3 Tax Mistakes to Avoid in Retirement

By: Scott Sturgeon, JD, MBA, CFP®

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The following is a transcript of the video above. 

Retirement can be an exciting and transformational  period in anyone’s life. You’ve worked for decades, saved  and sacrificed to get to a place where you are fully financially independent, can basically fill your days with whatever you like, and that’s can truly be a really great thing for many people. The one thing though, that those approaching retirement or who are retired can easily tell you, or will tell you is that despite being retired, a one commonality they find, or the just kind of transforms in retirement is taxation. The way that taxes work while you’re working versus while you are retired.

And so in today’s video, we’re going to talk through the three tax mistakes to avoid in retirement. And if you’re just watching  this video and you’re 10 years out from retirement or even 30 years out from retirement, even better. Because there are a multitude of ways that individuals can go about reducing their tax bill, both in the present day.

and in the future while simultaneously building wealth for themselves over time. It’s a relatively simple concept, but it can take some decently complex planning and some diligence to ensure that it’s executed correctly. And so really we’re going to talk through the three mistakes that people sometimes make in tax planning for retirement and ideally provide you kind of a pathway forward or at least kind of some things to think about as it comes to tax planning for your own retirement.

So I think to start probably just the biggest tax mistake people make in planning for retirement is not having a tax plan at all. And maybe you are doing the right things. You’re contributing to various retirement accounts or to various taxable investment accounts. Maybe you’re buying real estate or, or other appreciating assets or cashflow generating assets.

That’s not a bad thing. And to be clear, there’s an adage I’ll probably repeat it at some point in this video of to not let the tax tail wag the dog. A good investment will beat tax savings on some type of investment. 99 percent of the time, we’re not going to make decisions purely for tax savings reasons.

It has to be for, a comprehensive view of someone’s personal finances. But it’s, I think at the same time, just tax planning in general should be an important part of retirement planning as well. You know, for example, while you’re working. If you’re in relatively high income tax brackets, maybe it makes more sense to save pre tax in retirement accounts that effectively functions like a tax deduction during those high tax years.

You’re effectively kicking the tax can down the road and likely withdrawing from those pre tax accounts in retirement when you are likely in a lower tax bracket. But you might not be inclined to think through that in the present day when you’re thinking, well, um, you know, a Roth account. tax free withdrawals.

Why wouldn’t I want tax free? That sounds awesome. , and it is awesome. But at the same time, for your specific financial situation, maybe that makes sense. , but maybe there’s a more efficient route to go. And so just the general concept or idea of formulating a tax plan as best you can can be really critical and honestly really helpful in basically getting to where you want to go a little bit quicker.

Money that you’re not paying in taxes. Can be spent on gifts for grandkids or invested or used to take vacations or, have really new, cool experiences, whatever it is, whatever the usage of that dollar is. , it can’t be used by you if it goes to, federal state, you know, what local municipal government, unfortunately. So having that plan is really critical and it sounds very simple. But in practice, it’s very customized and very nuanced to each individual’s tax situation and what’s most relevant or applicable to

The second tax mistake people sometimes make as they approach retirement  is not having adequate tax diversification. We talk a lot about diversification  of asset classes. We’re trying to gain exposure to lots of different industries, sectors, countries, sizes of companies.

Some that are oriented towards growth, some that are oriented towards value. And we do that because it’s the age old adage of not putting our eggs in one basket. We’re trying to diversify out lots of exposure to lots of industries, sectors, so on and so forth. The same general concept can be applied to the tax implications of any type of investment or retirement account that you might have.

So you might think of things like pre tax accounts. Those might be a 401k, a 403b. A 457B, a 401A, an IRA, all of these accounts are going to typically very often have a pre tax option. It’s typically kind of the default contribution option. In those structures, the funds in the account have not had taxes paid on them yet.

However, your taxable income is reduced in the years that you’re contributing to them. So for high income earners. , while they’re working, it can make a lot of sense to contribute to those. There’s also, as you’ve probably heard, Roth types of accounts. And for every number soup of workplace plan, I just listed 401A, 401K, 403B, blah, blah, blah, blah.

All of those are also likely going to have Roth options as well. It’s becoming increasingly common for workplace plans to have those. so, having that as an option in retirement, as kind of an added diversification form, , can be great because anything withdrawn from those Roth type accounts is not taxable income to you.

Whereas on the front end, when you put the money in, you pay taxes on it at that time. So You have your pre tax, kind of have your Roth structure type of account. , and lastly, you have your, but I would lump into a large category of taxable assets, all of which can have very different tax implications among them.

So probably most commonly is just owning a taxable brokerage account. Maybe it’s a single individual account or a joint account. held between, you know, spouses. but the purpose of those typically is just to invest in more, probably most often publicly traded securities, i.e. the stock market. Maybe you have individual bonds you might buy within those accounts or individual stocks or mutual funds, exchange traded funds. Whatever the case may be, the common structure or theme of these types of accounts is that you are taxed on income, interest, dividends, capital gains, in those accounts each year.

