Many people expect their tax rates to drop in retirement—but reality doesn't always cooperate. Let's explore why, through the eyes of some fictional (but all-too-familiar) retirees.
RMD Surprise: Meet Bob and the Birthday Gift He Didn't Want
Bob turned 73 this year. He thought the only gift he'd get was another pair of socks. Instead, the IRS sent him something better: a Required Minimum Distribution (RMD) notice.
Bob's been diligently saving for decades and hadn't touched his IRA. Now, his required withdrawal is large enough to bump him into a higher tax bracket and push his Medicare premiums up.
What if Bob had planned ahead?
With earlier Roth conversions and smaller account balances at 73, Bob might have stayed in a lower tax bracket—and enjoyed those socks more.
The Irony of Success: Kathie's Income Actually Went Up
Kathie worked hard, saved diligently, and retired at 66. She expected to live on less, but between Social Security, pension income, RMDs, and investment returns, she's earning more now than when she was working.
At 68, she realized 85% of her Social Security was taxable, and her portfolio income was tripping into the next bracket. So much for that "lower taxes in retirement" theory.
The difference?
If Kathie had diversified into Roth accounts and taxable brokerage assets, she could have pulled more strings to manage her tax bill.
The Heir's Tax Surprise: Josh Inherits an IRA—and a Tax Problem
When Josh's mom passed away, she left him a $600,000 traditional IRA. Josh, a 38-year-old marketing executive, figured he had ten years to let the money grow tax-deferred before taking anything out. "I'll just wait and deal with it later," he thought.
Bad idea.
By year 10, the account had grown to over $800,000—and now he's forced to take the entire amount in one lump sum. The result? A massive spike in taxable income, a jump into the highest federal tax bracket, and a brutal realization that nearly 40% of his inheritance will go to taxes.
What went wrong?
Josh waited too long. Spreading distributions out evenly over the 10-year window could have helped him manage his tax brackets and avoid this kind of spike.
His mom didn't plan ahead. If she had done partial Roth conversions during retirement or directed some IRA assets to charity, the entire inheritance could have been more tax-efficient—or even tax-free.
The Widow's Tax: Margaret Pays More for the Same Income
After her husband passed away, Margaret's income stayed about the same—but her tax bill jumped. She's now filing as a single taxpayer, which means less favorable tax brackets. Her $90,000 income used to feel comfortable—now it feels expensive.
Could she have avoided it?
Joint tax bracket planning in their 60s could've included strategic Roth conversions or life insurance to create a tax-free income buffer.
A Lump Sum Lump in the Throat: Carlos Needs a New Roof
Carlos's roof is 30 years old. It leaks like a bad alibi. He takes $40,000 from his IRA to fix it, not realizing he just bumped himself into a higher bracket and triggered higher Medicare premiums for future years.
What would've helped?
A cash reserve in a taxable account—or gradual IRA withdrawals in prior years—could've smoothed things out.
Code Red: The 2026 Tax Sunset
Right now, Carlos is in the 12% bracket. But in 2026, it's scheduled to rise to 15%. That may sound small, but on $60,000 of taxable income, it's a difference of $1,800 per year.
That's a trip to Europe… or two fillings and a tire rotation, depending on how you live.
Legacy Planning: Emily's $1M Inherited IRA Headache
Emily's father left her a $1 million traditional IRA. She's 42, earns $180,000 a year, and now has to drain the account within 10 years thanks to the SECURE Act. Even if she spaces it out, she's adding $100,000 a year to her income—welcome to the 32% bracket.
If her dad had known?
He might have done Roth conversions in retirement, used QCDs for charitable giving, or left taxable assets instead—all of which could've saved Emily tens of thousands in taxes.
Perspective Check: George Thinks Today's Rates Are "High"
George is 67 and frustrated that taxes are still eating into his retirement income. "Rates are outrageous," he grumbles. "Worse than ever."
But history tells a different story.
The top rate peaked at 94% during WWII!
Reality check: today's rates are low by historical standards, and they're scheduled to rise. Planning based on the assumption that they'll stay the same or go down may be the biggest miscalculation of all.
The Big Picture
These aren't rare exceptions—they're common patterns. We're seeing:
- More retirees with higher income than expected
- Heirs receiving larger IRAs than ever
- A tax code in flux, with rates poised to rise.
Quick stat: The average IRA balance reached $127,534 in 2024, up 38% from 2014. That's great news until your heirs try to withdraw it all before they're 60.
Proactive Planning is the Antidote.
The myth of "lower taxes in retirement" leads many to miss strategic opportunities. Instead:
- Consider Roth conversions before RMDs hit
- Build tax-diversified portfolios
- Use charitable strategies like QCDs
- Plan intergenerationally to minimize the burden on heirs
- Talk to your Advisory Team.
If there's one takeaway from Bob, Kathie, Margaret, Carlos, Emily, Josh, and George it's this: taxes don't magically disappear when the paychecks do. In fact, with RMDs, inherited IRAs, shifting brackets, and changing laws, retirement can feel like a financial "gotcha" moment if you're not prepared.
The good news? These tax surprises are predictable—and with proactive planning, often avoidable.
Whether you're nearing retirement, already there, or planning for what your heirs will inherit, the key is to stop thinking of taxes as a once-a-year annoyance and start treating them as a long-term planning opportunity.
Your future self (and your future heirs) will thank you. The IRS? Probably not.
We are here to help.
Dawna DuClau, FPQP®
Paraplanner, Acadium Financial Partners
850 NW Federal Hwy, Suite 160
Stuart, FL 34994
Any opinions are those of Dawna DuClau and are not necessarily those of Raymond James. Securities offered through Raymond James Financial Services, Inc. member FINRA/SIPC. Acadium Financial Partners is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc.
Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. The information provided has been prepared from sources believed to be reliable but is not guaranteed by Raymond James Financial Services and is not a complete summary or statement of all available data necessary for making an investment decision. Any information provided is for informational purposes only and does not constitute a recommendation. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct.
1. ihttps://www.nerdwallet.com/article/taxes/federal-income-tax-brackets