The Tax Freight Train Most Retirees Never See Coming (And How to Stop It)
Most people who walk into a financial advisor’s office have two things on their mind: building a solid retirement nest egg and making sure someone is watching their investments. Those are worthy goals — and they’re the foundation of what we do at Redwood Wealth Management in Auburn Hills, Michigan.
But they’re only the beginning.
After years of working with high-achieving families across Michigan as a fiduciary financial advisor, I’ve learned that the biggest financial mistakes aren’t usually the ones people know to worry about. They’re the ones hiding in plain sight — inside the very decisions they made correctly.
Let me tell you about Mitch and Sharon.
Key takeaways from this article:
- Pre-tax 401(k) savers with large balances often face higher tax brackets from RMDs than during their working years
- A Roth Conversion strategy during the pre-RMD window can remove hundreds of thousands of dollars from high-bracket taxation
- Annual conversion amounts should be calibrated to avoid IRMAA Medicare surcharges and Social Security taxability thresholds
- The strategy benefits not just the retiree, but significantly improves the tax efficiency of assets passed to heirs
“We Did Everything Right” — And Almost Paid Dearly For It
When Mitch and Sharon were referred to me a few years ago, they had done everything a responsible, high-income couple is supposed to do. Mitch had maxed out his 401(k) contributions for years. They had accumulated a multi-million dollar nest egg. They were on track for a comfortable retirement and deeply wanted to leave a meaningful legacy for their daughters.
On paper, it looked like a success story.
But when we sat down and mapped out their full financial picture — investments, tax strategy, Social Security, estate planning, and projected income in retirement — something alarming came into focus.
All those years of pre-tax 401(k) contributions had quietly built a ticking tax time bomb.
The RMD Problem No One Talks About Enough
Here’s the reality many retirees don’t fully appreciate until it’s too late: the IRS doesn’t let you defer taxes forever. Once you reach Required Minimum Distribution (RMD) age — currently 73 under SECURE 2.0 — the government mandates that you begin withdrawing from your pre-tax retirement accounts whether you need the money or not.
For Mitch and Sharon, those forced withdrawals weren’t just going to push them into a higher tax bracket than they expected in retirement. They were going to push them into a higher bracket than they’d been in during their working years.
That’s the freight train. And it was headed straight for them.
This isn’t rare. It’s actually a predictable outcome for disciplined savers who do the right things throughout their careers. The very strategy designed to help them — deferring income to lower their tax burden now — creates a compounding tax liability that hits hardest when they can least afford it.
According to Andrew Charbonneau, President and CEO of Redwood Wealth Management, the critical insight is that this problem is entirely predictable — and with early planning, largely preventable. “The RMD freight train builds quietly inside accounts that look like success,” Charbonneau notes. “By the time most people see it coming, the window to act has already narrowed.”
Why Switching to Roth 401(k) Contributions Wasn’t the Full Answer
When Mitch and Sharon grasped the scope of the problem, their instinct was to flip the switch on their 401(k): stop making pre-tax contributions and start making Roth contributions instead. That would at least stop the bleeding going forward.
It wasn’t a bad idea. But it wasn’t the best one either.
Switching to Roth contributions would mean paying taxes on those dollars now — at their current bracket, which was still lower than the projected RMD bracket. But it wouldn’t address the mountain of pre-tax assets already sitting in their accounts. And it would lock in a tax cost that a smarter strategy could avoid.
There was a better path.
The Roth Conversion Strategy That Changed Their Outcome
What we designed instead was a targeted Roth Conversion plan — a methodical, year-by-year strategy to move a portion of Mitch and Sharon’s pre-tax IRA assets into Roth accounts during the window between retirement and the onset of RMDs.
That window is a gift the tax code offers, and most people don’t use it.
During that period, income is often at its lowest — no more salary, and RMDs haven’t started yet. By strategically converting pre-tax dollars to Roth during this time, we can fill the most favorable tax brackets deliberately, rather than having the IRS force withdrawals at higher rates later.
But the execution matters enormously. Converting too much in a given year can trigger unintended consequences that many people — and unfortunately, many advisors — don’t anticipate:
- Higher Medicare premiums driven by IRMAA (Income-Related Monthly Adjustment Amounts), which are based on income from two years prior
- Increased taxation of Social Security benefits, which can phase in as income rises
- Bracket creep, where a conversion that looks efficient on its own tips you into a significantly higher marginal rate
Our process involves modeling guardrails each year — determining exactly how much to convert to fill the best brackets without crossing any of these thresholds. It requires ongoing attention, not a one-time calculation.