You get a 1099 form that lists all of those transactions and the tax implications to you. You then pay tax on it in that year, in that tax year that you receive it. , there’s also things like business interests. I would also kind of categorize those as taxable assets, although they offer a variety of tax benefits above and beyond, you know, a taxable account might have.

And similarly, real estate would probably be lumped into that general taxable, type of asset, but at the same time offers a lot of unique tax benefits again, that a brokerage account and, and sometimes even a business. might not offer. The long and the short and the reason I bring up just taxable assets as a tax type and really highlight the diversification and different forms or avenues that those can take is just to highlight that each one is going to have very different tax implications.

And it’s sometimes difficult to tax plan in the aggregate around those. While you’re building assets, while you’re working, maybe you’re purchasing real estate or you own a business, you’re building those things up when you go to sell them or liquidate them or just live off of them and generate cashflow from them.

Your tax picture is going to shift potentially dramatically from when you were working or owning that business to when you are retired. And so planning around that in advance can actually be fairly fruitful and kind of saying what are we doing today when it comes to, all of those various entities, and what are the tax implications of them.

And if we were to sell them, or move to liquidate some of them. What are the tax implications gonna be in the short term and long term as well? And zooming out even further in retirement, maybe we’re no longer a W2 employee or, no longer have any ownership in our business.

Maybe we’ve exited, we’re gonna have potentially some sort of pre-tax account, like an IRA or a 401k. We might have a Roth types of accounts. Like a Roth 401k or a Roth IRA, and we might still even have some sort of taxable assets like a brokerage account or even some sort of business interest, you know, maybe it’s a minority interest in a business, or, real estate ownership that we’ve had, maybe we bought a building 30 years ago and we’re, getting a really good cashflow from it and there’s really no reason to sell it.

All of these are going to have different potential impacts on your overall tax picture year to year, in the present year, and really looking over long term, as to various impacts or outcomes from those and the way that they are utilized to generate cash flow in retirement. All of this is very fancy way of saying that it can get very complicated very quickly. And so in the aggregate, having diversification among those is huge. It offers different levers to pull at different times to offer different tax advantage ways to generate cashflow and income for you in retirement.

We can’t do that if all of our assets are in an IRA or all of our assets are in a taxable brokerage account, or we’re much more limited in our capacity to do that. That is why diversification of all these assets can be really impactful for those either currently or approaching retirement to kind of think about implementing, in the present day, even better, but, but over the longterm as well.

Finally, I think just importantly that the tax mistake that people make in retirement or in planning for retirement is just not having flexibility in their tax plan. So we highlighted on our first point that we want to have a plan. Approaching retirement or working towards retirement or entering retirement for tax mitigation and tax planning over the long term.

But we also need to be cognizant in point three that we need to be flexible on changes to the plan itself, whether it’s life changes for us. maybe we don’t want to be a real estate investor anymore. maybe we suddenly really do want to be a real estate investor. And the tax implications and scenarios for that in our, in our tax plan needs to reflect those personal changes in our tax situation.

Secondly, kind of of that, a secondary point of that third point of just flexibility in tax planning. Is that the tax code itself changes year to year to where certain tax strategies might make sense five years ago, but no longer make sense in the present day.

At the end of 2025 moving into 2026, there is a potentially some pretty fundamental changes in the nature or structure of our tax code. And so if you’re implementing things today, that are beneficial to you, that’s great. But the question might be five years from now or ten years from now, does it still make sense to do those things?

Maybe it will, maybe it won’t. , honestly, no one will really know for sure until Congress acts to update the law. So all this to say that , having a plan, sticking to that plan, but being flexible in the way that we go about implementing and making changes to that plan is really, really important for those planning around retirement and for especially those entering retirement as well.

You know, if you retire at 60, 55, 65, You’re still planning for decades and decades of time, and taxes are going to be probably one of your largest expenses during that time. And if we can try to mitigate or reduce those expenses, really, it just frees you up to pursue the things that you’re most interested in and are most important to you.

Thank you so much for the time and for watching. I’m Scott Sturgeon, Senior Wealth Advisor at Oread Wealth Partners. We help retirees, high income earners, physicians primarily and business owners, but, but other client types as well, plan around, things like this for retirement, whether it’s taxes, estate planning, cashflow planning in retirement, investing, all of this done in a fiduciary fee only capacity, offering advice and guidance and management in your best interest at all times.

If you’re interested in learning more, you can check out in the description links to our newsletter Views From the Top that goes out every two weeks. , or if you’d like to schedule some time to discuss your personal financial situation. and determine if working with Oread Wealth Partners might add value to it.

I would encourage you to check out a link in the description below for a link to my calendar. Thanks so much for watching.

At Oread Wealth Partners, tax planning is a key component of our client’s financial plans. We work with you to determine what opportunities may exist to mitigate taxes where possible, and help you to actually take action in implementing strategies that may be available. With careful planning and guidance, you can optimize your tax strategy and keep more of your hard-earned money in your pocket. If implementing these tax-saving strategies seems daunting, consider subscribing to our newsletter or reaching out for a consultation today on how we can partner with you to align your finances with what’s important in your life.

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