How CPAs can guide better retirement choices

Conventional retirement guidance is to delay distributions from retirement accounts and liquidate other investments until minimum distributions are required.

“However, that doesn’t always work to the retiree’s advantage,” said Lisa Featherngill, CPA/PFS, CFP, who just retired after more than 40 years working in accounting and personal financial planning.

Choices based on conventional guidance could prove costly for the client. Not only could they miss a client’s goals, but they could trigger moving the client up into a new tax bracket and paying higher Medicare premiums through an income-related monthly adjustment amount (IRMAA).

To avoid costly retirement mistakes, Featherngill and Melissa Linn, CPA/PFS, CFP, recommend a customized, client-centered approach to retirement planning that considers income taxes, cash flow, any IRMAA, and retirement goals. They also recommend considering whether a client is emotionally ready to retire, because retirement planning works only when the goals feel as real as the spreadsheets behind them.

“We can give the best advice, and if [a client] can’t emotionally live with that advice, it does not work,” said Linn, a wealth strategist in Raleigh, N.C.

Featherngill and Linn will present from 1:05 p.m. to 2:20 p.m. ET on June 10 at AICPA ENGAGE 2026 in Las Vegas and live online. In their session, “Smart Retirement Decisions: Timing, Taxes, and Benefit Optimization,” they will discuss ways to help clients protect against longevity risk and minimize the risk of overpaying income taxes.

“Depending on the net worth of the client you’re talking about, and depending on the types of assets they have, [their calculations and premiums] are very different,” Linn said. “It’s like an algebraic equation to figure out what’s most efficient for that specific individual. You can’t create a blanket statement.”

Retirement planning begins with what matters most

Retirement conversations and preparations need to happen well before retirement age, and a client’s financially driven and lifestyle goals are at the heart of them.

A client’s financially driven goals could include avoiding outliving their savings or managing debts. Some clients may opt to organize assets to leave an inheritance for a beneficiary or donate their remaining savings to a charitable cause. Lifestyle goals could be moving to a lower-cost area or ensuring there are enough funds to support hobbies, travel, and other activities.

“Start with the most important part: What are your [client’s] goals and objectives?” Linn said. For those goals and objectives to take priority regardless of the tax implications, clients need to prepare, she added.

Leading up to retirement, Linn said, it’s best for clients to save into different buckets from which they then can pull during retirement. When to pull from which bucket is determined by a client’s retirement goals.

“Are [clients] maximizing the vehicles to give them flexibility of choices once they get to this point?” she said. Once a client retires, “they have a finite set of [buckets] to choose from.”

With your client’s goals in mind, consider four factors when determining how to draw from retirement savings — tax brackets, distribution sequencing, an IRMAA added to Medicare Parts B and D, and the type of retirement plan your client has. Each of these factors influences taxable income differently, which means that changing one assumption often affects all the others. The customized, client-centric approach to retirement that Linn and Featherngill advocate acknowledges how these factors are intertwined and minimizes the impact of income taxes.

Distribution sequencing is not intuitive, Featherngill said, and cash flow projections must be continually run based on various goals and scenarios.

“As an example, we ran cash flow projections for a hypothetical couple with $1.3 million in brokerage accounts, $3 million in taxable IRAs, and $200,000 in a Roth IRA,” Featherngill said. “If annual expenses are $200,000, the best sequence, based on assets at age 90, is to withdraw funds first from brokerage accounts, then taxable accounts, and finally from Roth accounts. However, if their expenses run $250,000 per year, the best sequence is to withdraw from the Roth accounts, then brokerage accounts, and finally from the taxable IRAs.”

That sequence of withdrawals changes if the couple want to instead maximize an inheritance to family members. “If their expenses are $250,000 per year, they’d maximize the amount to heirs by increasing income in the low-tax-bracket years with distributions from the taxable IRAs rather than through Roth conversions,” Featherngill said.

She emphasized that the example illustrates how sensitive sequencing decisions can be to spending assumptions and goals, rather than prescribing a universal strategy.

And not all cash flow projection programs include IRMAA calculations. If your software doesn’t, you will need to run side calculations.

Beware the complications of IRMAA

“[Clients] don’t understand IRMAA until they get there. It’s never a thought,” Linn said.

IRMAA is a stealthy retirement tax because of how it raises the cost of Medicare Part B and Part D premiums for higher-income adults — making it a critical part of retirement planning. Featherngill sees those surcharges as the “bane of her existence.”

Medicare premiums and liability for an IRMAA are determined by a client’s modified annual gross income (MAGI) in the year two years prior to the premium year (i.e., 2024 for 2026 IRMAA). Common triggers include one-time investment gains, Roth conversions, municipal bond interest, required minimum distributions, or even home sales profits. Many clients underestimate IRMAA exposure because income sources they view as tax-efficient still factor into the MAGI calculation.

Unlike income tax tiers, IRMAA surcharges apply in tiers, meaning even relatively small income increases can result in higher premiums for the entire year.

“So now that you’re in retirement, and you don’t have an income, you’re being penalized for the last two years,” Featherngill said. “I think the thinking was, the more a person makes, the more they should contribute to the cost of Medicare. Don’t get me started; I’ve been paying [payroll taxes for] Medicare my entire career. Why should I pay more now?”

The most powerful strategy to blunt any IRMAA complications is to maximize a client’s tax-free income sources, Linn and Featherngill agreed. This likely means optimizing Roth withdrawals. Qualified withdrawals from a Roth account are tax free and don’t add to MAGI.

