The median retirement savings balance among Americans aged 65 to 74 is $200,000, according to the Federal Reserve. So if you’ve got a multimillion-dollar IRA balance, you’re clearly ahead of the game. And you may be in line for a very comfortable retirement — one that’s much deserved.

But while having a huge IRA balance is a good thing in theory, it can lead to other problems. Here’s what you need to know.

You don’t want taxes to upend your retirement

You may earn an average wage during your working years, but wind up with a gigantic IRA. Let’s say you’re able to save $500 a month for retirement over 40 years, and your IRA’s investments deliver an average annual 10% return, which is in line with the stock market’s average.

In that case, you’re looking at a balance of about $2.65 million. That might make it so you have a higher annual income in retirement than you did when you actually worked.

Having a higher income should be a good thing. But the one downside is that the more money you make, the more taxes the IRS imposes. And since traditional IRA withdrawals are subject to taxes, you could end up having to shell out more money to the IRS than you imagined.

Not only that, but traditional IRAs force you to take required minimum distributions (RMDs) at some point during retirement (if you were born in 1960 or later, that age is 75). This means that even if you can live on $30,000 a year in retirement, you might have to increase your annual income to $60,000 to fulfill your RMD obligation.

You should also know that having a higher income in retirement — whether by choice or not — can impact other expenses and aspects of your finances.

For example, with Medicare, surcharges are imposed on higher earners. If an RMD from a large IRA pushes you into an income bracket where those surcharges apply, you could get stuck with much more expensive premiums. Also, your Social Security benefits are more likely to be taxed if you have a large amount of outside income (it’s possible to avoid taxes on those benefits if your outside income is low enough).

Protect yourself from a huge tax hit with a Roth IRA

Many people choose a traditional IRA over a Roth IRA because with the former, you get a tax break on your contributions. But Roth IRAs offer one key benefit — tax-free withdrawals during retirement. And that’s huge in a number of ways.

The first one is obvious. If you withdraw $50,000 a year from a traditional IRA in retirement, the IRS gets a piece of it. If you withdraw $50,000 a year from a Roth IRA, that entire $50,000 is yours. At a time when you’re living off of savings, it’s nice to not have to worry about taxes — even if you have a lot of money.

Roth IRAs also don’t force you to take RMDs. So if you don’t need so much money in a given year, or most years, you can leave it in your account.

Furthermore, Roth IRA withdrawals don’t count as income in the context of determining whether your Social Security benefits are taxable, or whether you’re subject to Medicare surcharges. So those tax-free withdrawals can save you money in other ways.

For this reason, if you’ve saved a lot of money in a traditional IRA, you may want to convert some of that balance to a Roth IRA ahead of retirement. Doing so will increase your tax burden the year you make that conversion. So it’s a good idea to work with an accountant or financial advisor to prepare for that. But in making that move, you can set yourself up for a lot less financial stress during your senior years.

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