Key Takeaways<\/h2>\n\n- The \u2018retirement tax bomb\u2019 refers to the often unexpected tax burden that comes in later years.<\/li>\n
- Minimum distribution requirements can force retirees into higher tax brackets and impact Medicare.<\/li>\n
- Anne Lester explains how account diversification and other key strategies can set retirees up for success.<\/li>\n<\/ul>\n<\/div>\n
If you\u2019re like a lot of people navigating this tax season, you might have a simple strategy: Pay what you owe now and forget the rest \u2014 aka defer taxes wherever possible \u2014 until you hit retirement.\u00a0<\/p>\n
\u201cMany people assume their taxes will go down [in retirement] because their income will go down,\u201d Anne Lester, former head of retirement solutions for JPMorgan Asset Management and author of Your Best Financial Life: Save Smart Now for the Future You Want<\/a><\/em>, tells Entrepreneur<\/em>.\u00a0<\/p>\nImage Credit: Courtesy of Anne Lester<\/figcaption><\/figure>\nUnfortunately, exiting the workforce doesn\u2019t always mean lower taxes. Instead, many retirees have to contend with a \u201cretirement tax bomb<\/a>,\u201d or the often unexpected tax burden that comes with hefty savings in popular retirement accounts like 401(k)s and IRAs.<\/p>\nMinimum distribution requirements and higher tax brackets<\/h2>\n
When people reach the age of taking minimum required distributions from retirement savings accounts (typically at 73 years old<\/a>), they actually could move into a higher tax bracket than expected. What\u2019s more, entering a higher tax bracket can also increase social security taxes and Medicare surcharges<\/a>.\u00a0<\/p>\n\u201cWhat looks good on paper, which is to maximize all your tax-advantaged growth, may not make sense if it\u2019s going to bump you into a higher tax bracket, so you might want to consider drawing some money out of that IRA or 401(k) plan systematically beforehand,\u201d Lester says.\u00a0<\/p>\n
By age 60, people should be paying close attention to these retirement savings accounts, considering which ones might make sense to pull earnings from early, in preparation for their first mandatory distribution date, Lester notes.\u00a0<\/p>\n
People in their 20s and 30s should plan for taxes in retirement<\/h2>\n
But even people in their 20s and 30s can benefit from planning for those minimum distribution deadlines. Savers in that age range should take advantage of employer-matched 401(k)s and especially Roth 401(k)s, which offer tax-free withdrawals in retirement.\u00a0<\/p>\n
\u201c\u200aHaving diversification where your taxable and tax-exempt accounts are located can make a lot of sense,\u201d Lester says. \u201cBut you have to start doing that earlier. It\u2019s pretty hard to do that right before you retire. That\u2019s a strategy that you really need to be thinking about decades earlier.\u201d\u00a0<\/p>\n
Roth conversions offer strategic tax savings in retirement <\/h2>\n
Roth conversions<\/a>, which involve moving funds from a pre-tax retirement account such as a traditional IRA, 401(k) or 403(b) into a Roth IRA to grow tax-free, can also serve as a key pillar in retirement-tax plans.\u00a0\u00a0<\/p>\nMaking a Roth conversion might be particularly strategic if the stock market continues to experience a significant selloff<\/a>. In 2008 and 2009, a lot of people used Roth conversions to minimize the taxes paid on capital gains and maximize tax-free growth.\u00a0<\/p>\n\u201c\u200aSo let\u2019s just say hypothetically the market sells off another 10 or 15%,\u201d Lester says. \u201cNot saying it will, but if it does, [Roth conversions] can be some way to get a bit of a silver lining. Assuming you can pay the taxes on what you owe and won\u2019t need to touch that money for at least five years, that could be a very sensible thing to do.\u201d<\/p>\n
The most critical first step: saving an emergency fund<\/h2>\n
Once someone reaches retirement age, their minimum distributions are what they are, which is why it\u2019s so important to consider your retirement in your 30s, 40s and 50s, Lester notes.\u00a0<\/p>\n
