Avoid These 5 Retirement Tax Traps in 2026 Before They Drain Your Nest Egg

Published October 28, 2025 Raman Singh, CFP®

Most retirees don’t realize how much they’re overpaying in taxes. Discover five hidden retirement tax traps and how to protect your income and lifestyle in 2026. Serving Phoenix, Scottsdale, Chandler, Tucson, and greater Arizona.

Let’s Be Honest…

You’ve worked your entire life, saved diligently, invested wisely, and now you finally get to enjoy it. But then tax season hits and you ask yourself, “Why am I paying so much when I’m not even working anymore?”

If that sounds familiar, you are not alone. Every week, I meet retirees across Phoenix, Scottsdale, Chandler, and Tucson who feel blindsided about how their income is taxed in retirement. The truth is, retirement taxes don’t work like paycheck taxes. You’re now in control, and how you pull money from your IRAs, Roth accounts, taxable investments, and Social Security determines how much you actually keep and how much Uncle Sam gets to keep.

So, let’s walk through five major retirement tax traps I see people fall into, but most importantly how you can avoid them in 2026.

1. The Hidden Medicare Premium Tax – IRMAA

Here’s the thing, most retirees don’t realize that Medicare premiums are income-based. The Income-Related Monthly Adjustment Amount (IRMAA) is a surcharge on Medicare Part B and Part D premiums if your income exceeds certain thresholds. The Kiplinger article mentions, “IRMAA is a surcharge added to your Medicare Part B and Medicare Part D prescription drug coverage premiums if your income is above a certain level.” And for 2026, the base Part B premium is projected to be about $206.50 per month, and the surcharge begins if your 2024 Modified Adjusted Gross Income exceeds $107,000 (single) or $214,000 (joint). Higher-income retirees could pay more than $700 per month in total premiums.

So here’s an example to put it in perspective – A retired couple in Scottsdale sold a second home in 2024, triggering a large capital gain. The next year, their Medicare premiums jumped by over $3,000 because that one-time sale pushed them into a higher IRMAA bracket.

And here’s what you can do to avoid it –

Plan large income events (like Roth conversions or property sales) over multiple years.
Monitor your MAGI (Modified Adjusted Gross Income), not just taxable income.
If your income has dropped, file Form SSA-44 to appeal your IRMAA tier.

2. Missing the “Golden Window” for Roth Conversions

Between the time you retire and the year you turn 73, when Required Minimum Distributions start, you have what I call your “Golden Window”. This window is your best opportunity to convert traditional IRA or 401(k) assets into Roth IRAs while your income and tax rate are temporarily lower. Once RMDs kick in, you lose that flexibility, and your tax bill can rise sharply. As Fidelity puts it pretty straightforward, “If you convert pre-tax IRA assets to a Roth IRA, you’ll owe taxes on the converted amount, but you won’t owe any taxes on qualified withdrawals in retirement.”

I’ll tell you about my client based out of Chandler who had $2.5 million in pre-taxed savings and he waited until RMD age to take any action. And when RMDs started, his tax bracket jumped from 22% to 32%. If I had an opportunity to meet this client 10 years earlier, we would’ve started annual Roth conversions much earlier, and he could have reduced lifetime taxes and kept his Medicare premiums lower.

And here’s what you can do to avoid those mistakes –

Convert gradually each year to stay in a lower bracket.
Be mindful of IRMAA thresholds when converting.
Paying 22% tax now could save you 30%+ later.

3. Taking Social Security Too Early

It’s one of the most common questions I get – “Should I take Social Security at 62?” The answer isn’t just about the benefit amount; it’s also about tax timing. Up to 85% of your Social Security benefits can become taxable depending on your other income sources like IRA withdrawals or investments.

I met a couple from Phoenix who took Social Security at 62 and they were withdrawing $90,000 from their IRAs. That year alone, most of their Social Security was taxed which increased their overall tax bracket. In their situation, if they had waited until 67, their benefit would have been about 30% higher, and they could have used the early years for Roth conversions instead.

So how do you make sure you don’t end up making similar mistakes?

Coordinate Social Security timing with your overall income plan.
Consider using taxable savings for the first few years of retirement.
Potentially delaying until age 70 can increase your monthly benefit by about 8% per year after full retirement age, while lowering lifetime taxes.

