You’ve probably spent real time getting your investment costs down. You moved out of a high-fee mutual fund years ago. You watch your expense ratios. That instinct has served you well.
However, here’s the uncomfortable math: Shaving another 0.10% off an already-cheap portfolio might save you a few hundred dollars a year. A poorly timed Roth conversion, a missed tax-loss harvesting opportunity or a Medicare premium surcharge you didn’t see coming can cost you thousands in a single year, and the damage can compound for the rest of your retirement.
Most investors have optimized fees about as far as they can go. Few have done the same with taxes. That gap is where a lot of your wealth is quietly leaking out, and unlike a fund’s expense ratio, nobody sends you a clear, itemized bill for it.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more – straight to your e-mail.
Profit and prosper with the best of expert advice – straight to your e-mail.
Why fees got all the attention
Fees became the focus because they’re easy to see and easy to act on. Pull up two funds, compare the expense ratio, pick the cheaper one. Index funds and ETFs have pushed costs for diversified portfolios down to a few basis points, and that progress is real.
Taxes don’t work that way. The cost is spread across decisions made in different years, different accounts and sometimes different tax codes entirely. There’s no ticker symbol for “the Roth conversion you should have done in 2024.” That makes tax inefficiency much easier to ignore, even though it’s often the bigger number.
Here are eight places where that money tends to disappear, and what you can do about each one.
1. Your asset location may be backward
Asset allocation (how much you hold in stocks versus bonds) gets all the attention. Asset location (which accounts hold those assets) usually gets none.
Say you hold $200,000 in taxable bonds throwing off 5% interest, or $10,000 a year, inside a regular brokerage account taxed at your 24% tax bracket. That’s $2,400 a year in tax you wouldn’t owe if those bonds sat in your IRA instead.
Meanwhile, the tax-efficient index fund sitting in that IRA would have cost you almost nothing in a taxable account.
Swap the two and you keep that $2,400 every year going forward. That’s usually a one-time fix you can make in an afternoon with your statements in front of you.
2. You’re skipping your cheapest years to do Roth conversions
If you retired before claiming Social Security and your required minimum distributions (RMDs) haven’t kicked in, you may be living through the lowest-tax years of your entire retirement, often sitting comfortably in the 12% or 22% bracket.
That window typically closes once RMDs begin, sometimes pushing you into a higher bracket for the rest of your life.
Converting traditional IRA assets to a Roth during these lower-income years, even in modest annual amounts, can lock in today’s tax rate instead of tomorrow’s higher one. Run the numbers with your tax preparer before year-end, since this window doesn’t reopen.
3. Your mutual fund just sent you a tax bill for a year it lost money
If you’ve ever opened a 1099 and found a capital gains distribution on a fund that actually dropped in value that year, you’ve felt this one. It happens because the fund manager sold winning positions inside the fund, and the tax bill gets passed to everyone holding shares, regardless of when they bought in.
Let’s say you have a $150,000 position in an actively managed fund and it distributes a 6% capital gain, which is a fairly ordinary distribution in an up market. That’s $9,000 in gains landing on your return and, at a 15% capital gains rate, a $1,350 tax bill on a fund that may have actually lost value during your holding period.
ETFs are structured to largely avoid this. If you’re holding actively managed mutual funds in a taxable account, check whether the same strategy is available in ETF form, or move that holding into your IRA where the distribution doesn’t matter.
4. You’re pulling money from the wrong account first
Most retirees draw down whichever account feels easiest to tap rather than the one that’s most tax-efficient.
Spend down a $500,000 taxable account too fast in your 60s, for instance, and you may enter your 70s relying heavily on traditional IRA withdrawals just as RMDs force even more income out at the same time, pushing what could have been a 22% bracket year into the 24% bracket.
Leave your Roth untouched until you don’t need it and you waste years of tax-free growth it could have provided.
The right order depends on your brackets, balances and timeline, but it’s worth building a multi-year withdrawal plan rather than deciding year by year.
5. You’re not harvesting losses when the market gives you the chance
Tax-loss harvesting means selling an investment at a loss to offset gains elsewhere in your portfolio, or up to $3,000 of ordinary income each year, then reinvesting in something similar so you stay in the market.
If a market downturn leaves one holding down $8,000, selling that loss to offset $8,000 of gains elsewhere saves you roughly $1,200 to $1,920 in tax, depending on whether it offsets short-term or long-term gains.
It costs nothing but attention, and most taxable investors never bother unless their adviser automates it.
6. Medicare could quietly double your premium
The income-related monthly adjustment amount (IRMAA) adds a surcharge to your Medicare Part B and Part D premiums once income crosses certain thresholds, based on your tax return from two years earlier.
In 2026, that surcharge kicks in above $109,000 for single filers and $218,000 for joint filers, pushing your total Part B premium as high as $689.90 a month, with Part D adding up to $91 more.
Because of the two-year lookback, a large Roth conversion, a property sale or a big capital gains year can trigger a surcharge you won’t see until the notice arrives. What’s more, crossing a threshold by even a dollar triggers the full surcharge for that tier.
If you’re approaching Medicare age or planning a big income event, model the IRMAA impact two years out before you pull the trigger.
7. Your estate plan may be built for rules that no longer apply
If you did your estate planning in the past few years, you likely did it under the assumption that the federal estate tax exemption was about to be cut roughly in half. That didn’t happen.
The One Big Beautiful Bill Act (OBBBA), signed in July 2025, permanently raised the federal exemption to $15 million per individual, or $30 million for married couples using portability.
For most families, that removes federal estate tax as a concern entirely. However, several states, including New York, Massachusetts and Oregon, still tax estates at thresholds far below the federal level, so you can owe a state estate tax with an estate nowhere near large enough to trigger the federal one.
If your plan hasn’t been reviewed since the law changed, it’s worth a checkup, both to avoid over-optimizing for a tax you no longer owe and to catch a state tax you still do.
8. Your retirement move may cost more than you think
If moving to a new state is in your retirement plan, the tax bill deserves the same scrutiny as the cost of the house. In addition to income tax, different states tax Social Security, pensions and retirement assets differently.
As of 2026, just eight states still tax Social Security at all: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah and Vermont. The other 42, plus Washington, D.C., don’t touch it.
Take a retired couple collecting $40,000 a year in Social Security and $30,000 from a 401(k). In a no-tax state such as Florida or Tennessee, none of that income is taxed at the state level.
In Colorado, retirees 65 and older can deduct all their federally taxed Social Security, so that part is sheltered, but the $30,000 in 401(k) withdrawals is still taxed at Colorado’s flat 4.4% rate, about $1,320 a year.
In a state without that deduction, a meaningful share of the Social Security itself could also be taxed, adding hundreds more.
Picking a state based on weather or family without running the numbers first can mean paying more, or less, than expected, often by more than any fee you’ve ever paid on your portfolio.
The bottom line
It’s important to keep an eye on your fees, but that work is mostly done. However, if you haven’t reviewed your asset location, your Roth conversion timeline, your withdrawal order, your loss-harvesting opportunities, your Medicare exposure, your estate plan and your state tax footprint in the past year or two, that’s almost certainly where your next real savings are sitting.
Unlike fees, tax efficiency isn’t a one-time fix. The rules change, your income changes and your balances shift every year, which is exactly why this gets neglected.
Set aside one afternoon a year, ideally with your adviser and tax preparer in the same conversation, to go through this list. It will likely do more for your bottom line than any fund swap you make this year.