3 Tax Hurdles Every Retiree Should Know

Taxes are one of the most important things retirees can pay attention to. It is very important to make sure that your tax preparer or accountant is talking with your financial advisor. This article will go in depth on 3 pitfalls that can happen if you do not pay attention to your tax brackets as a retiree.

Income Charts

The tax brackets are the same for retirees and for current workers. As you can see in this chart, there are 7 different tax brackets, and some carry a much higher tax. If you are able to switch to a nontaxable source of funds such as a Roth IRA or bank funds, you can save yourself a large amount of taxes.

By creating a withdrawal strategy with your financial advisor, will ensure you are not missing any tax savings.

Social Security Tax

We will start with the social security tax. Your social security becomes taxable above a certain income amount.  

Provisional income takes your gross income including ½ of your social security, IRA withdrawals, and pension payments, while also adding in tax-free interest.


$8,000 Pension
$650 Ordinary Dividends and Interest
$300 Tax-Free Dividends
$12,000 Social Security (Half of $24,000)
Total Provisional Income = $20,950 – This means that none of your social security is taxable.

This calculation provides very little room for error. IRA withdrawals count towards this calculation. So, if in this year you decided to take $19,000 out of your IRA, making your provisional income $39,950. If you are Married Filing Jointly, having a provisional income will trigger $3975 of your Social Security Benefits to be included in your taxable income. ($39,950 – $32,000 = $7950, then x 50% = $3975.

Medicare IRMAA Tax

Your annual Medicare fee is determined by your MAGI from two years prior. For example, your income in 2023 will determine your Medicare cost in 2025. Your income in 2024 will determine your Medicare cost in 2026 and so on. Here are the income brackets from 2021 that were given:

 *Dependent standard deduction can’t exceed the greater of $1,250or $400 plus earned income.

 The 3.8%net investment income tax{also referred to as the unearned income Medicare contribution tax)applies to the lesser of{a) net investment income or(b)modified adjusted gross income (MAGI)exceeding the above thresholds. It does not apply to municipal bond interest or qualified retirement plan/IRA withdrawals.

 Information contained herein is current as of 1/5/23. It is subject to legislative changes and is not intended to be legal or tax advice. Consult a qualified tax advisor regarding specific circumstances. This material is furnished “as is” without warrant of any kind. Its accuracy and completeness is not guaranteed and all warranties expressed or implied are hereby excluded.