You did what most people never do. If you’ve saved $1 million or more in a 401(k) or IRA, you’re in the top 2%. That took years of maxing contributions, staying calm during market drops, and letting compounding do its work. But that success can create a new problem, a tax time bomb that could drain hundreds of thousands of dollars over your lifetime if you do not plan for it.
Megan Ramshaw, CFP and lead adviser at MOKAN Wealth, works with self-made 401(k) and IRA millionaires to help them keep more and pay less without jargon or generic advice. Here’s the big idea: once you have seven figures in pre-tax accounts, you need a different retirement plan. Investment management alone does not solve the tax squeeze that starts in your 60s and intensifies in your 70s.
What you’ll learn here:
* Why traditional investment advice falls short for high savers
* How pre-tax dollars can trigger surprise taxes on Medicare and Social Security
* The seven hidden tax surprises that catch many retirees off guard
* How tax diversification and Roth conversions can lower your lifetime tax bill
* What questions a plan-led adviser should be asking but often does not
Why Traditional Financial Advice Isn’t Enough for 401(k) Millionaires
The Focus of Most Advisers: Pie Charts Over Taxes
Most advisers focus on building and managing portfolios, not long-term tax planning. According to Cerulli Associates, more than 80% of advisers center their work on investment management and portfolio construction. Only about 15 to 20% make ongoing tax planning a core service.
That means you often get a polished pie chart, periodic rebalancing, and a steady conversation about risk. What you often do not get is a tax strategy that addresses how your withdrawals, Social Security, and Medicare premiums interact.
* What they do: diversification, fund selection, rebalancing, risk discussions
* What they don’t do: model RMDs at age 73 or 75, map how each withdrawal is taxed, plan around Medicare premium brackets, or solve for the surviving spouse’s tax burden
Uncle Sam: Your Biggest Silent Partner
Pre-tax accounts are great while you work because the IRS waits to collect. In retirement, that changes. Once RMDs start, your account dictates how much taxable income you must take, whether you need the money or not.
A simple example:
1. You have $1 million in an IRA that grows to $1.5 million by age 73.
2. Your first-year RMD is roughly $56,000.
3. Add Social Security of about $40,000 for a married couple.
4. You are near $100,000 of taxable income before any extra spending.
At 2025 rates, that puts a married couple filing jointly squarely in the 22% bracket, with top dollars possibly landing in 24%. And it is not only federal tax you need to watch.
The Seven Hidden Tax Surprises Waiting in Retirement
These are the stealth taxes and thresholds that pile on as your income rises, often triggered by your own pre-tax savings.
1. IRMAA: The Medicare Surcharge Sneak Attack
IRMAA is the Income-Related Monthly Adjustment Amount. Medicare looks back two years at your modified adjusted gross income to set your Part B and Part D premiums once you turn 65.
* For 2025, higher premiums start if income is above $106,000 (single) or $212,000 (married filing jointly).
* Standard Part B is $185 per month. In the first IRMAA bracket it jumps to $259, which is $888 more per year per person.
* At the top bracket, singles over $500,000 and couples over $750,000 pay $628.90 per month for Part B, plus $85.80 for Part D. That is roughly $8,600 per year for one person.
* RMDs from large IRAs can push you into higher brackets, even if you do not need the income.
2. Required Minimum Distributions Forcing Higher Brackets
RMDs begin at age 73 for most current retirees, or age 75 if you were born in 1960 or later. The IRS forces a percentage withdrawal annually from your pre-tax accounts.
* A $1.2 million IRA at 73 could trigger an RMD near $45,000.
* By 85, annual RMDs can exceed $80,000.
* Add Social Security or pension income and you can land in the 24% or even 32% bracket without spending any more money.
3. Up to 85% of Social Security Becomes Taxable
Social Security taxes hinge on your combined income, which is your AGI, tax-exempt interest, and half your Social Security.
* For married filing jointly, once combined income is over $44,000, up to 85% of your benefits become taxable.
* RMDs push many retirees over this line, turning a modest tax issue into a bigger one.
4. The Surviving Spouse Tax Trap
When one spouse dies, the survivor usually shifts from married filing jointly to single. Single brackets are about half as wide, so the same income can be taxed at higher rates.
* A couple with $150,000 in taxable income might sit comfortably in the 22% bracket while both are alive.
* The survivor with the same $150,000 often pays more, with larger portions taxed at 24% or higher.
* The IRMAA threshold for single filers is $106,000, not $212,000, so Medicare premiums can spike overnight.
* RMDs do not stop. The surviving spouse keeps getting forced distributions.
5. Net Investment Income Tax
If your modified adjusted gross income tops $200,000 (single) or $250,000 (married filing jointly), you can owe an extra 3.8% on investment income like capital gains, dividends, and interest.
