Tax Planning · 6 min read
Do Taxes Really Get Simpler in Retirement?
Many households expect an easier tax picture once the paycheck stops. For those who saved well in pre-tax accounts, the opposite is often true, and the reasons are structural rather than unlucky: up to 85% of a Social Security benefit can be taxable, required withdrawals begin at 73 whether the money is needed or not, and Medicare premiums are set using income from two years earlier. The years just before retirement are the ones with room to act.
The expectation is reasonable on its face. Earned income stops, commuting and saving stop with it, and the household spends less. For many families that does produce a lower tax bill. The households where it does not are the ones that saved diligently into pre-tax retirement accounts. Those balances were never taxed on the way in. They are taxed on the way out, and beginning in a person’s early seventies a portion of them must come out whether the money is needed or not. Three separate rules then interact, and each has its own threshold.
Social Security is not automatically tax-free
Up to 85% of a Social Security benefit can be included in taxable income. Whether any of it is depends on a figure the tax code calls combined income: adjusted gross income, plus tax-exempt interest, plus half of the year’s benefits. (IRS Publication 915)
For a married couple filing jointly, benefits begin to be taxed once combined income passes $32,000, and up to 85% can be included above $44,000. For a single filer the thresholds are $25,000 and $34,000. The practical consequence is that a withdrawal taken to cover a roof repair can raise the tax owed on a benefit that has nothing to do with the roof.
These thresholds carry an unusual feature. They were written into law in 1983 and expanded in 1993, and they have never been adjusted for inflation. Every year that incomes and benefits rise, a slightly larger share of retirees crosses them. What was designed as a rule affecting higher-income households has gradually become a rule affecting ordinary ones.
$32,000 and $44,000 for a couple filing jointly — the two combined-income lines where Social Security benefits become 50% and then 85% taxable. Unchanged since 1993.
Required withdrawals arrive on a schedule
Required minimum distributions begin at age 73 under the SECURE 2.0 Act, rising to 75 for those who reach 73 after 2032. The amount is set by the account balance and an IRS life expectancy factor, not by what the household happens to need that year. (IRS RMD FAQs)
For a family that has been living comfortably on Social Security and taxable savings, the first required distribution can be the largest single addition to taxable income they have seen since their working years. It also arrives permanently, and it grows as a percentage of the balance with age.
Medicare premiums look backward two years
Medicare Part B and Part D premiums are adjusted upward for higher-income households through a surcharge known as IRMAA. The surcharge is set using the tax return from two years earlier, and it operates on cliffs rather than a gradual slope: crossing a threshold by a small amount raises the premium by the full step. (SSA, Medicare premiums)
Because of the two-year lookback, a one-time event — selling a property, exercising options, a large conversion — shows up in premiums long after the money has been spent or reinvested. Households are frequently surprised by a bill that traces to a decision they have stopped thinking about.
The years that give you room
None of this argues for alarm, and none of it is a reason to save less in pre-tax accounts. It argues for doing the arithmetic earlier than most households do.
The window between the last paycheck and the first required distribution is, for many families, the most flexible tax period of their lives. Earned income has stopped or slowed. Required withdrawals have not started. Social Security may not have been claimed. In those years a household often has genuine room in the lower brackets, and that room does not carry forward: an unused year is simply gone.
What fills that room is a planning decision rather than a default. Partial Roth conversions, realizing gains while the rate is low, or drawing from pre-tax accounts earlier than instinct suggests are all reasonable candidates. Which combination makes sense depends on the rest of the plan, including what a surviving spouse would face later at single filing rates.
How this may apply to your plan
If a large share of your savings sits in pre-tax accounts, and you are within roughly a decade of retiring, the tax question is worth modeling rather than assuming. We treat this as a multi-year sequencing problem rather than a single year’s return, because most of the available options narrow once required distributions begin.
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The views and opinions expressed here are those of The Financial Sciences Company as of the publish date and are provided for informational and educational purposes only. They are not personalized investment, tax, or legal advice. The Financial Sciences Company, LLC is a registered investment adviser. Registration does not imply a certain level of skill or training. Additional information is available in our Form ADV at adviserinfo.sec.gov.
General educational information, current as of 2026. Figures and rules change. For guidance specific to your situation, speak with a qualified professional.