Avoiding Common Errors

The transition into retirement taxation catches many off guard. Avoid these frequent missteps that result in penalties or overpayment:

• Missing Required Minimum Distributions (RMDs): Failing to withdraw the exact required amount from your traditional IRAs and 401(k)s by December 31st triggers a steep excise tax penalty on the amount you failed to withdraw.
• Ignoring the Medicare IRMAA Cliff: The Income-Related Monthly Adjustment Amount (IRMAA) is a surcharge added to your Medicare Part B and Part D premiums if your income two years prior crossed a specific threshold. Exceeding the bracket by even one dollar triggers the full surcharge for the entire year.
• Withholding Too Little: Once you stop receiving a traditional paycheck, automatic tax withholding stops. If you do not proactively set up withholding from your pension, Social Security, and IRA withdrawals, or fail to make quarterly estimated tax payments, you will face underpayment penalties in April.
• Assuming All States Treat Retirement Equal: Never assume your current state’s tax laws apply if you move. Some states have zero income tax but aggressive property and sales taxes, which can actually increase a middle-income retiree’s overall tax burden.