Everyone assumes going from $2 million to $5 million upgrades everything about retirement. More trips, more cushion for life's pivots, more peace of mind. It's the assumption underneath every decision to delay retirement by just "one more year." But you might not realize what that extra year is costing you — and most of the cost shows up in your taxes in retirement.

In this article, I'm going to put two hypothetical couples side by side — same age, same tax code, very different portfolios — and show you the five things that actually change between $2 million and $5 million. Most of them change for the worse.

I'm not saying don't save, and I'm not saying don't invest. I'm saying that in many cases the 2026 tax code treats a $5 million retirement differently than a $2 million one.

If you've suspected that the next milestone wouldn't feel the way the last one did, you're not imagining it. There's math underpinning that feeling.

I'm Daniel Masuda Lehrman, a CERTIFIED FINANCIAL PLANNER™ professional and founder of a fee-only planning firm here in Honolulu, and this comparison comes out of the kind of planning work I do every week. By the end, you'll know which five things flip, in which direction, and the one thing that does get better. Pay special attention to number four: one dollar over a line that returned in 2026 can cost a couple under 65 around $14,000 in a single year, depending on their age and where they live.

Two Couples, One Tax Code: Taxes in Retirement at $2 Million vs. $5 Million

Meet Jim and Pam, a hypothetical couple, both 65, with $2 million: $1 million in a traditional IRA, $800,000 in a taxable brokerage account, and $200,000 in a Roth. Social Security: just over $60,000 a year combined, claimed at full retirement age.

Now meet Michael and Jan, also hypothetical, also 65, with $5 million. But look at how it sits: $4 million in traditional IRAs and 401(k)s, $750,000 in brokerage, and $250,000 in Roth. That's 80% pre-tax — a common shape at this size, because pre-tax contributions are how a lot of big portfolios get built. Their Social Security? The same $60,000. Remember that.

For perspective, the Federal Reserve's 2022 Survey of Consumer Finances puts the median retirement account balance for households aged 65 to 74 at around $200,000. Jim and Pam have ten times that. Michael and Jan have twenty-five times that. Both couples are in the top few percent of American retirees.

Here's what most people miss: the tax code does not treat them the same. Not because either couple did anything wrong, but because of where the money sits.

Flip #1: The Retirement Income Doesn't Scale

You didn't save $5 million. You saved $5 million minus whatever the IRS decides its share is. Both couples draw 4% of their portfolio plus Social Security. Here are their 2026 tax returns.

Jim and Pam: About 3% of Cash Flow Goes to Federal Tax

4% of $2 million is $80,000 — half from the IRA, half from brokerage sales. And here's the part that surprises people about brokerage sales: only the growth is taxed. That $40,000 sale might be $20,000 of long-term gains; the rest is their own money coming back.

Their adjusted gross income lands near $105,000. Then the deductions:

• $32,200 standard deduction (married filing jointly, 2026)
• $3,300 in age-65 add-ons ($1,650 each)
• The new senior deduction of $6,000 each, kept in full at their income

That's over $47,000 off the top. Taxable income: about $57,600, which sits under the $98,900 line — so their capital gains are taxed at exactly 0%.

Total federal tax: about $4,000 on $140,000 of cash flow ($80,000 from the portfolio plus $60,000 of Social Security). Under 3%. Call it about $11,300 a month to spend.

Michael and Jan: Seven Times the Tax Bill

4% of $5 million is $200,000. But 80% pre-tax means $160,000 of it comes out of the IRA, and every one of those dollars is ordinary income. Their Social Security is taxed at the maximum 85%.

AGI: about $226,000. The $12,000 senior deduction, which starts phasing out at $150,000, is down to $2,880. Taxable income: roughly $187,600, deep in the 22% bracket. And because the 0% band is buried under IRA income, their capital gains get taxed at 15%.

Total federal tax: about $29,700. Roughly seven times Jim and Pam's bill. About $19,200 a month to spend.

