The $250,000 Mistake Most Retirees Never Know They Made

Greetings!

I am thrilled to announce August’s Pre-Order Incentive for my new book, Real Wealth:

Pre-order today at tylergardner.com/book, let me know you did, and receive a brand new bonus chapter from the second book that I am already working on. Not even my editor at Norton has seen this one yet, and I’m excited to share it with you first and get some early feedback.

And remember, once you pre-order, you are eligible for every monthly incentive between now and the book’s release on December 1st. As always, appreciate your support, and hope the book proves useful.

Pre-Order Real Wealth

The $250,000 Mistake Most Retirees Never Know They Made

Years ago, I had a video call with a couple from New York. Mid-sixties, $3.2 million saved, and an abundance of confidence from spending the past four decades doing everything “right.” I asked them if they had considered Roth conversions yet, as they were currently earning nothing and had yet to take Social Security. They told me they hadn’t. Not because it didn’t interest them, but because nobody had ever told them it could save them tens of thousands of dollars over the course of their retirement. We did some quick back-of-the-’ol-metaphorical-envelope-math (as I don’t actually own any physical envelopes), and we calculated that if they did not do conversions, based on how they were planning to spend from their mostly pre-tax accounts, that single choice could cost them anywhere between $180,000 and $250,000 in taxes that they never needed to pay in the first place.

This week, I want to make sure that you, at the very least, aren’t leaving this option on the table because nobody ever told you it was an option and when it might be a good option.

We’re now three weeks into the decumulation series, the 6 Moves to Make Before You Retire, the Withdrawal Order Nobody Taught You, and now, for better and worse, the truly dense one: Roth Conversions, IRMAA Cliffs, and Penalties for Widows. So sit back, grab another cup of coffee, and let’s dig in.

Here Are the 5 Things I Want You to Think About This Week:

1. Take advantage of the “cheaper” years to do Roth conversions. Here’s what I know you’ve heard before: take advantage of the window from retirement (around 65) to when RMDs kick in (73, soon to be 75), to execute Roth conversions. Because for many of us, that’s the lowest tax bracket we’ll be in for the rest of our lives, as earned income might be zero, and we might not be collecting Social Security yet. And here’s what I want you to hear today: there are also intermittent windows throughout our lives where the exact same logic applies: maybe we’ll take a lower-paying job in our 40s, 50s, or 60s for quality of life; maybe we’ll take a gap year (or three); or maybe we’ll leave a stable six-figure job with benefits to pursue “finfluencer” status according to at least one random post on Reddit. The tax code doesn’t care when we have a lower relative income; it just provides us with opportunities throughout our lives to convert to a Roth that most people miss completely because they’re waiting for that textbook retirement window.

2. How Do We Actually Execute a Roth Conversion?1

   1. Log into your custodian. Search for “Roth Conversion,” then click the button.

   2. Ideally, we’d have both accounts at the same custodian, as cross-institution conversions can take much longer. (This is one of the many reasons why I love having most of my assets under one roof.)

   3. Do NOT have taxes withheld, as any dollar withheld will go directly to IRS today. And, surprise, we’d rather pay them later. Say it with me: interest free loans are a good thing.

   4. Look for the tax bill in April. The custodian will issue form 1099-R. Larger conversions may require quarterly payments. Your CPA should flag it. If they don’t, time to get a new CPA.

   5. And remember the 5-year-rule. In an attempt not to lose 250,000 readers in one paragraph, to learn more, check out Fidelity’s break-down, as it’s the most comprehensive page I’ve found on the subject yet.

3. Remember that IRMAA is a cliff, not a gradual climb. If your MAGI (fancy acronym for your adjusted gross income plus any tax-exempt interest, but note: this is before the standard deduction which constantly trips folks up) is $274,000 (as of 2026), your Medicare surcharge is about $80/month per person. But go just ONE DOLLAR OVER, yep, to $274,001, and the surcharge can jump to $205/month per person. That one additional dollar can cost you about $3,000 between spouses. In more argument-enhancing terms: the marginal rate on that dollar is about 300,000%. Yes, for realsies. So before any potential conversion, run your projected MAGI through an IRMAA calculator.

4. Teach Yourself About SSA-44. This is your gift from this week’s letter: If you had a big income in 2024 (like a business sale or large Roth conversion), Medicare would use that number for 2026 premiums (because why would they want to make any of this simple?). They use a two-year “look back” period. But if you complete and submit Form SSA-44, you can ask Social Security to let you recalculate based on a “significant life event,” and retirement does indeed count. This form alone can save recently retired couples between $5-$10k a year.