The Results: $650,000+ in Tax Savings and $2.5 Million More for Their Daughters
The numbers tell the story clearly.
Mitch and Sharon’s carefully timed Roth Conversion strategy is projected to remove over $650,000 in IRA withdrawals from the highest tax brackets over the course of their retirement.
And because Roth assets pass to heirs income-tax-free, the downstream effect on their legacy is even more dramatic. Their daughters are estimated to receive over $2,500,000 more in tax-adjusted assets than they would have under the original plan.
That’s not investment performance. That’s tax planning.
What Comprehensive Wealth Planning Actually Looks LikeWhat Comprehensive Wealth Planning Actually Looks Like
Mitch and Sharon’s story is one example of why a truly comprehensive wealth plan looks at far more than just investment returns. At Redwood Wealth, our planning process covers:
- Investment management — building and maintaining a portfolio aligned with your goals and risk tolerance
- Tax strategy — proactive planning to reduce your lifetime tax burden, not just your bill this April
- Estate planning — ensuring your assets transfer efficiently to the people and causes you care about
- Risk management — protecting what you’ve built through the right insurance and investment safeguards
- Employee benefits optimization — getting full value from your 401(k), HSA, ESOP, and other workplace benefits
- Social Security and pension maximization — timing strategies that can significantly increase your lifetime income
- Roth Conversion and RMD planning — exactly the kind of work described here
Many people don’t realize the full scope of what a fiduciary advisor should be doing for them. They’re focused on investment performance — which matters — but leaving significant value on the table in every other area.
Who Is This Strategy Best For?
A Roth Conversion strategy delivers the most value for a specific profile of pre-retiree or early retiree. You’re likely a strong candidate if you are a high-income earner who has contributed primarily to pre-tax retirement accounts throughout your career, have a projected IRA or 401(k) balance that will generate substantial RMDs, are currently between age 55 and 72 — with several years remaining before the RMD window closes, and have a desire to leave a tax-efficient financial legacy to your children or other beneficiaries.
The strategy is also worth exploring if your spouse has significantly different income or a different tax picture, which can create additional planning flexibility around conversion timing and bracket management.
If you’re a professional or executive in Michigan — especially in the Warren, Macomb County, or Southeast Michigan area — and you’ve spent years maximizing your pre-tax retirement contributions, the likelihood of RMD exposure is high. The earlier the planning starts, the more runway you have to convert at favorable rates.
The First Step Mitch and Sharon Almost Missed
One small detail worth highlighting: when we first met, Mitch believed he was already contributing the maximum to his 401(k). He wasn’t — because he hadn’t adjusted his contribution amount in several years, and the IRS limits had increased. More importantly, he had crossed the age-50 threshold and become eligible for catch-up contributions, which he wasn’t taking advantage of.
It was a small fix with a meaningful impact. And it’s the kind of thing that only comes to light when someone is looking at your full picture, not just managing your accounts.
Is a Tax Freight Train Headed Toward Your Retirement?
If you’re a high-income earner who has been diligently saving in pre-tax retirement accounts, it’s worth asking the question. The answer isn’t always “yes” — but when it is, the time to act is well before RMD age, while the window for conversion still exists.
At Redwood Wealth, we work with clients throughout Southeast Michigan and beyond to build financial plans that account for the full complexity of their situation — not just the parts that are easy to see.
If you’d like to explore whether a Roth Conversion strategy makes sense for your retirement plan, we’d welcome the conversation.
FAQ
A Roth Conversion strategy involves systematically moving money from a pre-tax retirement account — such as a traditional IRA or 401(k) — into a Roth IRA, paying ordinary income tax on the converted amount in the year of conversion. Once inside the Roth, the money grows tax-free and future withdrawals are not subject to income tax.
For Michigan retirees with large pre-tax balances, this strategy is particularly powerful during the window between retirement and age 73, when Required Minimum Distributions begin. During this period, income is often at its lowest — no salary, no RMDs yet — creating an opportunity to convert at favorable tax rates. At Redwood Wealth Management in Auburn Hills, Michigan, we design year-by-year conversion plans that fill the most attractive tax brackets without crossing thresholds that trigger unintended consequences. For one Michigan couple we worked with, a structured Roth Conversion plan is projected to remove over $650,000 from the highest tax brackets over their retirement.
Required Minimum Distributions are mandatory annual withdrawals the IRS requires from pre-tax retirement accounts — traditional IRAs, 401(k)s, 403(b)s — starting at age 73 (as of 2024 under SECURE 2.0). The IRS calculates the minimum amount each year based on your account balance and life expectancy, and you must withdraw it whether you need the income or not.