* Large RMDs can push you over the threshold, adding thousands in tax that could have been avoided with planning.
6. State Income Taxes on Retirement Income
Thirteen states tax Social Security benefits to some degree. Most states tax IRA and 401(k) withdrawals as ordinary income.
* In high-tax states like California, New York, and New Jersey, that can add 5 to 10% on top of your federal bill.
* The state you live in during retirement can materially change your lifetime tax cost.
7. Double Taxation on After-Tax Contributions
If you put after-tax dollars into a traditional IRA or 401(k) and did not track basis correctly, you can be taxed on the same dollars twice.
* Avoid this by filing Form 8606 and keeping clean records. Many retirees miss this and overpay.
Build Tax Diversification for Flexibility in Retirement
What Tax Diversification Means and Why It Matters
Smart retirees do not rely on one type of account. They spread savings across three tax buckets so they can control income year by year.
* Pre-tax accounts: traditional 401(k) and IRA, taxed when withdrawn.
* Roth accounts: Roth IRA and Roth 401(k), taxes paid upfront, withdrawals are tax-free.
* After-tax brokerage: taxable account, you pay tax on dividends, interest, and realized gains.
This mix gives you options. In low-income years, you can pull from pre-tax accounts and fill lower brackets. In higher-income years, you can pull from Roth to avoid pushing yourself into a more expensive bracket or a higher IRMAA tier.
Strategic Roth Conversions: Your Key Tool
A Roth conversion moves money from a traditional IRA or 401(k) into a Roth IRA. You pay tax in the year of conversion, then it grows tax-free forever. There are no lifetime RMDs on Roth IRAs for the original owner.
The sweet spot for many high savers is the early to mid 60s, after retiring but before claiming Social Security and before RMDs begin. Income is often lower in these years, which creates room to convert at favorable rates.
Example:
* You retire at 62 with $1.5 million in a traditional IRA.
* Instead of waiting for large RMDs at 73, you convert around $80,000 per year from age 62 to 72.
* You might pay 22% now to avoid 24% or 32% later.
* Each dollar converted reduces future RMDs, which can help you stay out of higher IRMAA tiers.
* Heirs who inherit a Roth get tax-free withdrawals.
Roth conversions must be planned. Convert too much in one year and you can trigger higher brackets, IRMAA surcharges, or the Net Investment Income Tax. A coordinated plan makes all the difference.
Comprehensive Planning: More Than Just Investments
Traditional vs. Plan-Led Approach
A traditional investment approach asks one main question: how should we invest your money for returns that fit your risk? That matters, but it is not enough for 401(k) millionaires entering retirement.
A plan-led approach asks broader questions:
* When can you retire without stress?
* How much can you safely spend each year?
* When should you start Social Security to maximize lifetime benefits?
* Which accounts should you draw from first to lower taxes?
* How can you reduce your lifetime tax bill by $100,000, $200,000, or more?
The Five Seed System at MOKAN Wealth
For seven-figure savers, MOKAN Wealth uses a framework built around five core areas. Investments are one piece, not the whole picture.
1. Income: build a reliable, tax-aware paycheck for life.
2. Taxes: lower your lifetime bill, not just this year’s.
3. Investments: align risk, return, and tax placement.
4. Healthcare: plan for Medicare, IRMAA, and long-term costs.
5. Legacy: protect your spouse and pass wealth tax-smart.
Here is an eye-opener. A 1% boost in portfolio returns might add around $50,000 over a decade. A smart tax plan can save $200,000 or more over your lifetime.
Overcoming Common Objections to Better Planning
Objection 1: “I already have an adviser.”
That is good. The question is whether they are focused on lowering your lifetime taxes. Many advisers are strong investors, but their work often stops where your biggest retirement risks begin. You want someone who connects income planning, tax planning, healthcare, and legacy. It is not about finding a better adviser. It is about finding the right adviser for this stage.
Objection 2: “I’ll figure it out later.”
Time is your most valuable asset in tax planning. Delay can close the window for Roth conversions, push you into larger RMDs, and shrink your options. Many people in their early 70s say, “I wish I had known five years ago.” If you are in your 50s or early 60s, you are in the sweet spot. If you are later, act now. Every year matters.
Your Next Steps: Avoid the Tax Trap and Secure Your Retirement
You built your nest egg with discipline and patience. Protect it with a plan that focuses on taxes, income, and healthcare, not just investments. You need an adviser who models RMDs, IRMAA, Social Security taxes, and the surviving spouse’s situation, then turns those insights into action.
At MOKAN Wealth, we help self-made 401(k) and IRA millionaires keep more and pay less to Uncle Sam.
You worked too hard to let poor tax planning steal your retirement dreams. Build a plan that puts you in control of your lifetime tax bill, not the other way around.
