3 Things 4-20-26

 Thing One

The Tax Trap You Might Not See Until It's Too Late

After years of a strong, buoyant market, many people are quietly sitting on much larger IRA balances than they ever expected. What started as steady retirement savings has, in many cases, turned into one to two million dollars or more in pre-tax accounts.

At age 62, everything still feels under control.

Income is solid.Taxes look reasonable.Nothing feels urgent.

In fact, many people look at their tax return and think, “I’m in pretty good shape. I’m not even paying that much in taxes.” And in a narrow, year-by-year sense, they are right. But when you zoom out, a very different picture starts to emerge.

Using current 2026 numbers for a single filer:

Income is about $100,000.The standard deduction is $16,100.Taxable income is roughly $83,900.

That places the individual comfortably in the 22 percent tax bracket.

The full federal tax bracket structure is as follows:

10 percent applies up to $12,400.12 percent applies from $12,400 to $50,400.22 percent applies from $50,400 to $105,700.24 percent applies from $105,700 to $201,775.32 percent applies from $201,775 to $256,650.35 percent applies from $256,650 to $629,850.37 percent applies to income above $629,850.

It is very common for someone in this position to say, “I am in the 22 percent bracket. I do not want to push myself higher.” That is where the trap begins. What is not being considered is that the same $1.5 million IRA, growing at a reasonable 7 percent annually, becomes approximately $3.6 million by age 75. At that point, RMDs (Required Minimum Distributions) begin.

The first RMD is likely to fall in the range of $140,000 to $150,000.

This is not optional income. It is required and fully taxable.

It is also added on top of Social Security, investment income, and any other withdrawals. So the person who felt tax-efficient at age 62 may later find themselves with total income in the range of $180,000 to $220,000 or more, with far less control and exposure to higher tax brackets.

The real issue is that at age 62, many people are celebrating the fact that they are staying within the 22 percent bracket and avoiding higher taxes.

In reality, they are deferring a much larger tax problem. They are allowing a large pre-tax account to continue compounding while setting themselves up for future years with mandatory high income.

This is where Roth conversions fit in. At age 62, taxable income is approximately $83,900. There is about $21,800 of room remaining in the 22 percent bracket and well over $100,000 of additional room before reaching the top of the 24 percent bracket. This leads to a critical question: Is it better to pay taxes at 22 to 24 percent today on smaller, controlled amounts, or later on much larger, forced distributions that may push income into the 32 percent bracket or higher?

Well, if someone limits Roth conversions strictly to the remaining space in the 22 percent bracket, they may convert around $20,000 per year.

Over a decade or more, that results in only $250,000 to $300,000 being converted. Meanwhile, the IRA continues to grow toward $3.6 million, and the future RMD problem remains largely unchanged.

In this case, the individual optimized their current tax return but failed to address their long-term tax exposure. That’s the bad news.

The good news is that the years between ages 65 and 74 represent a valuable planning window. During this time, there are no required minimum distributions. Earned income is often lower, and the individual has full control over withdrawals and conversions.

Although Social Security begins (at 65 in this example) and Medicare introduces income-based premiums, this is still the most flexible period for planning. A more effective strategy would involve using not only the 22 percent bracket but also intentionally utilizing the 24 percent bracket to gradually reduce the size of the IRA.

Regarding income-based Medicare premiums, officially known as IRMAA (Income-Related Monthly Adjustment Amount), Medicare Part B premiums increase as income rises. For a single filer in 2026, the monthly premiums are as follows:

Income up to $109,000 results in a premium of $202.90.Income from $109,001 to $138,000 results in a premium of $284.10.Income from $138,001 to $172,000 results in a premium of $405.30.Income from $172,001 to $206,000 results in a premium of $526.50.Income from $206,001 to $499,999 results in a premium of $647.70.Income of $500,000 or more results in a premium of $769.90.

As you can see, the first increase is about $81 per month, or roughly $1,000 per year, with larger increases at higher income levels.

These adjustments are based on income from two years prior. While important, these costs are often overemphasized. Avoiding modest increases in Medicare premiums at all costs can lead to much larger tax liabilities later due to higher IRA balances and larger required distributions.

Now, in case you’re thinking of just leaving the retirement money to your heirs and letting them sort it out, you should know that the tax burden does not disappear. It simply shifts to them. Under current rules, most non-spouse beneficiaries must fully distribute the inherited IRA within ten years. All distributions are taxed as ordinary income. In many cases, heirs are in their peak earning years and already in the 24 percent, 32 percent, or higher tax brackets. The inherited IRA income is added on top of their existing income. This can result in the heir paying significantly higher tax rates than the original owner would have paid through strategic Roth conversions.

The bottom line is that this is not about minimizing taxes at age 62.

