Five Tax Mistakes Retirees With $1 Million or More Make

Reaching retirement with $1 million or more in savings is a significant accomplishment. You've spent decades working, saving, and investing. Now comes a challenge many Michigan retirees underestimate: keeping more of what you've earned.

For affluent retirees, taxes can quietly become one of the largest expenses in retirement. Unfortunately, some of the most costly mistakes aren't obvious until years later.

Here are five common tax mistakes and how to avoid them.

1. Waiting Too Long to Consider Roth Conversions

Many Michigan retirees have substantial savings in traditional IRAs and 401(k)s. While these accounts provide tax advantages during working years, withdrawals are generally taxable at the federal level and may also be taxable in Michigan, subject to the state's retirement and pension deduction.

Once required minimum distributions (RMDs) begin, retirees may find themselves pushed into higher tax brackets.

The years between retirement and the start of RMDs may present an opportunity to convert some traditional IRA dollars to a Roth IRA. A conversion is itself a taxable event in the year it occurs, can affect Medicare premiums (see Section 3), and is not appropriate for everyone.

Michigan's retirement and pension deduction rules also deserve attention. Under Michigan Department of Treasury guidance, the amount converted is subject to Michigan income tax but may qualify for the state's retirement and pension deduction, within statutory limits, if you are at least 59½ when the conversion occurs. Because the deduction is capped and depends on your other retirement income, careful coordination of federal and Michigan taxes is especially important.

2. Ignoring the Tax Consequences of Social Security

Many retirees are surprised to learn that up to 85% of their Social Security benefits may be subject to federal income taxes. Fortunately, Michigan does not tax Social Security benefits. However, withdrawals from retirement accounts and investment income can affect how much of those benefits become federally taxable.

Coordinating Social Security claiming decisions with IRA withdrawals and other income sources may help reduce your lifetime tax burden.

3. Overlooking Medicare's Hidden Income Surcharges

Higher-income retirees can pay significantly more for Medicare through Income-Related Monthly Adjustment Amounts, commonly called IRMAA. These surcharges generally use tax returns from two years earlier. A large Roth conversion, capital gain, or retirement account withdrawal today could mean higher Medicare premiums later.

For married couples filing jointly, crossing certain income thresholds can increase premiums for both spouses. Careful income planning may help avoid unnecessary surprises.

4. Selling Investments Without Considering Capital Gains

Retirees often sell appreciated investments to generate retirement income, purchase a vacation home, or help family members financially. However, selling investments with substantial gains can trigger federal capital gains taxes and potentially an additional 3.8% net investment income tax.

Michigan generally taxes capital gains as ordinary income at the state level, adding another consideration when selling appreciated investments. Before selling, consider which investments to liquidate, whether losses can offset gains, and whether spreading sales across multiple tax years makes sense. Tax considerations should be weighed alongside your investment objectives, time horizon, and risk tolerance; taxes alone should not drive the decision to hold or sell an investment.

5. Missing Tax-Smart Charitable Giving Opportunities

Michigan retirees have a long tradition of supporting local charities, community foundations, cultural organizations, and educational institutions. But many overlook strategies that make their generosity more tax efficient.

For individuals age 70½ or older, qualified charitable distributions (QCDs) allow eligible IRA funds to go directly to qualifying charities without being included in federal taxable income, up to an annual per-person limit that is indexed for inflation. QCDs can also count toward required minimum distributions.

Donating appreciated securities may offer additional advantages, particularly for retirees who itemize deductions.

The Bottom Line

Having $1 million or more saved for retirement doesn't automatically mean you have a tax-efficient retirement plan. For Michigan retirees, an important opportunity may lie in coordinating federal and state taxes with investments, retirement withdrawals, Social Security, Medicare, and charitable giving.

A thoughtful tax strategy isn't about avoiding taxes altogether. It's about making informed decisions today that may help preserve more of your wealth over time. After all, retirement success shouldn't simply be measured by how much you've accumulated—but by how much you get to keep.

About the author

‍Sara Frazier, CFP®, is a Vice President, Wealth Advisor and Financial Planner with Arrowroot Wealth Advisors, a trade name of Arrowroot Family Office, LLC. Based in the in Rochester Hills, Michigan office, she works with clients on retirement, investment, and tax planning.

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Important Disclosures

This material is provided for educational and informational purposes only and does not constitute personalized investment, tax, or legal advice. The strategies and ideas discussed may not be appropriate for all investors. Please consult with your tax advisor, legal counsel, and financial adviser before implementing any strategy discussed herein. Federal and Michigan tax rules are subject to change; the information in this article reflects rules in effect as of October 2026.

Arrowroot Family Office, LLC ("AFO") is a registered investment adviser registered with the U.S. Securities and Exchange Commission under the Investment Advisers Act of 1940. Registration does not imply a certain level of skill or training. This material has been prepared for informational and educational purposes only and does not constitute investment, legal, or tax advice. The information herein is not intended as a solicitation or recommendation to buy or sell any security. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. Please review AFO's Form ADV Part 2A for important disclosures regarding our services, fees, and conflicts of interest.

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