The Hidden Tax Wall: How One Couple Almost Lost $100,000 in Retirement (And How They Avoided It)

They did everything right.

David and Lisa — a hypothetical couple used here for illustrative purposes — represent a story we see often: two people who saved diligently for decades, lived within their means, paid off their home, and raised financially independent kids. By the time they retired in their mid-sixties, they had nearly $1.8 million in savings. From the outside, it looked like a model retirement.

But when they sat down with us, there was a quiet, nagging question in the back of their minds: Are we missing something?

They were.

Without a proactive plan, a hypothetical analysis suggested they could be on track to face an unnecessary six-figure tax burden over the course of their retirement — not because of bad investments, not because they spent recklessly, but because of the structure of their accounts and the rules surrounding them.

This is what we call The Hidden Tax Wall.

The Silent Partner You Forgot About

Here's the problem most retirees don't see coming; almost all of David and Lisa's savings were sitting in pre-tax accounts — 401(k)s and IRAs.

Think of it this way. Imagine you're holding a $1.8 million pie. The crust is yours. The filling is yours. But a slice — sometimes a very big slice — belongs to Uncle Sam. The tricky part? You don't know exactly how big that slice will be, because it depends on future tax rates and IRS withdrawal rules.

When you contributed to those pre-tax accounts, you made a deal with the IRS: defer taxes now, pay them later. "Later" has a specific name — it's called a Required Minimum Distribution (RMD), and under current law it kicks in at age 73.

At that point, the IRS requires you to withdraw a percentage of your retirement account balance annually — whether you need the money or not. Based on IRS Uniform Lifetime Tables, the initial withdrawal rate is approximately 3.65% at age 73, though this percentage increases each year. On $1.8 million, that's roughly $65,000 per year, taxed as ordinary income.

Here's another important wrinkle: as your income rises, up to 85% of your Social Security benefits can become taxable under current IRS rules. So that $40,000 in Social Security could effectively be closer to $34,000 in taxable income — pushing their total further up the tax ladder.

Based on 2025 tax brackets (which are adjusted annually for inflation), the 22% bracket for married couples ends at $201,050, the 24% bracket ends at $383,900, and the 32% bracket begins above that. With $130,000–$140,000 in income at the start of RMDs — and those RMDs potentially growing larger each year — a hypothetical projection shows a path toward higher brackets in their 70s and 80s.

Tax brackets, rates, and thresholds referenced throughout this post are based on 2025 IRS figures and are subject to change in future years. This is not tax advice. Please consult a qualified tax professional regarding your specific situation.

Don't Forget IRMAA

There's one more factor that often gets overlooked: IRMAA (Income-Related Monthly Adjustment Amount), which affects Medicare Part B and Part D premiums.

Medicare sets income thresholds that, if exceeded, can significantly increase your premiums. For a married couple in 2025, the first income threshold is approximately $206,000. (IRMAA thresholds are adjusted annually by CMS and are subject to change.)

As RMDs grow year over year and combine with Social Security, pension income, dividends, and capital gains, crossing that threshold is more common than many retirees expect. Exceeding it by even $1 could result in meaningfully higher Medicare premiums — and over a multi-decade retirement, those additional costs can accumulate significantly.

Concerned a hidden tax wall could affect your retirement? Schedule a confidential, no-obligation retirement strategy session with Crown Advisors — call 704-469-0200, email info@crownadvisorgroup.com, or visit crownadvisorgroup.com. 

Results will vary based on individual circumstances.

The Planning Window Most People Miss

Here's the good news: in this illustrative example, David and Lisa came to us before their RMDs began. That gap between retirement and age 73 is one of the most valuable — and most commonly overlooked — planning windows available.

When you're no longer working, your income often drops significantly. That may create an opportunity to strategically reposition assets at currently lower tax rates before RMDs begin. The appropriateness of any strategy depends heavily on your individual tax situation, goals, and circumstances.

