The #1 Financial Mistake HNW Retirees Make
Episode 6
The #1 Financial Mistake HNW Retirees Make
Published on September 10th, 2025
In Episode 6 of Retirement Tax Matters, we reveal what we believe is the #1 mistake most high-net-worth retirees make: treating your tax return as a once-a-year, historical document instead of a forward-looking tool to guide their investment and long-term financial plan. This podcast conversation explores why this reactive approach causes retirees to miss out on valuable, unused tax bracket space each year. Learn how proactive, intra-year tax projections are the key to unlocking opportunities for strategies like Roth conversions, and discover why it's critical for you or your financial advisor to lead the charge in reviewing your tax return to ensure your entire financial plan is aligned.
Key Tax Planning Questions
Click Below To See The Answer
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The first, and most important, question is: are they asking to see your tax return each year? If not, it may signal that tax planning isn't a high priority in their process. Historically, many advisors shifted the responsibility for taxes to accountants and their clients, but a modern financial advisor should view your tax return as a foundational document.
A good advisor asks for your tax return annually because it provides a complete and honest picture of your financial life. While they aren't preparing your taxes, they are looking for financial planning opportunities. Here are some of the key things they should be reviewing:
Verifying Your Tax Bracket: They can confirm your actual marginal tax bracket and, more importantly, see how much room you have left before hitting the next bracket.
Confirming Key Deductions: They can see if you took the standard deduction or itemized, and ensure things like Qualified Charitable Distributions (QCDs) were reported correctly so you didn't accidentally pay tax on them.
Checking for Double Taxation: If you made non-deductible IRA contributions and then did a Roth Conversion, they can review the forms to ensure you didn't inadvertently pay tax on the same money twice.
Analyzing Tax Withholding: They can see if you owed a lot in extra taxes or received a large refund, which can help you fine-tune your withholding or estimated payments for the upcoming year.
Finding Hidden Assets: They can identify valuable carry-forward capital losses that can be used to offset future gains when you rebalance your taxable brokerage accounts.
Understanding Business Income: While they may not be experts in your Schedule C or E, they should understand the general flow of your business income. This awareness can prompt a crucial three-way discussion in the fall between you, your advisor, and your tax preparer to ensure you take full advantage of any remaining space for a Roth conversion.
RMD Planning: They can help you anticipate how future RMD income may impact your tax bracket.
This list goes on, but it highlights why an annual review of your tax return is so critical. It's the starting point for integrated, proactive financial planning.
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For HNW retirees, treating tax planning as a once-a-year event in February or March is a major missed opportunity. By the time you start preparing your tax return, the December 31st deadline for some of financial planning's most powerful tools, like Roth conversions, has already passed. At that point, your advisor's and tax preparer's hands are tied for the previous year.
A year-end tax projection, done sometime in the fall, shifts your plan from reactive to proactive. It involves making a detailed estimate of your complete financial picture for the current year. This is more than just looking at IRA distributions; a thorough projection should account for a wide range of variables, including:
Social Security benefits
Pension income
Potential capital gains in your brokerage accounts
Dividends and interest from stocks, ETFs, or mutual funds
Year-end capital gain distributions from mutual funds
Planned charitable giving strategies
Income and expenses from any business interests
While this is just a short list, creating a reliable estimate with tax planning software puts you in a powerful position. It gives you a clear view of your tax situation before the year ends, allowing you to make informed, strategic decisions. You might capitalize on unused space in your current tax bracket for a Roth conversion, decide to take a dream vacation, or adjust your charitable giving. Ultimately, it is very difficult to make prudent financial decisions without a clear projection of your taxes for the year.
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This is a critical question for HNW retirees. Many find their golden window of financial planning opportunities in their 60s and early 70s – the time between retirement and when Social Security and RMDs kick in. It’s a unique opportunity to control taxable income.
I highly recommend you listen to Episode 5: The Golden Window: Roth Conversions Before Social Security & RMDs. Roth conversions during this period allow you to strategically pay taxes now at potentially lower marginal rates. This can make a huge difference down the road for two key reasons:
For a Surviving Spouse: When one spouse passes, the survivor's tax situation can change dramatically, moving to less forgiving Individual (non-married) tax brackets. Converting to Roth while you're both alive, potentially in lower married filing jointly rates, can prevent a major income tax bracket shock for your surviving spouse when those RMDs and Social Security benefits continue. You're locking in today's lower rates to protect their future.
