Arriving at 60 and later is like being on a ship heading into unfamiliar territory. Other people have been there – but the landscape and seas keep changing, as do the rules. Tax planning is no longer optional; it’s essential. Given the present course, I want to touch on the major “landmarks”, related financial shipwreck “rocks,” and highlight one set of penalty “rocks” that recently came front and center to my attention.
1. SOCIAL SECURITY DOES NOT AUTOMATICALLY WITHHOLD TAX FOR YOU. It’s not the same as an employer. There are lots of YouTube videos on taking Social Security at age 62 versus waiting until FRA (full retirement age), versus waiting until age 70 1/2 for the maximum check. I won’t go into this topic, but that’s a big landmark to navigate. Be certain you talk to professional and trusted advisors about your situation in advance – everyone is different, and there are lifelong consequences. Don’t rely on what a YouTube video says.
2. DO NOT WAIT for enrollment into Medicare. Do this 3 months before you turn 65. There are lifelong (!) penalties on your premium otherwise if you don’t do this in a timely manner. I know – you are healthy now and feel silly doing it. Do it anyway. You will thank yourself. Then talk to your professional advisors and family. Educate yourself on the terminology and the plans (it’s too long to include here). There are thousands of dollars you can save or lose, depending on your choices.
3. Age 73 (75 if born after 1960). RMDs. THE PENALTY TRAP. WAIT. WHAT? “Don’t I just need to take some money periodically from my 401(k) or Traditional IRA”? No. It’s much more involved than that!
Here’s what happens: You navigated Social Security and have either implemented or figured out when to take it. Let’s say you take it at FRA, age 66. So far, you are good. You figured out the income tax effect based on any other employment you have. You figured out your Medicare – let’s say you enrolled in a PPO advantage plan that is working for you, and have figured out how to look at new plans and enroll each year in October, and it’s working well. You have a broker you like. Again, so far, so good. You relax into semi-retirement, and at age 72, you are cruising the coast of life. You are only taking money from your 401(k) (or traditional IRA) if you really need or want the money.
Watch out! There are rocks ahead! Uncle Sam is going to tell you what to do, and you are stuck if you are not paying attention. You have until April 1 of the year after you turn 73 to take your first RMD. There is a table, yes, a table of MANDATORY withdrawal amounts based on the size of your nest egg. Yes, you read that correctly – it’s not a choice. I’ll tell you why. Uncle Sam will add a hefty 25% (yes, you read that correctly) of the RMD, not 25% of the tax due. He figures part of that nest egg is his, and he wants his tax money. He has already figured out when he will get it and what to do to you if he doesn’t get it on time.
Let’s say you hypothetically have $50,000 saved in an employer-sponsored 401(k). Let’s also say, for simplicity, you chose to roll it over to an individual IRA (a true rollover may give you more control – talk to your investment advisor). Given the 2025 table, you have to (it’s not optional) take an RMD of 27.4% of that $50,000, or a gross amount of $13,700. Here’s the penalty if you don’t do that: an extra $3,425 tax (25% of your RMD) you pay Uncle Sam. That’s in addition to the regular income tax you may owe. Do you really want to do that?
The $13,700 you are required to withdraw may now also put you into a higher income tax bracket. That bracket can (under current rules): make your social security partially taxable; and (more financial shipwreck rocks) cause you to fall under IRMAA rules, especially if you decide to sell property, or have a spouse who works. IRMAA is an entirely different social security topic, but it’s another set of rocks looking to shipwreck your finances two years later after you reach it.
I’ve added a couple of links for you to read on these topics. As always, feel free to reach out for a free initial consultation for your particular situation. Just go back to the top of this article and look for “Free Consultation” in the top menu bar of the website.
RMD Citation: https://www.wolterskluwer.com/en/expert-insights/ira-required-minimum-distribution-not-satisfied
IRMAA Citation: https://www.humana.com/medicare/medicare-resources/irmaa
IRMAA Citation (Social Security Administration): https://www.cms.gov/newsroom/fact-sheets/2026-medicare-parts-b-premiums-deductibles