Let that sink in. Two and a half times the money. One point seven times the spendable income.

Where did the rest go? To four lines Congress drew across the tax code. Lines are where retirement gets expensive, so let's name them.

Flip #2: Your Tax Rate in Retirement Climbs, Line by Line

Line One: $98,900 — The 0% Capital Gains Ceiling

$98,900 is the top of the 0% long-term capital gains bracket for a married couple in 2026. Ordinary income fills that bucket first; gains stack on top. Jim and Pam's small IRA draw leaves room, so they can harvest gains at 0% every year. Michael and Jan's ordinary income buries the line before they sell a share. Same investments, 0% versus 15%.

Line Two: $150,000 — Where the Senior Deduction Starts Disappearing

Both spouses' $6,000 deductions phase out against the same joint income: every dollar over $150,000 removes 12 cents of deduction for a couple, and by $250,000 it's gone. In that zone, Michael and Jan's real marginal rate isn't 22%. It's closer to 24.6%. Congress built a tax increase into the middle of a tax cut, and few people noticed.

Line Three: $218,000 — IRMAA

$218,000 is the 2026 joint threshold for IRMAA, Medicare's income-related surcharge. Cross it by a dollar and a couple pays about $2,300 a year more for Parts B and D. Michael and Jan, at $226,000, are over it. And Medicare looks at your tax return from two years back — the income you report at 63 sets the premiums you pay at 65.

Jim and Pam live below all three lines. Michael and Jan are over all three. And I said four lines — the fourth is a cliff, and it gets its own section as Flip #4.

Flip #3: Social Security Helps Less — and Gets Taxed More

Social Security is a floor, not a ladder. It doesn't scale with savings. For Jim and Pam, $60,000 covers about 44% of everything they spend. For Michael and Jan, about 26%.

And they don't even keep the same amount of it. The thresholds that decide how much of your benefit gets taxed — $32,000 and $44,000 of provisional income for a married couple — were set in 1983 and 1993 and have never been adjusted for inflation.

• Jim and Pam: about 75% of their benefit is taxed, mostly at 12%. They keep about $55,000.
• Michael and Jan: they max out the formula — 85% taxed, at 22%. They keep under $49,000.

Same check, roughly $6,000 of difference, all decided by the IRA sitting behind it.

The more you save pre-tax, the less of your Social Security you get to feel. And that $60,000 can't be turned off — it sits at the bottom of every return, pushing everything else toward the lines. Hold that thought for Flip #5.

Flip #4: The Options Shrink — The 2026 ACA Subsidy Cliff

Our couples are 65, on Medicare, and safe from this one. But rewind them to 62, asking the question every $5 million couple eventually asks: why are we still working?

Retire before 65 and you're buying health insurance on the ACA marketplace — around $22,000 a year at full price for a couple that age. For five years, enhanced subsidies softened that. They expired December 31, 2025, and with them the fourth line came back: the subsidy cliff at 400% of the federal poverty level, about $84,600 for a two-person household for 2026 coverage. Under the line, help can be worth roughly $14,000 a year, depending on age and location. One dollar over, it doesn't shrink. It vanishes.

So the bridge years become a game with one rule: control your reportable income. (I walk through this in more detail in Health Insurance From 62 to 65: Why Your Withdrawal Strategy Decides What You Pay.)

Jim and Pam at 62 win in their sleep, because spending $80,000 isn't reporting $80,000. Brokerage sales report only the gains. Roth withdrawals report zero. Full lifestyle, roughly $45,000 on paper, full subsidy every year.

Michael and Jan can't play. Pre-tax accounts have no dial: every dollar out is reported, and their lifestyle reports $170,000-plus. Double the cliff.

At $2 million in the right accounts, you choose your income. At $5 million in the wrong ones, your accounts choose it for you.

And before you say "just convert to Roth" — a Roth conversion is reportable income too. Convert during the bridge years and you blow the cliff. Wait until 65 and you're dodging IRMAA and the senior-deduction phaseout instead. Every exit runs through one of the four lines, which is exactly why the framework at the end of this article is built around them.