5. The Widow’s Penalty. No, this is not an announcement for the new Lisa Jewell novel. This is far, far less entertaining: When one spouse dies, the survivor is now, unfortunately, a single filer. Single filer brackets and IRMAA thresholds are roughly half of married ones. So those conversions that you didn’t take advantage of at 12% now would come out at 22% or 24% just because of the single filing status. This can wind up costing the surviving spouse between $30,000 and $50,000 a year…for life.

Want to learn more about IRMAA cliffs and Roth Conversion Windows? Check out this week’s episode of the podcast Your Money Guide on the Side, and if it proves useful, please consider leaving a review, as it helps new listeners find the show and helps me know that this endeavor in free financial literacy for all remains relevant.

Listen to Your Money Guide on the Side

Two Things I’m Currently Thinking About:

1. 3 Minutes and 5 Seconds: the amount of time you’re able to focus on one task without being distracted by another. According to her research in informatics at UC Irvine, Dr. Gloria Mark found that office workers switch tasks or are interrupted roughly every 3 minutes and 5 seconds. But before you run to HR and present your closing arguments for why you should be allowed to work from home in 2027, know that Dr. Mark’s findings have often been misinterpreted by popular articles and new sources. What the data actually showed is that the distractions weren’t just from external sources (the boss’ “urgent” email; the colleague’s baby pictures), but also (and sometimes far moreso) from internal sources (we need to book that flight; we want to find that recipe for dinner; we want to get a quick dopamine hit from some arbitrary notification on some random platform).

   Oh, and in her more recent 2023 book Attention Span, Dr. Mark suggests things have (surprise) gotten even worse and that our average attention on any single screen is down to 47 seconds. So if you’ve made it this far in the newsletter, I salute you.

2. 23 Minutes and 15 Seconds: the amount of time it takes you to refocus once you’ve become distracted. And no, it’s not because your brain needs almost a half hour to shift “cognitive gears” and refocus; it’s because once you give yourself permission to take that initial “break,” you choose to handle, on average, 2.3 other tasks before cycling back to the original point of focus.

   I just rewatched The End of the Tour last night, a biographical drama starring Jason Segel as David Foster Wallace. That, in turn, led me to watch some actual interviews with Wallace late into the night. And I was reminded (ironically enough while watching his clips on YouTube) that DFW chose not to own a television because he feared wasting his life in front of a screen providing endless hours of passive entertainment. And for those of you who have snapped back into reality after a few hours of Netflix and Chilling, with that existential sense of dread that comes along with knowing that you were just gonna’ watch one episode that magically turned into half a season of Yellowstone…well, you know exactly why Wallace was terrified, and let’s just say, I’m far more worried about our inability to focus on deep work than I am about where the S&P is heading in 2027.

And Before You Go…

This week’s newsletter is brought to you by Facet.

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If you’re currently looking for a financial planner, there are three things a percentage-based advisor is hoping you just don’t think about:

1. It is not necessarily harder to manage more money, yet these advisors will often charge you more just because you happen to have more. Same asset allocation plan. Same phone calls asking how the kids are. And yet the fee continues to grow.

2. And the line they feed you? The “we do better when you do better,” sounds great until you appreciate that the fastest way for them to do better might just be to put you in riskier assets than you wanted or needed. Your risk tolerance and their incentive structure need to be properly aligned. Period.

3. Finally, notice how they may never tell you the actual fee in dollars? Only the percentage. That’s because when it’s not dollars anymore, it doesn’t feel like dollars anymore. And that’s the point.

Facet works differently. One flat annual membership fee based on the services you need. No percentage of your assets. No commissions. Just a dedicated team of CFP® professionals who will help you figure out what you want your money to say about your life.

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I’m not a member of Facet. I have an incentive to endorse Facet as I have an ongoing fee-based contract for cash compensation, as well as a percentage of equity in Facet based on this endorsement. Facet is an SEC registered investment advisor. All opinions are my own and not a guarantee of a similar outcome.

As always, hope this gives you something to think about throughout the week ahead,

—Tyler

P.S. Norton’s giving away 15 copies of Real Wealth on Goodreads. I’ve intentionally waited until the postscript to reward those of you who can focus for more than 47 seconds. Entering takes about nine seconds and shelves the book, which is how it reaches readers who have never heard of me.

Enter the Giveaway Today!