A $1,000 IRA withdrawal in the 22% bracket can trigger $407 in federal tax because it also makes $850 of Social Security newly taxable.
Middle-income retirees are most exposed to the torpedo, as frozen 1980s thresholds drag more households into the zone every year with each COLA increase.
Roth conversions before claiming Social Security, qualified charitable distributions, and delaying benefits to 70 can each reduce or eliminate torpedo zone exposure.
Are you ahead, or behind on retirement? SmartAsset's free tool can match you with a financial advisor in minutes to help you answer that today. Each advisor has been carefully vetted, and must act in your best interests. Don't waste another minute; learn more here.
A band of retirement income exists in which each additional dollar withdrawn from a traditional IRA is subject to an effective federal tax rate above 40%, even when the household is nominally in the 12% or 22% bracket. Financial planners call it the Social Security "tax torpedo." A $1,000 IRA withdrawal that should cost $220 in tax can actually cost $407. That extra $187 stems from a rule most retirees never see on a tax table.
#security #federal
Middle-income retirees are most exposed to the torpedo, as frozen 1980s thresholds drag more households into the zone every year with each COLA increase.
Roth conversions before claiming Social Security, qualified charitable distributions, and delaying benefits to 70 can each reduce or eliminate torpedo zone exposure.
Are you ahead, or behind on retirement? SmartAsset's free tool can match you with a financial advisor in minutes to help you answer that today. Each advisor has been carefully vetted, and must act in your best interests. Don't waste another minute; learn more here.
A band of retirement income exists in which each additional dollar withdrawn from a traditional IRA is subject to an effective federal tax rate above 40%, even when the household is nominally in the 12% or 22% bracket. Financial planners call it the Social Security "tax torpedo." A $1,000 IRA withdrawal that should cost $220 in tax can actually cost $407. That extra $187 stems from a rule most retirees never see on a tax table.
#security #federal
3 months ago