4. Stacking Too Much Income in the Same Year

Even smart investors get caught in this one. Selling investments, taking large IRA withdrawals, or doing Roth conversions all in the same calendar year can “stack” income and push you into a much higher tax bracket. The Wall Street Journal stated that, “Retirees often underestimate how capital gains, IRA distributions, and Social Security can combine to trigger higher tax and Medicare costs.”

Not only that, I’ll tell you about a Paradise Valley retiree who sold $400,000 in stock and withdrew $120,000 from her IRA in the same year. Her taxable income jumped to over $500,000, moving her into the 32% bracket and costing an extra $25,000 in federal taxes. Only if she had spaced those transactions across two years, she would have paid roughly half that amount.

So how do you avoid this mistake?

Split major transactions across different tax years.
Use tax-loss harvesting to offset gains.
Rebalance portfolios strategically in lower-income years.

5. Leaving Heirs a Hidden Tax Bomb

The SECURE Act 2.0 changed how inherited IRAs work. Most non-spouse beneficiaries now must empty inherited IRAs within 10 years, which can push your children into higher tax brackets if they’re still working. The IRS states plainly: “A beneficiary who is not the owner’s spouse generally must withdraw the entire account by the end of the 10th year following the year of the original owner’s death.”

Here’s another example – An Oro Valley client left a $1.2 million IRA to her two adult children. Each child was forced to withdraw about $60,000 per year, during their highest earning years. Nearly half of those withdrawals went straight to taxes.

Here’s how you can fix this now –

Convert some IRA assets to Roth now while your bracket is lower.
Leave a mix of taxable, Roth, and traditional assets to give heirs flexibility.
Coordinate your estate plan and tax plan together.

What This Means for Arizona Retirees

If you’re over 55 and living in Phoenix, Scottsdale, Chandler, or Tucson, you can control how your retirement is taxed, but only if you plan before 2026. Once the Tax Cuts and Jobs Act sunsets, today’s lower tax brackets could rise again.

Tax planning in retirement isn’t something you do once a year. It’s something you build into your income strategy, year after year. The goal isn’t just to pay less tax, the goal is to make your money last longer and protect your lifestyle.

That’s exactly why I created Singh PWM, a flat-fee fiduciary firm helping Arizona retirees align their investments, taxes, and estate goals without the 1% management fee or hidden incentives.

No products. No commissions. Just better financial planning that helps your retirement work better.

Ready to See How Much You Can Save?

If you’ve ever wondered, “Am I doing this right?” You owe it to yourself to find out. Schedule your free Retirement Tax Strategy Call today, and let’s see how much you could save before 2026 sneaks up on you.

Together, we’ll map out a plan to reduce taxes, avoid IRMAA surprises, and build tax-free income that supports the lifestyle you’ve earned right here in Arizona.

Raman Singh, CFP®

Your Personalized CFO

Sources & References

Kiplinger, “What Is the IRMAA?” – “IRMAA is a surcharge added to your Medicare Part B and Part D premiums if your income is above a certain level.”
Fidelity Viewpoints, “Why Convert to a Roth IRA Now?” – “If you convert pre-tax IRA assets to a Roth IRA, you’ll owe taxes on the converted amount — but you won’t owe any taxes on qualified withdrawals in retirement.”
The Wall Street Journal, “Capital Gains, IRAs, and the Surprising Tax Traps in Retirement.”
IRS Publication 590-B – “A non-spouse beneficiary generally must withdraw the entire account by the end of the 10th year following the year of the original owner’s death.”

Important Disclosures

The information provided herein was obtained from sources believed to be reliable and is believed to be accurate as of the time presented, but it is provided “as is” without any express or implied warranties of any kind.

This material is intended for informational and educational purposes only and should not be construed as individualized investment, tax, or legal advice. You should consult with your own qualified investment, tax, or legal advisor before making any decisions based on this material.

Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. Withdrawal strategies and tax outcomes will vary depending on individual circumstances, account types, tax brackets, and market conditions. No strategy can guarantee success or prevent losses.

Investment advisory services are offered through Singh PWM, LLC, a registered investment adviser offering advisory services in the State of Arizona and other jurisdictions where registered or exempted.

Singh PWM, LLC is a registered investment advisor offering advisory services in the State(s) of Arizona and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. The presence of this website on the Internet shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons of another jurisdiction unless otherwise permitted by statute.

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