For Your Beneficiaries: The SECURE Act 2.0 (passed in 2020) changed things for those inheriting a Traditional IRAs. It forces many non-spouse beneficiaries to fully withdraw funds within 10 years…all taxable. An inherited Roth IRA is different and you might enjoy the benefits. While the 10-year rule still applies, inherited Roth IRA withdrawals are completely tax-free. If you think you might have funds left over in a Roth for your children at the end of your life, I like to think of it as giving them an additional 10 years of tax-free growth.
Full Episode Transcript
Adam: Good morning and welcome to Retirement Tax Matters, your podcast with Adam Reed and Garrett Crawford, our resident CFP®. You can find us anywhere on Spotify, Apple Music, and YouTube. Check us out at retirementtaxmatters.com, where we have free resources for you, places to submit questions, and all kinds of fun stuff. We're kicking off another episode. I think we're six, maybe seven or eight weeks into this.
Garrett: And you had a baby in there, too, so we took a week off, but I think it was for a worthy cause.
Adam: Yeah, I apologize for throwing that wrench into the game plan, but I agree with you, I think it was worth it. Well, hey, I think a lot of people clicked on this video and saw "the biggest mistake" or "the number one mistake" that retirees make. I wanted to ask you, do you think this is a bold claim? What is the biggest mistake? Bring us into our thought process on what we're thinking is one of the biggest mistakes and why it's the biggest mistake that a lot of retirees make heading into and also in retirement.
Garrett: With the production of a podcast, there's this tension where you want to have very bold headlines so that people click. This isn't always my personality, but as I was preparing for this discussion, I thought, this really is the main reason we're doing what we're doing on the Retirement Tax Matters educational website, which is a hub of resources for high-net-worth retirees. And I do feel like this is the number one thing that retirees are leaving on the table, something they could fix and do better. The reason it's missed is because it actually takes work; it's not an easy decision. So, the big reveal, the number one thing that high-net-worth retirees are missing—the mistake they're making—is that they need to have more integration, more synergy. A fancy way of saying the individual pieces need to be working together to be better together rather than separate. We need more synergy between what's happening on your tax return, what's happening with your investments (we'll call that your investment plan), and the third thing, your long-term goals (your long-term estate and legacy goals). What's on your tax return has to be working with how you have your investments structured, and your investments and tax return should be representative of your long-term financial goals. I see this issue over and over again, where people treat these things as silos. They're all part of this banner "financial plan." I've seen through the years that everybody wants a financial plan, but it's a little bit vague. I recently had somebody on the phone who said, "We want a model, we want a 30-year model of what our retirement is going to look like." I think that's one part of the retirement plan, the long-term legacy piece—what's going to happen in the future. But 30 years is a long time to look at. What we need to pay attention to is what's happening this year on the tax return, and then structure your investments in light of that. So, I think we should dive into that a little bit more today, but how do we bring synergy to those three different areas?
Adam: And maybe give some insight to this as well. My feeling is that a lot of people, if they've been working with a financial advisor, have the investment plan. Maybe they've got an attorney for some of the longer-term estate planning. And then maybe they have a CPA or tax preparer who does some of the tax return work for them, but maybe not tax projections, like we talked about in the last episode. It's interesting you said "silos." That makes a lot of sense to me, because for years, our industry has been, "Well, this guy does that, this guy does that." People like simplicity and having one person quarterbacking things. I feel like the industry is changing, but very slowly. I think that's been my experience with some of these things.
Garrett: Let's talk the history of a financial advisor. When I came into this industry, the tax return was something that a lot of financial advisors were almost taught was off the table for us to review. As a financial planner, we are prohibited from giving tax advice, yet as a certified financial planner, I'm actually trained in tax planning. So what is the difference between helping retirees with tax planning versus giving specific tax advice? I think specific tax advice is a tax preparer or a CPA doing a tax return preparation, actually preparing the forms to be filed with the IRS. But what we're talking about is tax planning: Roth conversions, and how much should I be saving into a traditional IRA versus a Roth. There's a litany of tax planning issues, and I think our industry for a long time had a hard time getting over the hump that a financial advisor needs to be aware of what's happening on the tax return in order to give good financial advice. There are probably a lot of people out there listening who have clicked on this. They could be managing their investments themselves, their total financial picture themselves. Or, more commonly, they might have a professional advisor helping with the investment piece, maybe the financial plan, maybe a tax preparer, a CPA, doing a tax return, and an attorney. But maybe one of my questions for the viewers and listeners out there is: if you have a financial advisor, have they ever asked to review your tax return? If they haven't, that probably means they haven't adapted to the five to ten years of evolution in our industry. You should be seeking someone who is aware of what's happening on your tax return. Adam, you were here a couple months ago. In fact, you might have been the one who was reviewing the tax return, and we figured this out.