That's the real cost of Flip #4. Not money — choices. And at 75, the last choice gets taken away.

Flip #5: At 75, RMDs Take Control

Required minimum distributions are the year the IRS stops asking what you'd like to withdraw and starts telling you what you must. Every dollar in a traditional IRA is a loan from the IRS, and an RMD is the IRS calling in the loan you forgot you took.

The formula is your balance divided by an IRS table number — 24.6 at age 75. Your balance. Not your needs.

Michael and Jan's Forced Income

Run it forward at an assumed 6% return. Even with withdrawals, Michael and Jan's $4 million pre-tax pile reaches about $4.7 million by 75. Forced out in year one: roughly $190,000 ($4.7 million ÷ 24.6). Stack the $60,000 of Social Security they can't refuse and they're near $250,000 before making a single voluntary decision — structurally over the IRMAA line, for life. And it worsens every birthday: about 4% forced out at 75, over 8% by 90.

Jim and Pam's Forced Income

On the same table, Jim's IRA grows to about $1.2 million, and his first RMD is around $48,000 — almost exactly what he already takes. Nothing about his life changes. (If you're closer to Jim's numbers, my article on RMD taxes on $1.5 million goes deeper.)

The couple with more money has less say over their own income.

The Widow's Penalty

Here's the version of this that shows up in real planning conversations. Picture Jan on her own at 78. She inherits Michael's IRA, and the RMDs don't shrink. But her tax world gets cut in half, because she's a single filer now. The IRMAA line drops to $109,000, her forced income is roughly double it, and money taxed at 22% becomes 24% and worse.

Same income, one empty chair, a five-figure jump in what she sends to Washington. The industry calls it the widow's penalty. I call it the reason account structure is a family decision. You plan this for the one who's left.

The One Thing That Improves With $5 Million

One thing does flip in favor of $5 million, and it's worth being honest about: the withdrawal rate. Safety isn't what you take out. It's what you don't have to.

Living Jim and Pam's exact life would cost Michael and Jan under 2% of their portfolio. A 2008-style crash that cuts a balanced portfolio 25%? Jim and Pam's $80,000 draw becomes 5.3% of what's left — that's a "do we cancel the trip" conversation. Michael and Jan barely notice.

Long-term care tells the same story. CareScout's cost-of-care data puts the median nursing home at roughly $115,000 to $130,000 a year, so a multi-year care event can be a $300,000 bill. That's 15% of everything Jim and Pam have. For Michael and Jan, 6%.

So here's the honest summary. The first $2 million buys the retirement. The next $3 million buys the sleep, because the flips ate the lifestyle upgrade. What it really buys is insurance.

Which raises the real question for anyone who's 58 with $2 million and grinding toward five: is more years of your life the cheapest way to buy that insurance? For many people, there's a way to get much of the safety without working another day. You fix where the money sits.

A Roth Conversion Framework: Line, Band, Convert, Repeat

Three steps, then one worked year.

Step 1: Find Your Binding Line

Measure your income's distance to each of the four lines — $98,900, $150,000, $218,000, and, if you're under 65, about $84,600. The lowest line you haven't crossed is your ceiling for every income decision this year.

Step 2: Test Your Pre-Tax Percentage

Add up everything in traditional IRAs and 401(k)s and divide by your total portfolio. Under 50%, you have options. Seventy percent or higher is the danger zone — whether your total is $800,000 or $8 million. The flips weren't caused by the $5 million. They were caused by the 80%.

Step 3: Band Your Roth Conversions to the Line, Not the Bracket

Each year before 75, convert a slice of IRA to Roth. You pay tax now, at a rate you chose, and under current law that money won't show up as taxable income again once the Roth rules are met — no RMDs during your lifetime, and less exposure to the widow's penalty.

