Here’s the surprise in one sentence: most of the money in your 401(k), 403(b), or traditional IRA isn’t all yours. A portion of it belongs to the IRS — you just haven’t paid it yet.
Why the bill shows up in retirement
Every dollar you put into a traditional pre-tax retirement account skipped taxes on the way in. The deal was always that you’d pay on the way out. In retirement, every withdrawal from those accounts is taxable income — and that has ripple effects people rarely see coming:
- Social Security can become taxable. Depending on your total income, up to 85% of your Social Security benefit can be subject to tax. Withdrawals from pre-tax accounts count toward the thresholds that trigger it.
- Required minimum distributions (RMDs). Eventually the IRS stops waiting. Once you reach RMD age, you must withdraw — and pay tax on — a set amount every year, whether you need the money or not. Large balances can force large taxable withdrawals.
- Medicare premiums can rise. Higher reported income can push your Medicare Part B and D premiums into higher brackets. That’s effectively another tax, just wearing a different name tag.
The planning window most people waste
There’s often a golden stretch — after you stop working but before Social Security and RMDs begin — when your taxable income is unusually low. Those years can be used deliberately: managing which accounts you draw from first, and in what order, can meaningfully change your lifetime tax bill. Wait until RMD age and much of that flexibility is gone.
The takeaway
Taxes don’t retire when you do. The people who pay the least in retirement usually aren’t the ones with the cleverest accountants — they’re the ones who looked at the problem ten years early, while the good options were still on the table. This is exactly the kind of thing a retirement review maps out, and it’s worth coordinating with your tax professional.
Who this is for
Anyone with meaningful savings in pre-tax accounts — 401(k), 403(b), 457(b), or traditional IRA — especially those in their 50s and early 60s who still have the low-income planning window ahead of them.
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This content is for general educational purposes only and is not financial, tax, legal, or investment advice, nor a recommendation to buy or sell any product. Stream Income Group is an insurance and financial services firm. Any guarantees referenced are backed solely by the financial strength and claims-paying ability of the issuing insurance company. Please consult qualified tax and legal professionals regarding your individual situation.