The first step everyone should take, whether they\u2019re 20 or 60 years old? It doesn\u2019t involve a retirement savings account at all: It\u2019s building an emergency savings fund. <\/p>\n
As important as it is for young people to take advantage of the \u201cfree money\u201d in employer-matched 401(k)s and tax-free gains in Roth accounts, saving three to six months\u2019 worth of minimum living expenses is even more essential, Lester says.\u00a0<\/p>\n
In fact, it\u2019s what the first letter in her book\u2019s \u201cS.T.A.S.H\u201d acronym stands for \u2014 \u201cSave for a rainy day.\u201d \u201cT\u201d is for tax-aware savings, \u201cA\u201d is for assess your budget, \u201cS\u201d is for stay the course and \u201cH\u201d is for have fun.<\/p>\n
Finally, people often underestimate the value of insurance \u2014 or think that buying the minimum amount will protect them. <\/p>\n
\u201cYou want to avoid catastrophe,\u201d Lester says. \u201c\u200aIf something happens to your car, you don\u2019t want to have to shell out for a new or even a used car right now, if you weren\u2019t planning on it. \u200aSo think about the things that will cause major disruption and see if you can insure yourself against them.\u201d<\/p>\n<\/p><\/div>\n
\n\nKey Takeaways<\/h2>\n\n- The \u2018retirement tax bomb\u2019 refers to the often unexpected tax burden that comes in later years.<\/li>\n
- Minimum distribution requirements can force retirees into higher tax brackets and impact Medicare.<\/li>\n
- Anne Lester explains how account diversification and other key strategies can set retirees up for success.<\/li>\n<\/ul>\n<\/div>\n
If you\u2019re like a lot of people navigating this tax season, you might have a simple strategy: Pay what you owe now and forget the rest \u2014 aka defer taxes wherever possible \u2014 until you hit retirement.\u00a0<\/p>\n
\u201cMany people assume their taxes will go down [in retirement] because their income will go down,\u201d Anne Lester, former head of retirement solutions for JPMorgan Asset Management and author of Your Best Financial Life: Save Smart Now for the Future You Want<\/a><\/em>, tells Entrepreneur<\/em>.\u00a0<\/p>\n![\"\"](\"https:\/\/www.entrepreneur.com\/wp-content\/uploads\/sites\/2\/2026\/03\/AnneLesterHeadshot-Pink-c-scaled-1.jpg?w=683\")
Image Credit: Courtesy of Anne Lester<\/figcaption><\/figure>\nUnfortunately, exiting the workforce doesn\u2019t always mean lower taxes. Instead, many retirees have to contend with a \u201cretirement tax bomb<\/a>,\u201d or the often unexpected tax burden that comes with hefty savings in popular retirement accounts like 401(k)s and IRAs.<\/p>\n<\/p><\/div>\n
If you\u2019re like a lot of people navigating this tax season, you might have a simple strategy: Pay what you owe now and forget the rest \u2014 aka defer taxes wherever possible \u2014 until you hit retirement.\u00a0<\/p>\n
\u201cMany people assume their taxes will go down [in retirement] because their income will go down,\u201d Anne Lester, former head of retirement solutions for JPMorgan Asset Management and author of Your Best Financial Life: Save Smart Now for the Future You Want<\/a><\/em>, tells Entrepreneur<\/em>.\u00a0<\/p>\n Unfortunately, exiting the workforce doesn\u2019t always mean lower taxes. Instead, many retirees have to contend with a \u201cretirement tax bomb<\/a>,\u201d or the often unexpected tax burden that comes with hefty savings in popular retirement accounts like 401(k)s and IRAs.<\/p>\n When people reach the age of taking minimum required distributions from retirement savings accounts (typically at 73 years old<\/a>), they actually could move into a higher tax bracket than expected. What\u2019s more, entering a higher tax bracket can also increase social security taxes and Medicare surcharges<\/a>.\u00a0<\/p>\n \u201cWhat looks good on paper, which is to maximize all your tax-advantaged growth, may not make sense if it\u2019s going to bump you into a higher tax bracket, so you might want to consider drawing some money out of that IRA or 401(k) plan systematically beforehand,\u201d Lester says.\u00a0<\/p>\n By age 60, people should be paying close attention to these retirement savings accounts, considering which ones might make sense to pull earnings from early, in preparation for their first mandatory distribution date, Lester notes.