How to Avoid Income Tax Surprises in Retirement

For many retirees, taxes don’t feel like a problem until it’s too late. The year is over, you file your return, see what you owe, and try to adjust next year. But in retirement, that approach can lead to surprises that are both frustrating and avoidable.

Where your income falls each year matters more than most people realize. Small changes in how you withdraw money can push you into a higher tax bracket or trigger additional costs like higher Medicare premiums.

We’ve outlined a broader framework for thinking about this in A Smarter Way to Think About Taxes in Retirement. In practice, it comes down to being intentional about how much income you generate each year and where it comes from.

Why Taxes in Retirement Feel Unpredictable

During your working years, income is relatively consistent. In retirement, it becomes more flexible, but also more complex.

You may be pulling from pre-tax accounts like IRAs or 401(k)s, taxable brokerage accounts, or tax-free sources like Roth accounts. Each of these is treated differently from a tax perspective and, without coordination, it’s easy to take distributions in a way that creates unintended tax consequences.

Two Key Thresholds That Matter More Than You Think

When planning your income in retirement, there are two important lines to pay attention to.

Your Tax Bracket

Tax brackets are not all-or-nothing, but crossing into a higher bracket does mean that additional income is taxed at a higher rate.

For example, a married couple filing jointly can remain in the 12 percent federal tax bracket up to a certain income level, then income above that threshold is taxed to 22 percent. On $20,000 of income, that’s $2,000 more in taxes. This creates a planning opportunity.

If you are close to the top of the 12 percent bracket, you may be able to take more income from low tax sources like brokerage accounts or tax-free Roth accounts. If you are below the limit, there may be room to take additional income at a lower rate.

Knowing where you stand during the year allows you to adjust before year-end.

IRMAA Thresholds

In addition to income taxes, Medicare premiums can increase based on your income.

This is known as IRMAA, or Income-Related Monthly Adjustment Amount.

If your income crosses certain thresholds, your Medicare Part B and Part D premiums increase, sometimes significantly. For example, in 2026, a married couple filing jointly with income above roughly $218,000 will pay higher Medicare premiums, with additional increases at higher income levels.

What makes IRMAA important is how easily it can be triggered.

Going even $1 over a threshold can increase your premiums for the entire year. These adjustments are also based on income from two years prior, which means decisions you make today can have delayed effects.

There are a few key things to keep in mind:

• It works like a cliff. Going just over a limit can increase your premiums for the entire year.
• It uses a two-year lookback. Your premiums are based on your income from two years ago.
• It includes more than just withdrawals. IRA distributions, capital gains, Roth conversions, and even part of Social Security all count toward your total.

Because of this, it’s easy to cross a threshold without realizing it if you aren’t tracking these pieces together.

If you would like to see the full IRMAA brackets and how premiums increase at each level, the Social Security Administration provides a clear breakdown here.

4 Ways to Plan Your Income More Intentionally

Avoiding surprises does not require complex strategies, but it does require awareness and coordination. Here’s how to take a more intentional approach.

1. Know Your Target Range Each Year

Rather than waiting until tax time, it helps to define a target income range before the year begins.

This range should reflect your current tax bracket, IRMAA thresholds, and overall income needs. From there, you can monitor where you are throughout the year and adjust if needed.

2. Coordinate Where Income Comes From

Not all income is treated the same. Withdrawals from pre-tax accounts increase taxable income. Roth withdrawals generally do not. Brokerage accounts may create capital gains, often at different rates.

By coordinating which accounts you draw from, you can stay within your desired range while still meeting your income needs.

3. Use the “Fill the Bracket” Approach

In some cases, it makes sense to intentionally use the remaining space in your current tax bracket. For example, if you are comfortably within the 12 percent bracket, you may choose to take additional income or complete a partial Roth conversion up to that limit.

This allows you to take advantage of lower tax rates now, rather than leaving that space unused.

4. Review Before Year-End

One of the most common mistakes is waiting until after the year ends to evaluate taxes. By then, most decisions are already set.

A simple review in the fall can create opportunities to adjust, such as taking additional distributions, delaying income, or adjusting withholding. These small changes can make a meaningful difference.

Staying in Control of Your Income

Taxes in retirement are shaped by a series of decisions throughout the year.

Without coordination, it is easy to move into higher tax brackets or trigger increased Medicare premiums without realizing it. With a clear plan, those same decisions can be made with more intention.

When you understand where your income falls and how different sources are taxed, you gain more control over the outcome.

If you would like help building an income strategy that accounts for these factors, a conversation with our team is a great place to start.