It is about avoiding a future where income is forced higher, flexibility is reduced, and tax outcomes are dictated by account size rather than strategy. For someone in this situation, feeling tax-efficient at age 62 can be misleading. The real tax risk lies in the future.

A $1.5 million IRA growing at 7 percent could become a tax nightmare if not managed with proactive planning. The goal should not be to minimize taxes today but rather to maintain control and avoid a much larger tax problem later.

Thing Two  

A Calm Alternative to Stocks: Bond Laddering in Retirement

Not everyone is comfortable riding the ups and downs of the stock market, especially in retirement. Some people have done well enough. Others are simply wired to avoid risk. Either way, the idea of watching a portfolio swing significantly from year to year is not just uncomfortable, it is unacceptable. For those individuals, bond laddering offers a simple and practical way to create predictable income with controlled risk.

A bond ladder is a structured approach to investing in bonds where money is spread across multiple maturities instead of being invested all at once. Rather than putting all of your funds into a single bond, you divide the money across bonds that mature at different points in time.

For example, you might invest in bonds that mature in one year, two years, three years, and so on. Each year, one of those bonds matures and returns your principal. At that point, you can either use the proceeds for income or reinvest into a new longer-term bond to maintain the ladder.

Bond laddering addresses two of the biggest concerns retirees have.

First, it reduces exposure to market volatility. You are not depending on stock prices going up in order to generate income. You know when your money will be returned. Second, it helps manage interest rate risk. Instead of trying to predict where rates are going, you spread your investments across time. This prevents you from committing all of your money at the wrong moment.

Consider a retiree with one million dollars who prefers not to invest in stocks. They could build a ten-year bond ladder by allocating one hundred thousand dollars to each maturity year. One hundred thousand dollars would go into a one-year bond, another one hundred thousand into a two-year bond, and so on through ten years. Each year, a bond matures and returns approximately one hundred thousand dollars plus interest. That money can then be used for living expenses or reinvested into a new ten-year bond to keep the ladder intact. This creates a rolling system of income that does not rely on selling investments during unfavorable market conditions.

With a properly structured bond ladder, you know when your money will become available. You reduce the need to sell investments at the wrong time and maintain flexibility as your needs change. For many retirees, that level of predictability is far more valuable than pursuing higher but uncertain returns.

All that said, one of the most important decisions in building a bond ladder is where to begin on the maturity spectrum. This depends on the current level of interest rates and where they are likely headed.

When interest rates are elevated, it makes sense to lock in those higher yields for a longer period of time. In practice, this means building the ladder with more emphasis on longer-term bonds rather than evenly spreading everything across all maturities.

For example, instead of placing equal amounts in each year, you might allocate smaller amounts to short-term bonds and larger amounts to bonds maturing in five to ten years. A one million dollar portfolio might look like this:

$50,000 in each of the first three years.$75,000 in years four through six.$125,000 to $150,000 in years seven through ten.

This approach still provides near-term liquidity, but it allows you to commit more money to longer-term bonds where yields are currently more attractive.

In a higher rate environment, the focus is typically on high-quality investments such as United States Treasury bonds, highly rated corporate bonds, or competitive certificates of deposit.

The goal is not to speculate. The goal is to lock in known income streams. For instance, if a ten-year Treasury is yielding around 4.5 percent, that rate is locked in for the entire period. Even if interest rates decline in the future, that bond continues to pay the higher rate.

If interest rates decline after you build the ladder, the strategy begins to show its value. The longer-term bonds continue paying the higher yields that were locked in. New bonds may offer lower yields, but only a portion of the ladder is affected as bonds mature. At the same time, shorter-term bonds continue to mature each year, providing liquidity and flexibility. This creates a balance between stability and adaptability.

Each year, as a bond matures, you make a decision. If rates have fallen, you may reinvest at lower yields, but only a portion of your portfolio is impacted. If rates remain high or increase further, you reinvest at those higher yields, gradually improving the overall income of the ladder. Over time, this process smooths out interest rate changes and avoids the need to make large, all-or-nothing decisions.

It should be noted that bond ladders are not designed to maximize returns. They are designed to provide stability, predictable income, and a structured approach to managing risk. You give up upside potential (which could be substantial in some years) in exchange for clarity, control, and peace of mind.

But for someone who feels like they have enough, or for someone who simply does not want to take on stock market risk, bond laddering offers a disciplined and understandable path forward. It replaces uncertainty with structure. Instead of focusing on what the market is doing, you focus on what is maturing each year and how those funds will be used. That shift in strategy and perspective can make retirement feel far more secure and manageable for some people.

Thing Three

Just A Thought

"Humility isn't thinking less of yourself, it's thinking of yourself less." - C.S. Lewis