Here are the 3 top tax mistakes that cost US retirees thousands — and almost every older American makes them

The U.S. tax code has grown significantly over the past 40 years. According to Intuit, it now exceeds 6,000 pages when including statutes, regulations, and IRS guidance.

It’s no surprise, then, that a Tax Foundation survey found 66% of Americans view the tax code as overly complicated.

Without guidance from an experienced financial professional, you may be missing valuable strategies that could lower your tax liability and boost your savings.

This is particularly important for retirees whose income is derived from a mix of sources, such as Social Security, dividends, interest, and capital gains.

With that in mind, here are the top three tax mistakes many older Americans frequently make — and how to avoid them.

Don't miss

Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don't have to deal with tenants or fix freezers. Here's how I'm 49 years old and have nothing saved for retirement — what should I do? Don't panic. Here are 6 of the easiest ways you can catch up (and fast) Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it

Neglecting tax gains harvesting

Long-term capital gains and qualified dividends are taxed more favorably than ordinary income. As of 2025, the 0% capital gains rate applies to individuals with taxable income up to $48,350, and married couples filing jointly up to $96,700.

These generous brackets allow you to realize gains — such as by selling appreciated assets in a taxable brokerage account — without increasing your tax bill.

Overlooking this opportunity could prove costly, especially if much of your wealth is in traditional IRAs that will be subject to Required Minimum Distributions (RMDs) starting at age 73.

Social Security torpedo

Social Security benefits aren’t taxed like other income. To determine how much is taxable, the IRS uses your provisional income — which includes half of your Social Security benefits, in addition to other income sources like wages, dividends, and tax-free interest.

Up to 85% of your benefits may be taxed if your provisional income exceeds $34,000 as a single filer or $44,000 as a married couple filing jointly. At lower income levels, a smaller portion — 50% or none — may be taxed.

This means even a small increase in income can trigger a higher taxation of your benefits, creating a steep marginal tax rate. This sudden spike is known as the “tax torpedo.” and it’s one of the most common mistakes older Americans make.

Story Continues

Avoiding this costly surprise requires careful planning across all income sources and retirement withdrawals.

Read more: Nervous about the stock market? Gain potential quarterly income through this $1B private real estate fund — even if you’re not a millionaire. Here’s how to get started with as little as $10

Inefficient Roth conversions

A Roth conversion involves moving funds from a traditional retirement account — such as a Traditional IRA or 401(k) — into a Roth IRA. It’s a powerful tax strategy, but many retirees mismanage it due to poor timing or converting too much or too little.

Take Michelle, age 55, with $2 million in traditional retirement accounts. She plans to convert it gradually into a Roth IRA. If she converts too much now, while still working, she could push herself into a higher tax bracket. If she waits too long, RMDs at age 73 could force her into higher taxes later.

Her ideal window for larger conversions may be between retirement at age 62 and claiming Social Security at age 70. Strategic conversions during this period can significantly reduce her lifetime tax burden.

To find your own optimized plan, consult a qualified financial planner who can model your long-term tax outlook.

What to read next

Robert Kiyosaki warns of a 'Greater Depression' coming to the US — with millions of Americans going poor. But he says these 2 'easy-money' assets will bring in ‘great wealth’. How to get in now Here are 5 simple ways to grow rich with real estate if you don’t want to play landlord. And you can even start with as little as $10 Rich, young Americans are ditching the stormy stock market — here are the alternative assets they're banking on instead Here are 5 ‘must have’ items that Americans (almost) always overpay for — and very quickly regret. How many are hurting you?

Stay in the know. Join 200,000+ readers and get the best of Moneywise sent straight to your inbox every week for free. Subscribe now.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

View Comments