Complexity Creep and the Cost of Getting It Wrong

Financial planning has always involved trade-offs. But in the past, the decisions were simpler – or at least the ripple effects were easier to predict. Now, with more moving parts and more interaction between them, it’s easy for even well-intentioned choices to backfire.

Here are a few examples of how complexity creeps in and creates problems:

1. The Roth Conversion That Erases a Tax Credit
Roth conversions can make sense for long-term tax planning, but they also increase your income for that year. That higher income can quietly push you past the threshold for certain credits – like the retirement savings contribution credit, the child tax credit, or state-specific benefits. You may not realize the loss until you file your return – and there’s no way to undo the extra income once the conversion is complete.

2. The One-Time Income Spike That Raises Medicare Premiums
Selling stock, cashing out part of a business, or even taking a large distribution from an IRA can bump your modified adjusted gross income high enough to trigger an IRMAA surcharge – the income-related adjustment that increases Medicare premiums. The extra cost doesn’t show up immediately; it hits two years later, long after the triggering event is over.

3. The Asset Sale That Pushes You Into a Higher Tax Bracket
Selling a property, even at a gain you’re happy with, can have cascading effects. Any taxable capital gain increases your adjusted gross income (AGI), which can in turn cause more of your Social Security to be taxable, phase you out of deductions or credits, or increase your state tax bill in ways you didn’t expect. Even if the gain qualifies for a partial exclusion – like the home sale exclusion – the portion that’s taxable still counts toward AGI and can trigger these side effects.

4. The Missed Retirement Account Rule
Inheriting an IRA isn’t as simple as “just take the money when you need it.” For most non-spouse heirs, the 10-year rule now applies – meaning the account has to be emptied within a decade. Waiting until the last year can create a huge tax spike, but spreading withdrawals requires knowing the rule exists in the first place.

The common thread here isn’t bad advice or negligence – it’s that every part of your financial life now talks to other parts, often in ways that aren’t obvious until the damage is done.

The fix isn’t to memorize every rule or become your own tax code expert. It’s to build the habit of looking beyond the immediate goal of any decision. If you’re converting to a Roth, selling an asset, or taking an unusually large distribution, ask:

• How will this affect my taxes now and later?
• Will this change my eligibility for credits, deductions, or benefits?
• Could this alter what I pay for healthcare?

Where to Start Before Making a Big Move

If you’re about to make a decision that could shift your income – like a Roth conversion, selling a property, or taking a large distribution – make sure you’ve checked the ripple effects before you act. Where to turn depends on your situation:

No financial advisor or CPA:

• Check IRS.gov for official rules (search by topic, e.g., “Roth IRA conversion rules”).
• If you use tax software like TurboTax or H&R Block online, look for their live help or CPA/QEA add-on options – they often cost extra but can be worth it for a one-time decision.
• Consider a one-off hourly consultation with a fee-only financial planner (search via CFP Board’s “Find a CFP® Professional” tool) to review your plan before acting.

CPA but no financial advisor:

• Ask your CPA specifically about tax thresholds, credits, and deductions that could be affected this year and next.
• Confirm whether the change could alter state taxes, not just federal.

Financial advisor but no CPA:

• Ask your advisor to model the short- and long-term effects, and whether they’ll coordinate with a tax professional.
• Push for specifics -“Will this change my Medicare premiums?” is a different question than “Is this a good idea?”

Both CPA and financial advisor:

• Make sure they’re both in the loop on the same numbers and timeline.
• Ask for a joint discussion or written summary so you know the advice aligns.

Even if you only use one of these channels once a year, that single check can save you from losing a benefit, triggering a surcharge, or facing a tax bill you didn’t expect.