Here's the general framework we applied in this hypothetical illustration:

1. Partial Roth Conversions

Rather than converting an entire pre-tax balance in a single year — which could dramatically increase taxable income — a partial, multi-year conversion strategy was used.

The concept: if the 24% bracket caps at $383,900 for married couples (2025) and base income is around $130,000, there may be approximately $100,000 in annual "headroom" before reaching the next bracket. Converting within that space means paying tax today at 24%, rather than potentially higher rates later.

Important considerations:

• A Roth conversion is a taxable event in the year it occurs

• Tax rates may change in future years — future rates are unknown

• This strategy may not be appropriate for everyone

• Qualified distributions from Roth IRAs are generally tax-free under current tax law, but rules are subject to change

2. Strategic Social Security Timing

In this illustration, one spouse filed for Social Security earlier to provide income during the conversion years, while the other delayed until age 70 to maximize their lifetime benefit. Social Security timing decisions are highly personal and depend on health, longevity expectations, income needs, and other factors. There is no universally "right" approach.

3. A Three-Bucket Tax Diversification Framework

Finally, assets were organized across three categories to provide flexibility:

• Bucket 1 — Taxable Accounts: Cash and brokerage accounts for near-term spending

• Bucket 2 — Roth Accounts: Potentially tax-free flexibility for future needs

• Bucket 3 — Traditional IRAs: Reduced in size and more manageable from a tax perspective

The goal of this framework is to provide options — so that withdrawals can be coordinated in a tax-efficient manner rather than being dictated solely by IRS rules.

The Hypothetical Outcome

In this illustrative case study, a proactive multi-year plan resulted in:

• A meaningfully lower projected lifetime tax burden compared to taking no action

• Smaller RMDs at age 73 due to a reduced pre-tax account balance

• Reduced IRMAA exposure, helping to manage Medicare premium costs

• A clearer legacy plan, with more assets positioned in potentially tax-advantaged accounts for heirs

These results are hypothetical, illustrative, and based on specific assumptions. Individual outcomes will vary significantly based on income, account balances, tax rates, health, life expectancy, and many other factors. Past planning outcomes are not indicative of future results. This case study does not represent the experience of all clients.

The Bigger Lesson

This hypothetical example isn't meant to represent every retiree's situation — but it does reflect a pattern we encounter frequently. If you have $1 million or more saved primarily in pre-tax retirement accounts, it may be worth exploring whether a similar dynamic could affect your plan.

The impact of RMDs, Social Security taxation, and IRMAA often isn't felt in your 60s. It tends to emerge in your 70s and 80s — when the window for proactive repositioning has largely closed.

Investment returns are a critical part of retirement planning. But how your assets are structured from a tax perspective directly affects how much of your wealth you actually keep. Healthcare costs, Social Security timing, and estate planning all factor in as well. The earlier these are addressed, the more flexibility you may have.

There are no guarantees in financial planning — but there is a meaningful difference between acting proactively and waiting for the IRS to make decisions for you.

Ready to Review Your Retirement Tax Picture?

If you've worked hard and built real wealth, you've done the hard part. Now it's worth making sure your plan accounts for the tax side of retirement — not just the investment side.

At Crown Advisors, we work with families to build a Total Retirement Blueprint — bringing together investments, tax strategy, and protection planning so you can retire with greater confidence.

Call us: 704-469-0200 Email us: info@crownadvisorgroup.com Visit us: crownadvisorgroup.com

Schedule your confidential, no-obligation strategy session today.

This post is based on Episode 30 of the Retire Stronger podcast, hosted by John Foard and Bill Kearney of Crown Advisors. "David and Lisa" is a hypothetical composite illustration and does not represent any specific individual or client. Names and details are fictional and used for educational purposes only.

This content is intended for informational and educational purposes only and does not constitute investment, tax, or legal advice. Tax laws, brackets, RMD rules, IRMAA thresholds, and Social Security regulations are subject to change. Individual financial situations vary significantly. Please consult a qualified financial advisor, tax professional, and/or attorney before implementing any financial strategy. Investment advisory services are offered through Crown Advisors.