By Brent Matthew
2026 is shaking up retirement tax planning in Scottsdale. With the One Big Beautiful Bill Act now active and major provisions of the SECURE Act 2.0 in full swing this year, if you don’t update your tax plan accordingly, you could find yourself in a higher effective tax bracket than when you were employed.
With that in mind, let’s take a look at five costly tax traps for retirees and pre-retirees and how to avoid them.
1. The “RMD Tax Bomb” (and the 10-Year Inheritance Rule)
One of the biggest 2026 tax mistakes some retirees are already making is waiting until the last minute to take required minimum distributions (RMDs). For 2026, the RMD age is 73. But if you have large balances in your 401(k), traditional IRA, or both, you might get an unexpectedly high tax bill.
If your loved ones inherit your IRA, they could face greater tax liability too. Those who inherit IRAs must drain them within 10 years. When this happens during peak earning years, it can lead to significant tax burdens.
Roth conversions for retirees can potentially help you avoid this trap. I often suggest that my clients take advantage of the “gap years” between retirement and age 73 to move money into tax-free Roth accounts while they’re in lower tax brackets.
2. Triggering the “Social Security Tax Cliff”
Did you know that if your income exceeds certain thresholds, up to 85% of your Social Security income may be taxable? Even making a single large retirement withdrawal for something like a home renovation could spike your income and make your Social Security subject to taxation.
To keep your provisional income below the “cliff,” make a habit of funding your retirement from a mix of taxable, tax-deferred, and tax-free accounts.
3. Missing the IRMAA Income Thresholds
If your income from two years prior exceeds a certain threshold, you may owe Medicare IRMAA surcharges. IRMAA stands for “income-related monthly adjustment amount,” and it often ends up being a couple of thousand dollars per year.
For 2026, IRMAA surcharges start at the following MAGI thresholds:
- Single filers: $109,000
- Joint filers: $218,000
To avoid accidentally owing an IRMAA surcharge, it’s essential to carefully monitor your income throughout the year.
4. Overlooking the 2026 “Senior Deduction” and SALT Caps
It is important to capitalize on available Arizona retiree tax benefits. Updates to the law under the One Big Beautiful Bill Act have introduced two major provisions for the 2026 tax year:
- A New Senior Tax Deduction: Eligible retirees aged 65 or older can claim an extra deduction of $6,000, or $12,000 for joint filers. This benefit begins to phase out if your modified adjusted gross income (MAGI) exceeds $75,000 for single filers or $150,000 for joint filers.
- Expanded SALT Deductions: The state and local tax (SALT) deduction cap has increased to $40,400 for 2026.
While Arizona features a low 2.5% flat income tax rate, luxury property taxes in neighborhoods like North Scottsdale can quickly accumulate. For local homeowners with high-value real estate, this expanded cap offers a distinct advantage on federal returns.
To leverage this strategy, you will want to plan your income carefully to stay below the $505,000 phase-out threshold for the expanded SALT allowance.
5. Failing to Plan for the “Widow’s Penalty”
If you lose a spouse and switch from “married filing jointly” to “single,” you can easily move up a tax bracket while your standard deduction decreases.
To reduce your chances of running into this penalty, move assets into tax-free (Roth) “buckets.” You should also invest in life insurance so the surviving spouse can have tax-free liquidity.
Get Reliable Assistance With Retirement Tax Planning in Scottsdale
If you already have a retirement tax plan in place, you might understandably be concerned that the changing tax landscape may turn it on its head. Scottsdale Wealth Advisory is here to offer assurance that that doesn’t happen.
Get in touch today to learn more about how we may be able to help you update your retirement tax plan. To schedule your complimentary financial coaching session, call (480) 247-9090, email info@SWAFirm.com, or book directly at calendly.com/BrentMatthew.
Frequently Asked Questions
Why is retirement tax planning important?
Retirement tax planning is the process of coordinating withdrawals, income sources, investments, and tax strategies to help reduce your lifetime tax burden. Effective retirement tax planning in Scottsdale can help retirees manage required minimum distributions, Social Security taxation, Medicare surcharges, and other tax-related challenges while working toward preserving more of their retirement income.
How can Roth conversions support retirement tax planning in Scottsdale?
Roth conversions can be a valuable strategy for retirees who expect future tax rates to remain high or increase over time. By converting traditional IRA assets to a Roth IRA during lower-income years, retirees may reduce future RMDs, create tax-free income opportunities, and potentially lower the tax burden on heirs. Retirement tax planning in Scottsdale often includes evaluating whether Roth conversions fit into a broader long-term tax strategy.
When should I review my retirement tax plan?
Retirees and pre-retirees should review their tax strategy at least annually and whenever major financial changes occur. Events such as retirement, large investment gains, Roth conversions, Social Security claiming decisions, or changes in tax law can all affect future tax obligations. Regular retirement tax planning with Scottsdale Wealth Advisory can help identify opportunities to improve tax efficiency and avoid costly surprises.
About Brent
Brent Matthew is the founder and CEO of Scottsdale Wealth Advisory, a full-service fiduciary retirement planning firm serving pre-retirees and retirees across Arizona and multiple states. With a strong commitment to always putting clients first, Brent leads the firm in developing comprehensive, tax-efficient financial plans tailored to each family’s unique goals.
Advisory services are offered by Scottsdale Wealth Advisory, LLC, an Investment Advisor in the State of Arizona. Insurance products and services are offered through Scottsdale Wealth Advisory, LLC. Scottsdale Wealth Advisory, LLC is not affiliated with or endorsed by the Social Security Administration or any government agency, and is not engaged in the practice of law. Be sure to consult with a licensed financial professional to confirm the accuracy of the insurance product you are considering.
