The Setup Most People Don't Question

Spend enough time looking at households in their late 50s and early 60s, and a pattern shows up quickly.

A large portfolio—sometimes $2 million, $3 million, or more.

And almost all of it sitting in traditional IRAs and 401(k)s.

It didn't happen by accident. The system encouraged it.

Contribute pre-tax. Lower your income today. Defer the problem.

The issue is that “deferring” isn't the same thing as avoiding.

At some point, the bill shows up.

A Real-World Example

Take a couple in their early 60s—call them David and Karen.

They've done well. About $2.8 million in retirement accounts, mostly rolled over from decades of 401(k) contributions. A bit of cash on the side, but not much in taxable or Roth accounts.

They're thinking about retiring in the next few years. Their spending target is roughly $120,000 a year.

Nothing about that feels aggressive.

Until you look at how that income actually gets created.

The Part That Doesn't Show Up on Statements

If your money is sitting in pre-tax accounts, every dollar you pull out is treated as ordinary income.

Not capital gains. Not preferential rates. Ordinary income.

So that $120,000 of spending?

It's not a $120,000 withdrawal.

Once you factor in federal tax brackets, Arizona's flat state income tax, and how those layers interact, the real number is higher—often meaningfully higher.

Now you're pulling closer to $140,000 or $150,000 just to net what you need.

That difference compounds over time.

It's subtle in year one. It's not subtle over 20 years.

When Control Starts to Slip

There's another shift that tends to catch people off guard.

In your working years, you control your income. Salary, bonuses, maybe some variability—but generally predictable.

In retirement, if your assets are concentrated in pre-tax accounts, income becomes less flexible.

You don't just choose what to take.

Eventually, you're told what to take.

Under current law, Required Minimum Distributions begin at age 73. The IRS calculates a percentage of your account balance that must be withdrawn each year.

And that percentage increases as you age.

For a $3 million IRA, it doesn't take long before those required withdrawals push well into six figures.

Whether you need the income or not.

How It Snowballs

Go back to David and Karen.

By their early 70s, their required distribution alone could easily exceed $100,000, depending on how the portfolio has grown.

Layer in Social Security—which, under federal rules, becomes partially taxable once income crosses certain thresholds—and suddenly their total taxable income is far higher than they ever expected.

That triggers a chain reaction:

• More of their Social Security becomes taxable.
• Their marginal tax bracket increases.
• Medicare premiums rise due to IRMAA surcharges.

None of these happen in isolation. They stack.

And once they start, they tend to stay.

Same Net Worth, Different Reality

Now compare that to a similar household with the same total assets—but a different structure.

Instead of everything sitting in pre-tax accounts, their assets are spread across:

• Traditional IRA.
• Roth accounts.
• Taxable brokerage.

The total value might still be $3 million.

But the experience of retirement looks completely different.

They can choose where income comes from each year.

They can manage how much shows up on their tax return.

They can avoid pushing themselves into higher brackets unnecessarily.

It's not about having more.

It's about having options.

Why This Keeps Happening

The uncomfortable truth is that most people aren't told to think about this.

The advice during accumulation is simple and consistent: defer taxes, maximize contributions, build the largest balance possible.

What's missing is the second half of the conversation:

How that money comes out.

By the time that question becomes urgent, the window for easy adjustments has already started to close.

What Can Still Be Done

Even if most of your savings are already in pre-tax accounts, this isn't irreversible.

But it does require intention.

One of the more effective approaches is gradually shifting part of those balances into Roth accounts.

Not all at once. And not blindly.

Done well, this means:

• Converting portions of IRA balances in years where income is lower.
• Paying tax at known rates today to reduce exposure to higher rates later.
• Smoothing income across multiple years instead of allowing large spikes.

The timing matters. The sizing matters. And the coordination with the rest of your income matters even more.

Where People Misstep

There are two common extremes.

One group does nothing—defers the issue until Required Minimum Distributions force their hand.

The other overcorrects—converting large amounts in a single year and pushing themselves into higher tax brackets unnecessarily.

Both approaches miss the point.

This isn't about reacting in a single year. It's about managing income over decades.

The Bottom Line

Having most of your retirement savings in pre-tax accounts isn't a mistake.

It's the predictable result of following the system as it's designed.

But it does come with consequences.

What looks like a large, comfortable balance on paper is not entirely yours. A portion of it has already been claimed—just not yet collected.

The real question isn't how much you've saved.

It's how much of that you'll actually get to spend, and how much control you have over when those taxes are paid.

Because once retirement begins, and especially once required distributions start, control becomes harder to regain.