\u00a0<\/p>\n But even people in their 20s and 30s can benefit from planning for those minimum distribution deadlines. Savers in that age range should take advantage of employer-matched 401(k)s and especially Roth 401(k)s, which offer tax-free withdrawals in retirement.\u00a0<\/p>\n \u201c\u200aHaving diversification where your taxable and tax-exempt accounts are located can make a lot of sense,\u201d Lester says. \u201cBut you have to start doing that earlier. It\u2019s pretty hard to do that right before you retire. That\u2019s a strategy that you really need to be thinking about decades earlier.\u201d\u00a0<\/p>\n Roth conversions<\/a>, which involve moving funds from a pre-tax retirement account such as a traditional IRA, 401(k) or 403(b) into a Roth IRA to grow tax-free, can also serve as a key pillar in retirement-tax plans.\u00a0\u00a0<\/p>\n Making a Roth conversion might be particularly strategic if the stock market continues to experience a significant selloff<\/a>. In 2008 and 2009, a lot of people used Roth conversions to minimize the taxes paid on capital gains and maximize tax-free growth.\u00a0<\/p>\n \u201c\u200aSo let\u2019s just say hypothetically the market sells off another 10 or 15%,\u201d Lester says. \u201cNot saying it will, but if it does, [Roth conversions] can be some way to get a bit of a silver lining. Assuming you can pay the taxes on what you owe and won\u2019t need to touch that money for at least five years, that could be a very sensible thing to do.\u201d<\/p>\n Once someone reaches retirement age, their minimum distributions are what they are, which is why it\u2019s so important to consider your retirement in your 30s, 40s and 50s, Lester notes.\u00a0<\/p>\n The first step everyone should take, whether they\u2019re 20 or 60 years old? It doesn\u2019t involve a retirement savings account at all: It\u2019s building an emergency savings fund. <\/p>\n As important as it is for young people to take advantage of the \u201cfree money\u201d in employer-matched 401(k)s and tax-free gains in Roth accounts, saving three to six months\u2019 worth of minimum living expenses is even more essential, Lester says.\u00a0<\/p>\n In fact, it\u2019s what the first letter in her book\u2019s \u201cS.T.A.S.H\u201d acronym stands for \u2014 \u201cSave for a rainy day.\u201d \u201cT\u201d is for tax-aware savings, \u201cA\u201d is for assess your budget, \u201cS\u201d is for stay the course and \u201cH\u201d is for have fun.<\/p>\n Finally, people often underestimate the value of insurance \u2014 or think that buying the minimum amount will protect them. <\/p>\n \u201cYou want to avoid catastrophe,\u201d Lester says. \u201c\u200aIf something happens to your car, you don\u2019t want to have to shell out for a new or even a used car right now, if you weren\u2019t planning on it. \u200aSo think about the things that will cause major disruption and see if you can insure yourself against them.\u201d<\/p>\n<\/p><\/div>\n If you\u2019re like a lot of people navigating this tax season, you might have a simple strategy: Pay what you owe now and forget the rest \u2014 aka defer taxes wherever possible \u2014 until you hit retirement.\u00a0<\/p>\n \u201cMany people assume their taxes will go down [in retirement] because their income will go down,\u201d Anne Lester, former head of retirement solutions for JPMorgan Asset Management and author of Your Best Financial Life: Save Smart Now for the Future You Want<\/a><\/em>, tells Entrepreneur<\/em>.\u00a0<\/p>\n Unfortunately, exiting the workforce doesn\u2019t always mean lower taxes. Instead, many retirees have to contend with a \u201cretirement tax bomb<\/a>,\u201d or the often unexpected tax burden that comes with hefty savings in popular retirement accounts like 401(k)s and IRAs.<\/p>\n<\/p><\/div>\nMinimum distribution requirements and higher tax brackets<\/h2>\n
People in their 20s and 30s should plan for taxes in retirement<\/h2>\n
Roth conversions offer strategic tax savings in retirement <\/h2>\n
The most critical first step: saving an emergency fund<\/h2>\n
Key Takeaways<\/h2>\n
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