3 Retirement Tax Traps to Avoid: RMDs, Social Security & Medicare IRMAA (Episode 33)
Tax season is a good reminder of something I see all the time in real-life retirement planning: taxes don’t automatically get simpler when you retire. In Episode 33 of Retire and Thrive, Kamie Blair and I walk through three retirement tax traps that can quietly increase what you owe—often when you least expect it.
What we cover in this episode
In this conversation, Kamie and I break down:
- How Required Minimum Distributions (RMDs) starting at age 73 can push you into a higher tax bracket
- Why Social Security can become taxable at the federal level (and how state rules can add another layer)
- How Medicare IRMAA surcharges can show up later because of the two-year income lookback
- The bigger picture: why the distribution phase of retirement can be more complex than most people expect
Tax Trap #1: RMDs at 73 can push you into the next tax bracket
If I had to name one “most common” retirement tax trap, this is it.
Once you turn 73, the IRS requires you to start taking Required Minimum Distributions from certain retirement accounts. And here’s the part that catches people: it’s not optional and you can’t just decide to “skip it” because you don’t need the income that year.
Retirement income is a calendar-year game
One point I always stress: when we’re talking about income and taxes in retirement, it’s almost always based on the calendar year—January 1 through December 31.
Some people remember the working-years rule where IRA contributions could sometimes be made up to the tax filing deadline for the prior year. That flexibility doesn’t apply here. RMDs need to happen in the year they’re required.
Why RMDs create a bracket problem
Most retirees don’t have only one income stream. In addition to RMDs, you may have:
- Social Security
- A pension
- Rental income
- Other “surprise” income sources (like distributions from a family farm, business income, etc.)
So what happens is this:
You might be living comfortably in the 12% federal bracket—and then at 73, you’re forced to take an RMD. It’s not unusual for that RMD to be something like $30,000, and now a big chunk of it can get taxed at 22% because it pushes you into the next bracket.
A quick bracket refresher (federal)
We talk in the episode about how the first big jump is:
- 12% → 22%
Then:
- 22% → 24% (smaller jump)
- 24% → 32% (another bigger jump)
Important clarification: moving into a higher bracket does not mean all of your income is taxed at that higher rate—only the portion that falls above the threshold.
What I recommend people do
The best way to avoid this trap is to be proactive before 73—because once RMDs start, they are a yearly event.
In the episode I also briefly mention charitable strategies that can help reduce the impact for those who are charitably inclined, including:
- Qualified Charitable Distributions (QCDs)
- Donor-Advised Funds (DAFs)
The main point: don’t wait until the year your RMD hits and then wonder why your taxes jumped.
Tax Trap #2: Social Security can become taxable (and states can tax it too)
Social Security taxation is one of the most misunderstood parts of retirement taxes. A lot of people assume that because it’s a “benefit,” it’s automatically tax-free. In reality, it can become taxable based on your overall income.
The federal side: up to 50% or even 85% can be taxable
At the federal level, as your income increases, Social Security benefits can become taxable in stages.
In the episode I explain it like this:
If you receive $2,000/month (about $24,000/year) in Social Security and you hit the first taxation threshold, 50% of your benefit becomes taxable. That doesn’t mean you pay a 50% tax—it means you may have to report roughly $12,000 as part of your overall taxable income.
If your income rises further, up to 85% of your Social Security can become taxable. In that same example, that could mean reporting something like $18,000–$20,000 as taxable income.
Why this feels like a “hidden tax increase”
Many retirees focus only on tax brackets—10%, 12%, 22%, etc.—and miss this interaction:
When your income increases, it can also cause more of your Social Security to become taxable.
So a small bump in income can create a bigger jump in taxable income than expected.
The state side: where you live matters
Every state treats Social Security differently.
Some states do not tax Social Security at all, even at higher income levels. Other states can, depending on your income.
In the episode I mention Minnesota as one example of a state where Social Security can become taxable at the state level once income exceeds certain thresholds.
Practical takeaway: retirees need to pay attention not just to federal rules, but also to how their state handles Social Security.
Tax Trap #3: Medicare IRMAA surcharges can hit two years later
The third trap is Medicare IRMAA—the Income-Related Monthly Adjustment Amount that can increase Medicare premiums for higher-income retirees.
The confusing part is when it shows up.
The key: IRMAA uses a two-year lookback
IRMAA is generally based on your income from two years earlier, not necessarily your income this year.
That means a high-income event—like exercising stock options, taking a large withdrawal, or doing a Roth conversion—can create a Medicare premium surprise later.
A real-world example we discuss
I share an example of a retiree who exercised a significant amount of stock options, which spiked income. Everything felt normal afterward, but then Medicare looked back two years and the surcharge hit.
From the retiree’s point of view it felt like:
- “Why am I paying this now? My income isn’t that high anymore.”
- Answer: Medicare is using the income from two years prior.
Who this affects
IRMAA doesn’t hit everyone. You still pay your normal Medicare premiums, but the IRMAA tiers generally apply once income rises beyond certain levels.
Where I most often see this come up:
- Large withdrawals from retirement accounts
- Roth conversions (because conversions increase taxable income in the year they occur)
- One-time income events (options, bonuses, business sale, etc.)
The biggest mistake I see: thinking retirement taxes get easier
One of the points I wanted to land in this episode is that many people assume retirement will simplify their financial life.
In my experience, it’s often the opposite.
Why the distribution phase is more complex
During the working years (the accumulation phase), tax decisions often feel like:
- “Do I contribute pre-tax or Roth?”
In retirement (the distribution phase), you’re coordinating a whole system:
- Which accounts you draw from (IRA, Roth, brokerage)
- When to claim Social Security (as early as 62, as late as 70)
- How spousal strategies factor in
- How withdrawals interact with RMDs, Social Security taxation, and IRMAA
And many of these choices are hard to undo once they’re made.
Key takeaways
If you want a simple checklist from Episode 33, it’s this:
- Plan before 73 so RMDs don’t surprise you or push you into a higher bracket.
- Understand Social Security taxation so you’re not caught off guard by how much becomes taxable.
- Model IRMAA impacts if you’re considering large withdrawals or Roth conversions.
- Treat retirement planning as an integrated strategy—not isolated decisions.
Disclosure
Fortress Financial Group LLC is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Fortress and its representatives are properly licensed or exempt for licensure. The opinions voiced in this material are for general information only, and are not intended to provide specific advice or recommendations for any individual.
All indexes are unmanaged and may not be invested into directly. Investing involves risk, including loss of principal.