Adam: I came in there and I said, "Hey, Garrett, did you know that so-and-so has a farm?" And he said, "No, he's been a client here for years. I had no idea he had a farm," because we saw it on the tax return.
Garrett: As we've been incorporating these tax returns more and more and having clients buy into that process—they always love it once we do—a tax return doesn't lie. The information on it is your best effort to communicate to the IRS what you have, what you need to owe taxes on.
Adam: When you say it doesn't lie, it also doesn't forget. A lot of our clients think, "Oh, they don't need to know anything about my farm because it's just this little thing on the side." But all of a sudden, there's some income coming off of it, and it affects the way that we plan and project numbers. So it's not only that it doesn't lie, but it doesn't forget, because there are things that are just kind of out of sight, out of mind.
Garrett: Right. It's not that clients lie to you; it's that the reason they hire an advisor is because they don't feel comfortable doing it themselves. They need help. And oftentimes, they don't include things just because they don't know to. But their CPA is going through a big tax planning checklist and is including all that. As I've reviewed more and more tax returns for our clients, I find out things I never knew. My point is, the more I, as a financial planner, understand what's happening on your tax return, the better my financial advice is. How can I give good financial advice to a client if I don't ever look at what's happening on their tax return? This whole idea of the mistakes that retirees are making, the number one mistake is, if you have somebody helping you, are they reviewing that key document that shows what you're reporting to the IRS? And is it structured in a way that is helpful? The next level is, are they integrating that into these other things? Are they making sure that what your tax return says, and how we're investing, makes sense, and is being done to accomplish the long-term goals and the estate planning and legacy goals you've set out?
Adam: So if you're missing one piece, the other two suffer. I think that's important for people to hear and remember, because a lot of people have siloed those three things. They think, "Well, if this guy's doing a good job and that guy's doing a good job, and that guy's doing a good job, it'll all work out." But we've seen some train wrecks. So it's important to be on the same page.
Garrett: And so, what we're doing on this podcast, Retirement Tax Matters, is trying to bring this idea of advanced tax planning to high-net-worth retirees. What does that look like? I've had quite a few people in the past, maybe they're a client or a prospect who comes in, wants to engage our services, and they'll say, "I didn't pay any taxes last year." That doesn't happen often, but oftentimes, paying no taxes is like this blue ribbon. "Look at me, I didn't have to do it." In the grand scheme of things, paying 0% in taxes probably means you missed some opportunities. For one, I wish you would've filled up the 10% tax bracket. If you have a traditional IRA, you're probably never going below 10% if you start withdrawing that money. And if you have an investment account that has capital gains, you can actually harvest capital gains at 0% tax rates. So paying no taxes is not always a great thing. You should have taken advantage of the tax base you had available to you to pay taxes at a very low rate and not just continue the deferral train. I really feel this idea of the number one mistake is that you have to do what I'm calling intra-year tax projections for your situation. A lot of people out there probably don't have this as part of their regular annual check-ins on their finances. They're probably used to coming in February, where they have their money at Charles Schwab or Fidelity, they get their tax forms, they collect them, take them to their accountant, who tells them how much they owe, and sometimes it's a surprise. I would say that the current tax landscape, with the enhanced senior deduction, these net investment income taxes, and low marginal tax rates, means you need to, in the fall or summer, make an itemization of how much money is coming out of your 401k or IRA distributions. You need to figure out your capital gains in your investment account, dividends, interest, pensions—I don't know if I said Social Security, but you need to be adding all these things up before December 31st of the current year. You need to figure out where you are tax-bracket-wise. If you have a multi-million dollar IRA that you contributed to during your working years, you can take what you know about your situation, and we can accelerate some of that income into your current year because new RMDs are coming like a freight train. You can get that RMD money out at a lower tax rate because you're thinking ahead. Sometimes the space between your current tax bracket and the top of that bracket might be $20,000 to $30,000. I'd still argue that could be a really good thing, but sometimes we'll find out it's like $100,000 or $150,000 left, and they're never going lower. So why would we not want to look at that every single year and do the very best possible thing using Roth conversions, capital gain harvesting, and tax loss harvesting? Being aware of what's happening with your investments and what's happening on your tax projections for the year, if you can do that, it's going to, on a third step, inform what happens with your long-term estate and legacy goals as well.
