Jeff Dragon, financial advisor and president of North Shore Retirement Advisors in Stoneham, Massachusetts, has spent more than three decades watching retirees make the same discovery: their actual tax bill in retirement is larger than what they planned for. After 36 years advising clients from companies like Raytheon, GE, Hewlett Packard, and Harvard University, Dragon says the issue is not that retirees failed to save. The issue is that most retirement plans account for federal income taxes but overlook the secondary tax events triggered by required minimum distributions, Social Security benefit taxation, and Medicare premium surcharges. Together, these three mechanisms can consume 30% to 40% of a retiree’s gross income before a single discretionary dollar is spent.
Tax Trap One: Required Minimum Distributions That Trigger a Chain Reaction
Starting at age 73 under the SECURE 2.0 Act, anyone holding a traditional IRA or 401(k) must begin taking required minimum distributions based on their account balance and an IRS life expectancy factor. For a retiree with $800,000 in a traditional IRA, the first-year RMD is approximately $31,000. That figure increases every year as the life expectancy divisor shrinks, even if the account balance stays flat.
The problem, as Dragon explains to clients at his retirement planning seminars across the greater Boston area, is that RMDs are taxed as ordinary income. A retiree already collecting $28,000 in Social Security and $20,000 from a pension now adds $31,000 in RMD income. That $79,000 combined figure does not just increase the federal tax bill. It also determines how much of that Social Security benefit is taxable and whether the retiree crosses into a higher Medicare premium bracket.
Tax Trap Two: Social Security Benefits Taxed at Both Federal and State Levels
Most retirees know that Social Security benefits can be taxed at the federal level. Fewer realize how aggressively. For individual filers with combined income above $34,000, up to 85% of Social Security benefits become subject to federal income tax. For married couples filing jointly, that 85% threshold hits at $44,000 in combined income. Combined income, in this context, means adjusted gross income plus nontaxable interest plus half of Social Security benefits. RMDs from traditional retirement accounts feed directly into that calculation.
Eight states also tax Social Security benefits at the state level: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, New Mexico, and Rhode Island. Each applies different income thresholds and exemptions, but the effect is the same. Retirees in those states face a third layer of taxation on income they already funded through decades of payroll taxes. Massachusetts, where Dragon’s firm is based, does not tax Social Security, but clients who relocate or hold accounts in multiple states may still be affected.
Tax Trap Three: Medicare Surcharges Tied to Retirement Account Withdrawals
Medicare Part B and Part D premiums are income-tested. The Social Security Administration uses modified adjusted gross income from two years prior to determine whether a retiree pays the standard premium or a surcharge known as IRMAA. For 2025, the standard Part B premium is $185 per month. A married couple with combined MAGI above $206,000 pays $259.40 each. At the highest tier, above $750,000, the premium jumps to $580.90 per person per month.
Dragon notes that one large RMD, a capital gains event from selling a property, or even a lump-sum pension distribution can push a retiree into a higher IRMAA bracket for the following year. Because IRMAA uses a two-year lookback, the surcharge often arrives long after the triggering event, and many retirees do not connect the two. For a couple, the difference between the standard premium tier and the first surcharge tier adds up to roughly $1,787 per year in additional Medicare costs alone.
How Jeff Dragon Helps Clients Plan Around These Tax Traps
Dragon’s approach at North Shore Retirement Advisors starts with building a complete income projection that maps every source of retirement income against the federal tax brackets, Social Security taxation thresholds, and IRMAA tiers for each year of a client’s expected retirement. From there, the team identifies which accounts to draw from and in what sequence to minimize total tax exposure across all three traps simultaneously.
For many clients, that means converting portions of traditional IRAs to Roth IRAs in the years before RMDs begin, using proprietary software to calculate the maximum conversion amount that stays within the current bracket. It also means coordinating Social Security claiming decisions with withdrawal sequencing, so that clients are not inadvertently inflating their combined income during the years when their benefits are most vulnerable to taxation. The firm’s $149 tax preparation service gives Dragon’s team direct visibility into each client’s returns, allowing them to adjust the strategy annually rather than relying on projections alone.
Dragon has delivered this message to more than 4,000 seminar attendees over his career, and the reaction is consistent: people who thought they had a retirement plan realize they had a savings plan without a distribution strategy. The difference between the two, he says, is where the real money is lost or saved. North Shore Retirement Advisors is located at 91 Montvale Ave, First Floor, Stoneham, Massachusetts. The firm can be reached at 617-513-0637 or through its website at yourretirementhelp.com.