You Diversified Your Investments. Did You Diversify Your Taxes?

The first couple has everything in traditional IRAs and 401(k)s. Every dollar they withdraw shows up as taxable income. To net $80,000, they may need to pull out considerably more—because taxes take a cut of every distribution. And the more they withdraw, the higher the bracket they’re likely to land in. One lever. One tax treatment for everything.

The second couple has the same $2 million, but it’s spread across three types of accounts: some in traditional IRAs, some in Roth accounts, and some in a taxable brokerage account. When they need $80,000, they have choices. They can pull from the account that makes the most sense in a given year—managing their bracket, controlling what counts as taxable income, and keeping more flexibility in how their retirement actually feels.

Same net worth. Very different set of options.

💳 Tax-Deferred Accounts

Traditional IRAs, 401(k)s, 403(b)s. Contributions may reduce taxable income now. Withdrawals are taxed as ordinary income later. Required Minimum Distributions begin at age 73.

✅ Tax-Free Accounts

Roth IRAs, Roth 401(k)s. Contributions are made with after-tax dollars. Qualified withdrawals—including growth—come out tax-free. No required minimum distributions for Roth IRA owners.

📈 After-Tax Accounts

Brokerage accounts, savings. No special tax treatment on contributions. Growth may be taxed at capital gains rates, which are often lower than ordinary income rates.

If most of your retirement savings sit in one category, you’re not necessarily doing anything wrong—but you may have fewer options when it’s time to start spending.

Managing Your Bracket Year to Year

In retirement, your taxable income isn’t fixed the way a salary is. If all your savings are tax-deferred, every withdrawal adds to your taxable income—and you may have less control over which bracket you land in. Having money in different types of accounts means you can be more intentional about how much taxable income you create in a given year.

Required Minimum Distributions

Starting at age 73, the IRS requires withdrawals from tax-deferred retirement accounts—whether you need the income or not. If the bulk of your savings is in traditional accounts, RMDs can push your income higher than expected, potentially affecting your tax bracket and other income-related thresholds. Roth IRAs, by contrast, have no lifetime RMD requirement.

Social Security Taxation

Up to 85% of Social Security benefits can become taxable depending on what the IRS calls “provisional income”—a formula that includes adjusted gross income, nontaxable interest, and half of your Social Security benefit. Withdrawals from tax-deferred accounts count toward that calculation. Roth withdrawals generally do not.

Medicare Premium Surcharges (IRMAA)

Medicare Part B and Part D premiums are income-based. If your modified adjusted gross income crosses certain thresholds—determined by your tax return from two years prior—your premiums increase through what’s known as IRMAA (Income-Related Monthly Adjustment Amount). A large withdrawal from a tax-deferred account in one year can result in higher Medicare costs two years later.

The Unexpected Expense

Life doesn’t send its bills on a schedule. A new roof. A medical expense. Helping a child with a down payment. When you need $50,000 that wasn’t in the plan, where you pull it from matters. Having accounts with different tax treatments gives you options to handle the unexpected without landing in a higher bracket for the year.

Meanwhile, the household’s Required Minimum Distributions may stay roughly the same. One Social Security check disappears, but the other continues—and its taxable portion may actually increase because the provisional income thresholds for single filers are lower than for married couples.

The result is a quiet compression: less income, higher taxes, tighter brackets. It shows up at exactly the moment when a family is dealing with loss—not tax planning.

This is one of the most practical reasons tax diversification matters. Having Roth dollars available—income that doesn’t count toward provisional income calculations or push a surviving spouse into a higher bracket—may help preserve options during a period when options matter most.

You may not be able to undo 30 years of contributions. But the years between retirement and when required minimum distributions begin—sometimes called the “planning window”—are still worth examining. Income is often lower during this period, which may create opportunities to shift some assets between account types while managing the tax impact. Whether that makes sense depends on individual circumstances, and it’s the kind of question worth raising with someone who can run the numbers against your specific situation.

The point isn’t perfection. It’s awareness.

Understanding the concept is one thing. Knowing how it applies to your own accounts, your own timeline, and your own family is a different conversation—and it’s one worth having with someone who sees your full financial picture.

What is tax diversification in retirement?

Tax diversification means spreading retirement savings across accounts with different tax treatments—tax-deferred (traditional IRAs, 401(k)s), tax-free (Roth accounts), and after-tax (brokerage accounts). The goal is flexibility: having options for managing taxable income during retirement rather than being locked into a single tax treatment for every withdrawal.

Is it too late to diversify taxes at 60?

Not necessarily. The years between retirement and the start of required minimum distributions can be a meaningful planning window. Income is often lower during this period, which may create opportunities to shift some assets—such as through Roth conversions—while managing the tax impact. Whether it makes sense depends on your specific financial situation.

How does tax diversification affect Medicare premiums?

Medicare Part B and Part D premiums are income-based. If your modified adjusted gross income exceeds certain thresholds, your premiums increase through IRMAA surcharges. Because withdrawals from tax-deferred accounts count as income and Roth withdrawals generally do not, having a mix of account types can provide more control over the income figures that determine your premiums.

What happens to taxes when a spouse dies?

The surviving spouse typically transitions from married filing jointly to single filing status, which means narrower tax brackets and a lower standard deduction. Required minimum distributions from the deceased spouse’s accounts may continue, and Social Security provisional income thresholds for single filers are lower. This combination can result in a higher effective tax rate on similar or reduced income.

What is a Roth conversion and when might it make sense?

A Roth conversion involves moving money from a tax-deferred account (like a traditional IRA) to a Roth IRA. You pay income tax on the converted amount in the year of conversion, but qualified withdrawals from the Roth are tax-free going forward. It may be worth considering during years when your taxable income is lower than usual—such as early retirement before Social Security or RMDs begin. The decision depends on your current tax rate, expected future rate, time horizon, and ability to pay the conversion tax from non-retirement funds. It’s a planning question best explored with a financial professional who can model the impact for your specific situation.

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Disclaimer: This article is for educational purposes only and should not be considered financial, legal, or tax advice. Tax laws are subject to change, and individual circumstances vary. The strategies mentioned may not be suitable for every situation. Please consult a qualified financial professional for guidance tailored to your individual situation.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Copyright © 2026 Anthony S. Owens. All rights reserved.