When you are younger, the main goal of tax planning is simply to lower your taxable income. After age 62, the game changes completely. The tax code for seniors is riddled with “cliffs” and “phase-outs”—specific income numbers that, if crossed by even one dollar, can trigger disproportionate penalties.
In 2026, with the new “OBBBA” (One Big Beautiful Bill Act) provisions and inflation adjustments taking effect, these lines have moved. Crossing them can mean suddenly paying taxes on your Social Security, losing your new senior deduction, or seeing your Medicare premiums double. If you are blindly withdrawing from your 401(k) without watching these seven specific numbers, you are likely overpaying the IRS.
1. The “Tax Torpedo” ($25,000 / $32,000)
This is the most notorious threshold in retirement because it is not indexed for inflation. The “Provisional Income” thresholds determining whether your Social Security benefits are taxable have remained stuck at $25,000 (single) and $32,000 (married) for decades.
If your “combined income” (AGI + nontaxable interest + 50% of Social Security) crosses these low bars, up to 85% of your Social Security benefits suddenly become taxable. This creates a “Tax Torpedo” where a small withdrawal from your IRA causes a massive spike in your effective marginal tax rate, sometimes pushing it over 40% on that specific dollar of income.
2. The “Work Penalty” Limit ($24,480)
If you claim Social Security early (between age 62 and your Full Retirement Age) and continue to work part-time, you must watch the Earnings Test limit religiously. For 2026, that limit is $24,480.
For every $2 you earn above this gross income limit, the SSA withholds $1 of your benefits. Unlike income tax, there is no sliding scale; it is a strict clawback. Many seniors accidentally cross this line by picking up a holiday consulting gig, only to receive a letter stating their checks are being paused to recoup the “overpayment.”
3. The IRMAA “Cliff” ($109,000 / $218,000)
Medicare Part B premiums are not flat; they are means-tested. If your Modified Adjusted Gross Income (MAGI) from two years ago (2024 tax return) exceeded $109,000 (single) or $218,000 (joint), you hit the first IRMAA (Income-Related Monthly Adjustment Amount) bracket.
Crossing this threshold by just $10 triggers a monthly surcharge of roughly $81 per person on top of the standard premium. Unlike tax brackets where only the excess is taxed higher, IRMAA is a true cliff: one dollar over costs you nearly $1,000 a year in premiums.
4. The 0% Capital Gains Ceiling ($49,450 / $98,900)
Retirees have a unique superpower: the 0% Capital Gains bracket. In 2026, if your taxable income stays under $49,450 (single) or $98,900 (joint), you pay zero federal tax on the profit from selling stocks or a vacation home.
The mistake many seniors make is taking a large IRA distribution that pushes their total income to $99,000. That extra income bumps them out of the 0% bracket, forcing them to pay 15% capital gains tax on all their investment sales. Watching this specific number allows you to “harvest gains” tax-free.
5. The “Senior Bonus” Phase-Out ($75,000 / $150,000)
New for the 2026 tax year under the OBBBA legislation is the “Temporary Senior Deduction” of $6,000 (single) or $12,000 (joint) for filers over age 65. This was designed to offset rising inflation.
However, unlike the standard deduction, this bonus is means-tested. It begins to phase out rapidly once your MAGI hits $75,000 (single) or $150,000 (joint). If you have flexible income sources, keeping your AGI just below these lines is critical to preserving this valuable new deduction.
6. The NIIT Surcharge Line ($200,000 / $250,000)
High-income retirees often forget about the Net Investment Income Tax (NIIT). This is a 3.8% surtax applied to passive income (dividends, interest, capital gains, rental income) if your MAGI exceeds $200,000 (single) or $250,000 (joint).
This threshold is particularly dangerous when selling a primary residence. If the profit from your home sale pushes you over $250,000, you don’t just pay capital gains tax; you get hit with this extra 3.8% surcharge on your investment portfolio’s income as well.
7. The RMD “Force-Out” (Age 73)
While not an income dollar amount, Age 73 is the ultimate threshold. Once you cross it, Required Minimum Distributions (RMDs) force taxable income out of your IRA whether you need it or not.
In 2026, many seniors are caught by the “double RMD” trap if they delay their first distribution. If you turned 73 in 2025 and waited until April 1, 2026, to take your first withdrawal, you must also take your 2026 withdrawal by December 31st. Taking two years of income in one calendar year often pushes you across all the thresholds mentioned above—triggering IRMAA, the Tax Torpedo, and the NIIT simultaneously.
Watch the Lines
In retirement, how much you make matters less than how you report it. Managing your withdrawals to land just $1 below these thresholds can save you more money than earning an extra 5% in the stock market.
Did an RMD push you into a higher IRMAA bracket this year? Leave a comment below—share your strategy for next year!
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