Kiplinger's Adviser Intel contributor network published an explanation of how multiple retirement income sources — Social Security, IRA withdrawals, required minimum distributions (RMDs), and investment income — interact to increase taxes for many retirees. The piece describes how the income thresholds that determine how much of Social Security is taxable were set in the 1980s and 1990s and have never been adjusted for inflation. Under current IRS rules, individuals with provisional income (adjusted gross income, plus tax-exempt interest, plus half of their Social Security benefit) above $34,000 — and married couples filing jointly above $44,000 — may have up to 85% of their Social Security benefit subject to federal income tax.
A withdrawal from a traditional IRA, or an RMD — the required minimum distribution the IRS requires account holders to begin taking at age 73 (or age 75 for those born in 1960 or later, under the SECURE 2.0 Act) — counts as ordinary income and adds to the total income figure the IRS uses to calculate taxes. On a $1 million IRA, the article notes, the first annual RMD is roughly $36,000 to $40,000. Because these amounts stack on top of other income, they can push a retiree into a higher federal tax bracket and trigger IRMAA (Income-Related Monthly Adjustment Amount) surcharges, which are extra charges added to Medicare premiums.
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