The industry says "fill your bracket." I think that's the wrong target, because brackets don't have cliffs. Lines do. Fill to your binding line, stop short, and repeat in January. (For who this does and doesn't fit, see Roth Conversion in Retirement: 3 Retirees Who Should Convert.)

Watch It Work: Michael and Jan's Conversion Year

Michael and Jan, already at $226,000, are past three lines, so their binding line is the next IRMAA tier at $274,000. That's $48,000 of room; they convert $47,000.

The true cost:

• The conversion taxed at 22% and 24%
• The last $2,880 of senior deduction disappearing past $250,000
• The 3.8% net investment income tax, which applies to investment income once modified AGI crosses $250,000

All in, about $11,800 on $47,000 — a true rate of roughly 25%.

Why volunteer for that? The empty chair. Widowed Jan would pay north of 30 cents on the same dollar — forced, alone, on single-filer math. Ten years of this would move roughly $470,000 from pre-tax to Roth and shrink every RMD to come.

It won't erase a $4 million problem — at that size you may convert bigger and accept an IRMAA tier on purpose — but the machine is the same at every size: line, band, convert, repeat. One rule of thumb: pay the conversion tax from the taxable account, not from the IRA itself.

The Honest Qualifier

Conversions aren't free and they aren't for everyone. You're paying tax today on a bet about tomorrow's rates, and tax law can change. If your income sits under $150,000 and your savings are mostly Roth and taxable, this problem probably isn't yours — don't manufacture one. If you're still working in a high bracket, wait for the gap years, often the lowest-income years of your adult life. Converting before that window opens is paying full price the week before the sale.

"So I Shouldn't Have Saved So Much?"

No. Nobody in this article has a savings problem. It's a location problem. And if you're still working, the fix can start with your next paycheck: consider pointing new dollars at a Roth 401(k) and a taxable account, not more pre-tax.

"But everyone says I'll be in a lower bracket in retirement." I want to be fair to that advice, because for most households it's true. At 80% pre-tax, it may not be. Michael and Jan's forced income at 75 lands in the same brackets they worked in — with fewer deductions, surcharges on top, and eventually one spouse paying it on single-filer math. The bigger the IRA, the more that rule of thumb becomes a trap wearing a rule of thumb's clothing.

The Scoreboard

• Flip #1: The income doesn't scale — two and a half times the money, one point seven times the spending.
• Flip #2: The tax rate climbs, line by line.
• Flip #3: Social Security helps less.
• Flip #4: The options shrink at the ACA cliff.
• Flip #5: Control expires at 75 — and it keeps writing your spouse's tax return after you're gone.
• One improvement: the withdrawal rate. Safety, not lifestyle.

Three Questions for Your Own Plan

• What's your binding line — your distance to the nearest of the four?
• What percent of your portfolio is pre-tax — is it above 70%?
• At your RMD age, what's your forced income (RMD plus Social Security), and which lines does it cross?

If you can't answer those, your plan may not be built for the wealth you've accumulated. It may be built for the median household — a group you left a long time ago.

Closing Thought: The Finish Line You Didn't Notice

Here's the permission hiding in all of this. If you're grinding toward $5 million for safety you could create by repositioning the money you already have, you may have crossed the financial finish line without noticing. You may not be one more year away. You may be closer to done than anyone told you.

If you're within ten years of retirement or already there, this is the work I do with families: we find your four lines, map your gap years, and build a tax-aware withdrawal and Roth conversion plan together. Schedule a free consultation — I work with clients in Honolulu and virtually across the country. Not ready to talk yet? Start with the free Retirement Readiness Assessment.

— Daniel Masuda Lehrman, CFP®, Founder of Masuda Lehrman Wealth. Mahalo for reading.

Jim, Pam, Michael and Jan are hypothetical. This hypothetical example is for illustration only, uses simplified assumptions (including 2026 federal tax law, 4% withdrawals and an assumed 6% annual return), and does not represent an actual client or guarantee any outcome. This article is for educational purposes only and is not personalized financial, tax, or legal advice.