The Tax Torpedo: When RMDs Collide With Social Security

What is the tax torpedo and why does it happen?

Two ordinary tax rules, harmless on their own, do something ugly when they meet. Rule one: every dollar you take from a traditional IRA or 401(k), including a required minimum distribution, is ordinary income. Rule two: the portion of your Social Security benefit that gets taxed is not fixed. The IRS recalculates it each year based on your other income. Put the rules together and a withdrawal does double damage. The dollar itself is taxed, and it can drag previously untaxed benefit dollars onto your return alongside it.

Inside the phase-in range, one extra dollar of withdrawal can make 50 cents, and then 85 cents, of Social Security newly taxable. So a single dollar can put as much as $1.85 of income on your return. A retiree who believes they sit in the 22% bracket can quietly pay about 41 cents of federal tax on that one dollar, because 22% is being applied to $1.85 of income. That silent multiplication is the torpedo, and it is easy to miss because no line on the tax return announces it.

Here is the genuinely good news: the torpedo has a top. Under current law, no more than 85% of your benefit can ever be included in taxable income. Once you reach that ceiling, additional withdrawals drag nothing extra with them and your marginal rate falls back to the ordinary bracket. The torpedo is a zone you pass through, not a permanent condition.

How does the IRS decide how much of your Social Security is taxable?

The measuring stick is called combined income, sometimes labeled provisional income. It equals your adjusted gross income, plus any tax-exempt interest, plus half of your Social Security benefits. Compare that number to two sets of thresholds and you learn how much of your benefit can be taxed.

Notice the phrase "up to." The exact taxable amount comes from a worksheet in IRS Publication 915, and it phases in gradually as income rises through each band. Notice also what the thresholds do not do: they do not rise with inflation. They were fixed by law in 1983 and 1993 and have sat still ever since, which is why numbers that once touched only affluent households now reach ordinary retirees, and why more people sail into the torpedo every year. How this rule fits alongside brackets, RMDs, and Medicare premiums is mapped in our guide to the retirement tax picture.

Where do RMDs come in, and why do they fire the torpedo?

For decades the deal on a traditional IRA or 401(k) was simple: deduct now, pay later. Required minimum distributions are the "later." Beginning at age 73 for most people today, and scheduled to rise to 75 for those born in 1960 or later, the IRS requires you to withdraw a calculated slice of your pre-tax balances every year. Skipping one triggers a steep excise tax, so the income arrives whether you need it or not.

That forced income is what makes the collision so common. A retiree can spend their late 60s comfortably below the thresholds, benefits barely taxed, and then watch the first RMD land on top of Social Security and push combined income straight through the phase-in zone. The withdrawal is taxed, a larger share of the benefit becomes taxed, and the total bill jumps far more than the RMD alone would suggest. Because balances kept compounding through the deferral years, RMDs also tend to grow over time, so the problem deepens rather than fading. The same forced income can echo into Medicare premiums two years later, a separate cliff we cover in IRMAA, explained.

Who gets hit hardest by the tax torpedo?

The torpedo is oddly selective. Retirees with very modest income never reach the thresholds, so their benefits stay largely untaxed. Retirees with high income are already at the 85% ceiling, so extra withdrawals drag nothing new into the tax base; their marginal rate is just their bracket. The people in between take the hit.

The classic case is a household with a healthy Social Security benefit, nearly all of its savings in pre-tax accounts, and combined income that sits inside or just above the phase-in bands. For that household, every marginal decision, which account to tap, when to claim, whether to convert, lands directly in the torpedo zone. It is one of the few corners of retirement tax law where a middle-income couple can face a higher marginal rate on the next dollar than a wealthier neighbor does. If your income sits comfortably above the zone every year, much of this article is happily irrelevant to you.

What can you do before the torpedo fires?

Almost every defense shares one idea: use the years when you control your income, typically between retirement and RMD age, to shrink the pre-tax pile that will later be forced out.

Spend pre-tax dollars early, on purpose. Drawing from the IRA in your 60s, while Social Security has not started or is small, fills the lower brackets with income that would otherwise arrive later at torpedo rates. It feels backwards to volunteer for tax early. Sometimes it is the cheaper path across a whole retirement.

Consider partial Roth conversions. Converting measured slices of a traditional IRA to Roth in the gap years moves money out of future RMD calculations, and qualified Roth withdrawals never count toward combined income. The conversion itself is taxable in the year you do it, so oversized conversions can create the very spike you are avoiding. Small and steady usually beats big and dramatic here.

Coordinate your claiming age with your withdrawals. Some retirees delay Social Security while spending down pre-tax accounts, which shrinks future RMDs and raises the eventual benefit. Delaying is not automatically right; health, spousal benefits, and cash needs all matter. The point is that the claiming decision and the withdrawal plan are one decision, not two.

A QLAC can defer some forced income. Dollars moved into a qualifying longevity annuity contract inside an IRA are excluded from the RMD calculation until its income begins, as late as age 85, up to the federal limit of $210,000 for 2026. That can hold combined income down in the torpedo years, though the income is fully taxable once it starts. Our post on what a QLAC is walks through both sides of that trade.

Tax rules and thresholds are dated figures that can change. This is education, not tax advice. Run your own numbers with a licensed tax advisor before acting.

Where annuities fit, and where they do not

Since this site is about annuities, honesty requires both halves of this story.

Where deferral genuinely helps the timing. Money growing inside a deferred annuity funded with after-tax dollars is tax-deferred, never tax-free, and while it stays inside the contract it adds nothing to combined income. If you later annuitize that contract, part of each payment returns your own principal untaxed until your basis is used up, so only the gain portion of each payment counts toward the torpedo math. Spreading taxable gain across many years of payments can keep any single year away from a threshold where one lump-sum withdrawal might vault over it. How those payments are built is covered in guaranteed lifetime income, and the tax mechanics get their own treatment in annuity taxation, explained.

Where the same product is the wrong answer. An ordinary deferred annuity held inside an IRA does not escape RMDs; the QLAC carve-out is the narrow exception. Gains come out of a non-qualified deferred annuity first and are taxed as ordinary income, so a poorly timed withdrawal can concentrate income instead of spreading it. And if you might need the money back during the surrender period, the charges can cost more than the torpedo ever would. Never buy an annuity primarily to steer around a tax formula. It earns its place by solving an income problem, as our pillar guide to what an annuity is explains, and the self-check in is an annuity right for me should come before any tax angle enters the conversation.

Any annuity guarantee is backed by the claims-paying ability of the issuing insurer; it is not FDIC-insured or bank-guaranteed. Withdrawals before age 59½ may incur a 10% federal penalty, and surrender charges may apply.

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