How Two RMDs at 73 Pushed a Retiree Into the 85% Social Security Tax Trap

"“Tax on tax on taxes is the problem we're trying to solve for here. And it catches people by surprise by the time they get into their 70s.”"

"“The IRS adds adjusted gross income (AGI), any tax-exempt interest, and half of Social Security benefits to calculate combined income. For a married couple filing jointly, once that figure crosses $44,000, up to 85% of benefits become taxable. That threshold was set in 1984 and has never been indexed for inflation, which is why it now snares middle-class retirees it was never intended to touch.”"

"“Each retirement account requires its own RMD calculation. Multiple IRAs can be aggregated, but a 401(k) must be calculated separately. Using the 2022 Uniform Lifetime Table divisor of 26.5 for age 73: IRA RMD: $1,400,000 divided by 26.5 equals roughly $52,830 that must be distributed this year. 401(k) RMD: $400,000 divided by 26.5 equals about $15,094, calculated separately and withdrawn from that plan. Combined mandatory withdrawals: $67,924 of ordinary income they didn't previously have to recognize.”"

A married couple in their early 70s with a $1.4 million traditional IRA and a $400,000 traditional 401(k) began required minimum distributions at age 73. Their combined Social Security benefits total $32,000 per year. The IRS calculates Social Security taxation using combined income, which includes adjusted gross income, tax-exempt interest, and half of Social Security benefits. For married couples filing jointly, once combined income exceeds $44,000, up to 85% of benefits can become taxable. The $44,000 threshold has not been indexed since 1984, so inflation and retirement withdrawals can cause middle-class retirees to cross it. RMDs are calculated separately for each retirement account, increasing ordinary income and potentially triggering Social Security taxation.

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