Estimated read time: 6-7 minutes
"It's the No. 1 mistake with retirement planning today. We see it happening every day, and it's causing hard-working Americans to needlessly overpay their taxes by tens of thousands of dollars every year."
This is a recent warning from Utah retirement experts, Tyson Thacker and Ryan Thacker of B.O.S.S. Retirement Solutions, who have helped over 50,000 families plan for a better retirement.
"What makes matters even worse is that nobody talks about this. Not your accountant. Not your CPA. Not even most financial advisors," Ryan says.
"Most people go into retirement thinking the hard part is over," Tyson says. "But the truth is, one of the biggest financial decisions of your life happens the moment you start pulling money out of your savings."
The No. 1 retirement planning mistake
So, what is this costly mistake?
It comes down to withdrawing money in retirement without any kind of coordinated plan.
According to the New York Times, roughly half of all American retirees don't take any systematic approach to withdrawing their retirement savings. Most people simply pull money from whatever account feels convenient at the time.
But the order and timing of your withdrawals – from your IRA, 401(k), Roth account, or after-tax savings – matters a great deal. It could determine how much you'll pay in taxes, how much of your Social Security income gets taxed, how much you'll pay in Medicare premiums and more.
"When you retire, most people are never told the right way to withdraw money from all of their different types of retirement accounts," Ryan says.
And when retirees don't have a plan, they usually overpay. Every year. For decades.
The expensive domino effect
Here's how this mistake compounds over time.
When most people retire, they begin withdrawing from their traditional IRA or 401(k).
But every dollar you pull from these accounts gets taxed as ordinary income — the same rate as your paycheck when you were working.
Add the income from Social Security and any other investment income, and suddenly your taxable income is much higher than you expected.
This is when the dominoes start to fall.
First, a higher income could push you into a higher tax bracket, paying even more money to the IRS.
Second, if your income crosses certain thresholds, up to 85% of your Social Security benefits can also be taxed.
Third, Medicare premiums are calculated based on your income from two years prior. So, a large withdrawal today could trigger what's called an IRMAA surcharge, which can double or even triple your Medicare premiums years later.
And finally, when you turn 73, the government forces you to begin taking required minimum distributions. These are mandatory, taxable withdrawals from your IRA or 401(k) – whether you need the money or not. If your accounts have grown large, these "RMDs" could push your income even higher, triggering yet even more taxes.
"You can feel middle-class in real life, but look wealthy on paper to the IRS," says Tyson Thacker. "That disconnect is what surprises so many families."
How to prevent this mistake
The good news is there's an easy way you could avoid this. And the earlier you address it, the more options you have to save on taxes.
The solution doesn't involve tax loopholes, investing risks, or creating offshore accounts. It's simply coordination. You're coordinating IRA/401(k) withdrawals, Social Security, and other investment income, and building a strategy that reduces the total amount of taxes you'll pay throughout retirement – not just for one year.
"Retirement planning is often done one piece at a time," Tyson says. "Your CPA focuses on last year. Your investment advisor focuses on returns. Medicare and Social Security decisions are made in isolation. Most people don't understand that all these things are connected. For example, when you file for Social Security, this could impact your taxes, IRA and 401(k) withdrawals, other investment income and even your Medicare premiums."
The Thackers emphasize that the most important window to act occurs during your early retirement years. This is after you stop working, but before you start taking Social Security and paying required minimum distributions (at age 73). Once this window closes, your ability to reduce your taxes shrinks dramatically.
A tale of two retirees
The Thackers use a simple example to show what this looks like in practice. Imagine two retirees who are the same age, same savings, same lifestyle. Both retire with $1 million.
The first retiree does what most people do: they withdraw money without any strategy and deal with taxes as they come.
The second retiree created a tax-efficient withdrawal plan. They considered: Which account creates the least taxable income right now? Which account should be preserved for later? How will today's decision affect Medicare premiums in two years? And how does this impact my Social Security taxes down the road?
The Thackers say it's not uncommon for a coordinated withdrawal strategy to save a family tens of thousands of dollars in a single year. And over a 20- or 30-year retirement, it could quickly add up to 6-figures in tax savings in retirement.
Free tax savings analysis for Utah families
To help Utah families avoid this mistake and help them save thousands of dollars in taxes when they retire, B.O.S.S. Retirement Solutions is offering a free, customized Retirement Tax Savings Analysis.
This is not a generic report or a sales pitch. It's a personalized, side-by-side comparison of what you're currently projected to pay in taxes in retirement now, versus what you could pay with a coordinated tax planning strategy.
Some advisors charge thousands of dollars for an analysis like this. B.O.S.S. is offering it at no cost, even if you're not a client.
The strategies used are best suited for families who have saved at least $300,000 for retirement.
To schedule your free B.O.S.S. Retirement Tax Savings Analysis, call (801) 990-5055 or click here.
About the authors: Tyson Thacker and Ryan Thacker are the CEO and President of B.O.S.S. Retirement Solutions. They are published authors of the Amazon best-selling book, "The B.O.S.S. Retirement Blueprint, Your Guide to a Secure and Independent Retirement." Their award-winning firm has seven offices located throughout the Wasatch Front, and a new office in St. George.
Advisory services offered through B.O.S.S. Retirement Advisors, LLC, an SEC-Registered Investment Advisor. Insurance products and services offered through B.O.S.S. Retirement Solutions. Information contained in this material is for informational purposes only. Actual results may vary. No statement contained herein shall constitute tax, legal, or investment advice. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of any individual. You should seek advice on legal and tax questions from an independent attorney or tax advisor. Our firm is not affiliated with the Social Security Administration, U.S. government, or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security or insurance product. Any references to protection benefits or steady and reliable income streams refer only to fixed insurance products. They do not refer, in any way, to securities or investment advisory products. Annuity guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Annuities are insurance products that may be subject to fees, surrender charges and holding periods which vary by insurance company. Annuities are not FDIC insured.
