Everyone loves the feeling of saving money. It lands with the same emotional punch as hearing the perfect chord progression in your favorite song, one of those rare moments when logic and emotion click into place. It feels right. Like you're doing something lasting.
But while it’s the foundation of the financial house, saving alone doesn’t win the game.
It’s like assembling the 1990s Buffalo Bills. Stacked talent, tireless work ethic, four Super Bowl appearances… zero rings. Why? They had the grind, but not the closer. No finishing strategy.
That’s what happens when we save without a tax plan. You contribute. You defer. You do all the right things. But come retirement, Uncle Sam is still waiting at the finish line with his hand out, ready to collect on what you didn’t plan for. The backend of your playbook? Still blank.
Let’s break down what I believe are the three most common tax traps that trip up even the savviest savers, and how tax diversification and holistic planning can help you finish strong, not just start smart.
Trap 1: Pre-Tax Tunnel Vision
Picture 1980. The top federal income tax rate? 70 percent.
Today, it’s nearly half that, just 37 percent.
And yet, many people still default to traditional 401ks and IRAs, as if the tax landscape hasn’t evolved since the Cold War era.
Here’s the problem: every dollar you eventually withdraw from pre-tax retirement accounts is taxed as ordinary income. No deductions. No breaks. No mercy.
And by retirement? Many of your biggest tax offsets vanish. Your mortgage may be gone. The kids are off the payroll. You’re no longer contributing to HSAs or dependent care accounts.
You may be in a lower tax bracket at retirement.
Then come the required minimum distributions (RMDs). Starting at age 73, the IRS forces you to start pulling money out whether you need it or not. And those withdrawals could nudge you into a higher tax bracket than when you were working.
A possible consideration is the Roth IRA, which may offer a more predictable and strategic alternative. You pay tax now, but enjoy tax-free growth and withdrawals later. Plus, no RMDs. No surprises. Just control.
It’s not one-size-fits-all. Any good CPA will tell you that. But when paired with the right numbers and context, Roth planning can be a game-changer.
Trap 2: Ignoring the Power of Taxable Accounts
Taxable brokerage accounts are often misunderstood. They’re treated like the financial junk drawer, where leftover savings land when real retirement buckets are full.
But when used strategically, they become one of your most powerful tools.
Why? One word — control.
You decide when to sell. When to realize gains. When to harvest losses and reduce your tax bill. You can even swap a mutual fund for a similar one after a loss to stay invested without tripping the IRS’s wash-sale rule.
Trap 3: Waiting on the RMD Clock
The RMD rules aren’t new, but they’re easy to ignore until they blow up your plan.
Once you hit 73, the IRS requires you to start withdrawing from your tax-deferred accounts. Miss it? You could be hit with a 25 percent penalty. And that’s just the start.
Those withdrawals stack on top of Social Security, pensions, or even part-time income. Suddenly, you may be in a higher bracket than expected, with fewer levers to pull.
While we don't give tax advice, we work with your tax professional to help you build a tax plan. Enter the Three-Bucket Strategy.
The Tax Diversification Framework
Tax diversification is about creating options. It’s a way to structure your savings across three different buckets, each with unique tax rules. The more flexibility you have, the better your odds of managing future taxes, whatever happens.
Bucket 1: The Tax-Efficient Zone
This is where you may want the majority of your retirement income to come from.
Roth IRA / Roth 401k
Tax-free growth and withdrawals. No RMDs on Roth IRAs.
Whole Life Insurance
Tax-efficient. Not included in Social Security taxation.
It’s uncorrelated to the market and non volatile, making it ideal for your conservative allocation.
While the main purpose is the death benefit, whole life insurance can also give you permission to spend in retirement.
Health Savings Account (HSA)
Contributions are deductible. Growth is tax-deferred. Withdrawals for medical expenses are tax-free.
Roth Conversions
Move pre-tax dollars now while rates are low.
Goal: Create $30,000 to $40,000 per person per year in tax-efficient income.
Bucket 2: The Tax-Deferred Zone
401k / Traditional IRA / SEP / SIMPLE IRAs
Subject to RMDs and taxed at ordinary income rates.
Target Balance: Around $350,000 to $450,000 per couple by retirement to avoid Medicare IRMAA surcharges and limit tax exposure.
Bucket 3: The Taxable Zone
Brokerage Accounts
Direct Indexing Platforms
Used to fund Roth conversion taxes.
Harvest capital gains or losses in strategic years.
Can bridge the gap between retirement and RMDs.
Bonus: In lower-income years, capital gains might be taxed at 0 percent federally.
Conversion Planning: A Time-Sensitive Window
The current tax brackets, thanks to the 2017 Tax Cuts and Jobs Act, are set to expire after 2025. That gives you a potentially short window to convert pre-tax dollars at today’s lower rates.
A Legacy for the Next Generation
Roth IRAs and life insurance pass to your heirs tax-free, without RMD headaches. Traditional IRAs come with built-in tax burdens and a deadline for liquidation, though do offer tax deduction benefits up front.
If you want to leave not just wealth, but clarity, start repositioning now. Your family will thank you.
Final Thoughts: Don’t Be the Napoleon of Your Retirement
In 1812, Napoleon marched into Russia with over 600,000 troops. Victory seemed inevitable. He had the numbers, the momentum, and the confidence of someone who hadn’t yet felt winter’s bite.
But he didn’t plan for the long haul.
His supply chains collapsed. The cold set in. And by the time his army limped back to France, over 80% of his men were gone.
All that progress, undone by a failure to think past the moment of “almost.”
That’s how tax planning can go for a lot of high earners. You build wealth. You work the plan. You save and invest smartly. But if you ignore the tax game plan in those crucial final stretches - the decumulation phase, the withdrawal strategy, the conversion timing, you might lose more than you think.
That’s where tax diversification matters. Roth conversions, whole life insurance, after-tax brokerage flexibility - none of these tools are showy. But they’re what give you options when markets wobble, rates change, or new income hits at the wrong time.
You don’t need to predict the future. You just need to prepare like winter could come.
Because wealth isn’t just what you grow. It’s what you keep. What you steer. What you leave behind - without friction, regret, or an unnecessary tax bill.
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Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. The information provided is based on our general understanding of the subject matter discussed and is for informational purposes only.
This material is intended for general use. By providing this content The Guardian Life Insurance Company of America and your financial representative are not undertaking to provide advice or make a recommendation for a specific individual or situation, or to otherwise act in a fiduciary capacity.
The primary feature of whole life insurance is the death benefit. All whole life insurance policy guarantees are subject to the timely payment of all required premiums and the claims paying ability of the issuing insurance company. Policy loans and withdrawals affect the guarantees by reducing the policy's death benefit and cash values.