10 Tax Mistakes Retirees Make
— and How to Avoid Them

Tax planning in retirement is not glamorous. But for a typical retiree, it is one of the highest-return activities available — potentially worth $10,000 to $50,000 in savings over a decade, simply by avoiding the mistakes most people make without realising it.

Here are the ten most costly tax errors retirees make, and the straightforward ways to avoid each one.

Mistake 1: Claiming Social Security Too Early Without Considering Tax

Many retirees claim Social Security at 62 to avoid drawing down savings. What they do not realise is that up to 85% of Social Security benefits can be taxable — and the calculation is based on your "combined income," which includes IRA withdrawals. A smarter approach is often to delay Social Security while drawing from IRAs strategically, keeping combined income below the thresholds that trigger Social Security taxation.

Mistake 2: Ignoring Required Minimum Distributions Until They Are Forced

RMDs begin at age 73 for Traditional IRA and 401(k) holders. Many retirees ignore this entirely until the deadline, then face a large forced withdrawal that pushes them into a higher tax bracket. Proactive planning — taking strategic withdrawals in your 60s before RMDs kick in — can dramatically reduce the size and tax impact of future RMDs.

Mistake 3: Not Converting to Roth During the Low-Income Window

The years between retirement and age 73 (when RMDs begin) often represent the lowest-income period of a retiree's life. This window is the ideal time to convert Traditional IRA assets to Roth — paying tax now at a lower rate to avoid higher taxes later. Many retirees miss this window entirely.

Mistake 4: Holding Tax-Inefficient Investments in Taxable Accounts

Covered call ETFs, REITs, and high-yield bond funds all generate ordinary income taxed at your full marginal rate. Holding them in a taxable brokerage account when an IRA is available is one of the most common — and expensive — placement errors retirees make.

Mistake 5: Forgetting State Taxes on Retirement Income

Thirteen states tax Social Security benefits. Many more tax pension and IRA income. A retiree moving from a no-income-tax state like Florida or Texas to a high-tax state like California can face dramatically higher state taxes on the same income. Understanding your state's treatment of retirement income is essential planning.

Mistake 6: Not Coordinating Medicare Premium Surcharges (IRMAA)

Medicare Part B and D premiums are not fixed — higher-income retirees pay Income-Related Monthly Adjustment Amount (IRMAA) surcharges that can add thousands of dollars per year. A large Roth conversion or IRA withdrawal in a single year can trigger IRMAA two years later. This interaction requires careful planning, especially around large income events.

Mistake 7: Overlooking Qualified Charitable Distributions

Retirees over 70½ can make Qualified Charitable Distributions (QCDs) directly from their IRA to charity — up to $105,000 per year in 2026 — and the amount is excluded from taxable income entirely. This is far more tax-efficient than taking an RMD and then donating the after-tax amount. Many charitably-inclined retirees do not know this option exists.

Mistake 8: Selling Appreciated Assets Without Planning

Long-term capital gains are taxed at 0% for retirees with taxable income below approximately $94,050 (married filing jointly in 2026). Many retirees could sell appreciated stocks or funds and pay zero federal capital gains tax — but do not realise this or plan for it strategically.

Mistake 9: Not Taking Advantage of the Step-Up in Basis

Assets held in a taxable account receive a step-up in cost basis at death — meaning heirs inherit them at the current market value, wiping out any embedded capital gains tax liability. For retirees with large unrealised gains in taxable accounts, this has significant estate planning implications.

Mistake 10: Treating Tax Planning as a Once-a-Year Activity

The most costly mistake is simply not thinking about taxes until April of the following year. The most effective tax strategies — Roth conversions, tax-loss harvesting, strategic withdrawals — require decisions made throughout the year, not retroactively. Working with a CPA who specialises in retirement planning year-round, not just at tax time, pays for itself many times over for most retirees.