (RMDs), misjudging Social Security taxation, withdrawing from the wrong accounts, neglecting tax-loss harvesting, and failing to plan for Medicare premiums.
First, RMDs from traditional IRAs and 401(k)s must begin by age 73 (as of 2026, per the SECURE 2.0 Act). Missing a deadline can result in a 25% penalty on the amount not withdrawn. Second, up to 85% of Social Security benefits may be taxable if combined income exceeds $25,000 for individuals or $32,000 for couples (IRS thresholds).
Third, withdrawing from taxable accounts before tax-deferred ones can increase tax liability. Experts recommend prioritizing accounts based on tax efficiency. Fourth, tax-loss harvesting—selling investments at a loss to offset gains—remains useful even in retirement, though it requires careful timing. Finally, higher income can trigger Income-Related Monthly Adjustment Amounts (IRMAA) for Medicare Part B and D premiums, which are based on tax returns from two years prior.
To avoid these pitfalls, retirees should consult a tax professional, use IRS withholding tools, and consider Roth conversions during low-income years. The IRS offers free resources like the Tax Withholding Estimator for retirees.
