Aug 14, 2025
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.
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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.
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.
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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.
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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.
Avoiding this costly surprise requires careful planning across all income sources and retirement withdrawals.
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.
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