Medicare premiums are not directly tied to a tax bracket, but showing their relationship to each other can help advisers see how everything is intertwined. “Sometimes it’s easier for [clients] to think about, ‘If I can keep myself out of this tax bracket, I can keep IRMAA down,’” Linn said.

“There are some tax-efficient investments that maybe don’t appear to increase your income but are in the calculation of what we abbreviated as MAGI. This calculation is not as clear as one might think, and it’s not as simple as your [annual gross income] on your tax return,” she said.

For Featherngill, running multiple scenarios is the best way to manage an IRMAA and taxes. “For example, we typically start with delaying Social Security benefits and determining that impact,” she said. “If the impact is positive, we will add timing of distributions from retirement plans or add Roth conversions to determine the long-term impact of accelerating income into years with low taxable income.”

Rethinking the ‘maximize pretax’ mindset

While maximizing pretax contributions to retirement plans is one of the savings strategies CPA financial planners most often suggest, it’s also important to recognize that increasing contributions isn’t practical or appropriate for every client. CPAs should consider their client’s combination of pretax and after-tax accounts.

“Traditional wisdom says maximize your pretax contributions,” Featherngill said. “But maybe it’s not pretax. Maybe it’s [maximizing] your retirement contributions, and you do it after tax in a Roth versus pretax in a traditional 401(k).”

Drawing from her own experiences, Featherngill describes her accounts as “lopsided.” During her working years, she focused on maximizing her pretax contributions and now has a portfolio that’s two-thirds in IRAs that are pretax, and the rest of the savings are in nonretirement accounts. “It becomes really sticky in terms of where do I draw down? If I draw down from the IRAs, I’m going to pay additional income tax on that income and possibly more in IRMAA.”

While much of the conversation centers on pretax and after-tax retirement accounts, one vehicle is frequently overlooked — health savings accounts (HSAs), which can serve as a powerful tool for managing retirement healthcare costs.

For clients who can afford to minimally pull from them before retirement, an HSA becomes a retirement medical care fund. What makes HSAs unique is that they offer deductible contributions, tax-deferred growth, and tax-free withdrawals when used for qualified medical expenses.

“An HSA growing over somebody’s working lifetime could be tremendous,” Linn said. “It comes out tax free towards medical expenses.”

Traditional Medicare generally excludes long-term custodial care, dental care, eye exams, hearing exams and hearing aids, and some prescription drugs. A Medicare Advantage plan, a Medicare Supplemental plan, or an HSA can help fill those gaps.

“As long as a client is working and they’re in a high-deductible plan, they can contribute to an HSA,” Featherngill said. But a client must stop contributing to an HSA once they enroll in Medicare.

Guiding clients through longevity and uncertainty

Underlying all these decisions between you and your clients is longevity risk. No one wants to outlive their savings, which is why timing withdrawals carefully; preserving HSAs for healthcare costs; and using conservative projections around lifespan, healthcare inflation, and late-in-life care costs are important inclusions for sustainable retirement strategies.

Many clients are still basing retirement plans on outdated life-expectancy assumptions, increasing the risk that their savings won’t stretch as far as they need to. CPAs can help their clients understand the importance of planning well beyond the life expectancy they may think is in their future.

There are many health and lifestyle factors for your clients to consider when planning for retirement. Have clients evaluate personal health, family history, and longevity. Where your client plans to retire matters, too, because medical and cost-of-living expenses vary significantly across the country.

Retirement communities are appealing options for some, but their steadily increasing costs can’t be ignored. The median percentage increase of monthly resident fees was 5% in the three care levels — independent living, assisted living, and skilled nursing — in 2024, according to a report by McKnight’s Senior Living.

“I’m watching older people move out because they thought they could afford it, and as the increases have gone up, they can’t,” Linn said. She advises clients to really think about the structure they’re retiring into and if their finances can sustain it. It’s important to be realistic about how healthcare, continuing care, and long-term-care issues can drastically drain a portfolio toward the end of life, she added.

And if your clients plan to retire before the age of 65, this creates a health insurance gap that requires additional planning. This gap often requires bridge assets to avoid forcing early distributions from retirement accounts.

“None of us know what the future is, and as for Social Security, there’s a lot of questions about it. We know it’s underfunded. Do we really think it’s going away?” Linn said. “Probably not. But is it different? Maybe.” Linn is planning her retirement without the Social Security safety net. “That will be like the gravy on top of my mashed potatoes one day.”

Retirement is as much psychological as it is financial

Retirement is a vulnerable stage for some clients. After years of working and having their identities linked to their careers, they could be processing some complicated emotions. This, Featherngill said, opens the doors for CPAs to lead with empathy — especially as we head deeper into the AI era.

“With AI taking on so much of the projections and routine type [of work], I think CPAs have an opportunity here to focus on more of the emotional-intelligence type of issues,” she said.

Retirement can be a mind game for some — watching accounts deplete, with little coming in, and worrying if there will be enough money to last. In retirement planning, clarity and confidence are as valuable as technical precision, and CPAs are uniquely positioned to deliver both.

Your job as a personal financial planning CPA is “to bring them back to the [cash flow] projections and help them get comfortable that they’ve got enough,” Featherngill said.

— Jamie J. Roessner is a senior content writer at the AICPA and CIMA. To comment on this article or to suggest an idea for another article, contact Jeff Drew at Jeff.Drew@aicpa-cima.com.

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