Adam: To summarize everything we've been saying, the biggest mistake is that people are taking these three really important documents—the tax return, the investment plan, and the long-term legacy estate plan—and keeping them as silos. They're not bringing them together and helping them work together. I like to think about it like this: if we told three people, "Hey, we're going to build a log cabin. You guys go do your own thing, and we'll get back together in six months to see what happens," one guy might have built some doors and some framing, another might have just built framing, so they've duplicated work. Now we've got a roof over here, but there's no foundation. Instead, we're saying the tax return is going to be our foundation for projections and how we should invest. Investing is the framework that's building up and growing our assets, and the roof is our legacy and estate plan that's going to keep us safe and dry for the long term as we build this beautiful log cabin of financial success.
Garrett: So, for example, here's how each one informs the next. If we start with your tax return, you do a projection and find out you have an extra $100,000 in the 24% tax bracket. You know RMDs are coming and you're going to end up in the 32%, or maybe the 35% tax bracket—who knows? What if we took that $100,000 of extra space and did a Roth conversion? We paid 24% federal taxes, and now we have an extra $100,000 at age 65 in a Roth IRA. We've done the hard step, which is the tax projection. We've looked at the tax return, we've done it before December 31st, and we've paid $24,000 on that $100,000 Roth conversion out of separate money—that's a different topic for a different episode. But now we have $100,000 in a Roth IRA that's going to grow tax-free for the rest of your life. If you have children and there's money left over, that money would ideally be good to go to them. So we've made the tax return observation and the Roth conversion planning decision. Now we move to our investment plan. If we know that's the last money you'll ever touch and it will go to beneficiaries, that's going to inform how we construct the equities versus fixed income. Because you're 65, you may have a 25- or 30-year timeline before that money goes to beneficiaries. So instead of a 65/35 equity-fixed income split, maybe we can now go to 90% or even 100% stock, because we know we have a long timeline for that. That $100,000 is now earning more over the long term, and we're doing that because of a long-term legacy goal that the money would go to the kids. And we understand that the Secure Act 2.0 made traditional IRAs harder because there's a 10-year distribution period, and beneficiaries have to pay taxes on that. But if it's in a Roth IRA, if they inherit it, they're going to have an additional 10 years of tax-free growth on that $100,000, which by then, who knows? It could be $300,000 or $400,000. And that money, they had ten years to distribute, but it's all tax-free growth. All that to say, if you miss the tax planning projection this year when you're 65, and you didn't know you had that $100,000 of space left, all those other things never happened. The number one mistake people are making is that the industry has changed. If you're working with an advisor, they should be helping you make these observations. You don't have to do it alone. If you're a DIY person, you need to be using tax planning software to make those projections. But it's a new day; the industry is evolving, the tools are out there, and the tax planning projection is almost like this non-negotiable piece that you've got to be doing to manage your finances better.
Adam: It is funny, because you kind of made me a believer. I came from a different shop where we weren't doing a lot of tax projections. There was some here and there—somebody would come and say, "We want to do a Roth conversion," and we'd look at it with them—but there was no proactive planning. Now that I've seen what we're able to do, I get so excited about it. I know we mentioned this before, my dad and brother are both CPAs, and I'm calling them with tax questions. They're saying, "You're asking really good tax questions. What are you guys doing over there?" I said, "We're looking at these tax returns!" So it's been a lot of fun, and you've made me a believer in this. These tax projections are the next evolution of what a financial planner and financial advisor can do for you. Or, if you do it on your own at home, making tax projections is the next evolution of how you can be most effective in planning, not only for the short-term next few years but for your lifetime and for the next generation.
Garrett: I know it's bold to say this is the number one issue, but I believe it. It's what I lead off with. When new clients come on board with us, I say, "Hey, we start with the tax return. I have to know that if you don't want to give me a tax return, there's another place for you." Because I feel like to give good financial advice, it starts with that. And then it informs all these other areas. So, hopefully, in 20 minutes, we've convinced you to do a little extra work. If you do that, I think that's just the first step in this ongoing conversation we have for high-net-worth retirees. I think the target here is those between $2 million and $8 million in net worth. RMDs are coming, and you've got to deal with them.
Adam: Absolutely. Well, I love this topic. It's been fun for me to learn more about these things, but I think that's all we've got time for today. So, make sure to check us out on Spotify, Apple Music, and YouTube. I always put the link in the description to our free resources, our six-point checklist for things you need to get buttoned up before retirement. We're here as an educational resource for people. So, follow along, check us out. Not every topic may be pertinent to you, but our goal is to cover a wide range of topics so we can be a one-stop shop to check out things like Roth conversions, or RMDs, or what you might be missing before you go to retirement. We're here for you. So appreciate y'all joining us. I'm Adam Reed, and this is Garrett Crawford. We'll see you all later.