For retirees who saved diligently in pre-tax accounts throughout their careers, RMDs can force a dramatic and unexpected spike in taxable income. This is sometimes called the “RMD freight train” — because for high earners with multi-million dollar pre-tax balances, the forced withdrawal can push them into a higher tax bracket than they were in during their working years. This also affects the taxation of Social Security income and can trigger IRMAA surcharges on Medicare premiums. The key insight is that the problem is entirely predictable and, with early planning, largely preventable through a structured Roth Conversion strategy executed before RMD age.
IRMAA — the Income-Related Monthly Adjustment Amount — is a Medicare surcharge applied to Part B and Part D premiums when your Modified Adjusted Gross Income exceeds certain thresholds. For 2024, the first IRMAA tier begins at $103,000 MAGI for individuals and $206,000 for married couples filing jointly. Because Medicare premium surcharges are based on income from two years prior, a large Roth Conversion in the current year affects your premiums two years later.
This is one of the most commonly overlooked consequences of Roth Conversions, and it’s why conversion planning requires more than simply converting as much as possible each year. At Redwood Wealth, we model each client’s conversion against current and projected IRMAA thresholds, converting up to — but not past — the boundary that would trigger a higher surcharge tier. Done correctly, a disciplined conversion strategy can dramatically reduce lifetime taxes without creating avoidable Medicare premium increases.
The optimal window for Roth Conversions is typically the period between retirement and age 73, when Required Minimum Distributions begin. During this phase, earned income has stopped, Social Security may not yet be claimed, and pre-tax retirement account withdrawals are discretionary rather than forced — meaning taxable income is often at its lowest point in decades.
The exact timing and amount to convert each year depends on several factors: your current and projected tax brackets, your projected RMD amounts, your IRMAA exposure, the taxability of your Social Security benefit, and your estate planning goals. For most clients, the goal is to systematically convert enough each year to fill the lower brackets — typically up to the top of the 22% or 24% bracket — without triggering the next IRMAA tier or pushing Social Security into a higher taxability threshold. Starting conversions earlier (even at 60–65) generally produces better outcomes than waiting, because it allows more years of tax-free growth inside the Roth before RMDs would otherwise have begun.
The Window Is Open — But It Won’t Be Forever
Mitch and Sharon’s story isn’t unusual. It plays out in some form for nearly every disciplined, high-income saver who did the right things throughout their career. The 401(k) contributions were correct. The commitment to saving was correct. The problem wasn’t the strategy — it was the lack of a plan for what happens after the accumulation phase ends.
The RMD freight train doesn’t announce itself. It builds quietly inside accounts that look like success, and by the time most people see it coming, the window to act has already narrowed.
What makes Roth Conversion planning so valuable — and so time-sensitive — is that it only works during a specific window. Once Required Minimum Distributions begin at age 73, the forced withdrawals are no longer optional. The IRS sets the schedule. The opportunity to convert at favorable rates, to stay below IRMAA thresholds, to protect your Social Security income from unnecessary taxation — all of that depends on acting before the window closes.
For Mitch and Sharon, acting early didn’t just improve their retirement. It changed what they’re able to leave behind. Their daughters are on track to inherit over $2,500,000 more in tax-adjusted assets than they would have under the original plan. That’s not a market return. That’s the result of a deliberate, calculated plan executed at the right time.
Is Your Retirement Plan Built for What Comes After?
A comprehensive financial plan isn’t just a roadmap to retirement — it’s a roadmap through retirement. That means accounting for the tax landscape you’ll face in your sixties, seventies, and beyond, not just the bracket you’re in today.
At Redwood Wealth Management, we work with families across Michigan — including Warren, Auburn Hills, and the greater Macomb County area — to build financial plans that address the full picture: investments, tax strategy, estate planning, Social Security optimization, and the kind of Roth Conversion and RMD planning that protects both your retirement and your legacy.
If you’re within ten to fifteen years of retirement and haven’t had a conversation about your RMD exposure, now is the right time.
This article is for informational and educational purposes only and does not constitute personalized investment, tax, or legal advice. The case study described involves real clients; names have been changed to protect privacy. Past results are not indicative of future outcomes. Please consult with a qualified financial advisor before making any financial decisions.
About the Author
Andrew is a financial advisor at Redwood Wealth Management, where Andrew helps individuals and families create personalized financial strategies aligned with their long-term goals. With a focus on retirement planning, tax-efficient investing, and life transition planning, Andrew works closely with clients to adapt their financial plans as their lives evolve.
Andrew is passionate about helping clients navigate major life changes—such as career shifts, income changes, and retirement planning—so they can make confident financial decisions at every stage.
