Most Americans have a sense of what their taxes would look like for the year. They know their income, their tax bracket, and the current value of their investments.
But the tax system can become very complex for high-income earners and even those with modest income. And it can become even more complicated for retirees who are drawing down their retirement funds to support them through the Golden Years.
That’s because high income may put you within striking distance of what’s known as the “tax torpedo.”
This often refers to reaching income levels which trigger taxation or increase taxation of your Social Security benefits, which are crucial for millions of Americans. But increased income can also launch other tax hits like the net investment income tax (NIIT) and income-related monthly adjustment amount (IRMAA). The latter is a surcharge on Medicare premiums.
However, there are several ways to strategically reduce your taxable income in order to minimize or bypass these tax hits.
So let’s start by understanding how Social Security benefits are taxed.
Will My Social Security Benefits Be Taxed?
Whether your Social Security is taxed depends on your combined income, sometimes called provisional income.
The Internal Revenue Service defines combined income as the following.:
Combined income = Adjusted gross income (AGI) + nontaxable interest + 50 percent of your Social Security benefits
Here are some examples of what goes into this formula:
- taxable distributions from traditional 401(k)s and IRAs (less adjustments)
- wages
- interest
- dividends
- capital gains
- pension payments
- municipal bond income
But there are a few ways to reduce your combined or provisional income.
Strategic Roth Conversions
Withdrawals from Roth IRAs and Roth 401(k)s don’t add to your provisional income. And if you’ve been saving in a traditional IRA or 401(k), you can transfer some or all funds from those accounts into a Roth account.
But you’d owe income taxes on the converted amount. However, qualified withdrawals from Roth IRAs in retirement are tax-free.
Many advisers recommend you consider making a Roth conversion after early retirement and before you begin collecting Social Security and before age 73 when required minimum distributions (RMD) begin for most people.
This would be a time when income would theoretically be low. So taxes on the conversion could be minimal. And you can enjoy qualified tax-free withdrawals from your Roth IRA that won’t in themselves put you at risk of taxes on your Social Security benefits.
But Roth conversions can be extremely complex and may backfire for some people. So it’s best to discuss the conversion and plan it with a qualified financial adviser.
This is especially important if you’re considering a Roth conversion and also planning to take the new additional senior tax deduction, which applies to tax years 2025 through 2028. This is officially known as the enhanced deduction for seniors.
Qualifying individuals age 65 and older could claim an additional deduction of up to $6,000. Eligible married couples filing jointly could claim a deduction of up to $12,000. This is in addition to the existing senior tax deduction. That senior tax deduction allows eligible taxpayers age 65 and older to claim a $2,000 deduction if filing single or $3,200 if married and filing jointly. This particular deduction doesn’t have a phaseout based on income levels.
But the new senior tax deduction does phase out for taxpayers with modified adjusted gross income (MAGI) over $75,000 if filing single and MAGI over $150,000 for joint filers.
But remember, the conversion itself is treated as taxable income and could thus push your MAGI into the phaseout zones.
Maximize Pretax Accounts
You can reduce your taxable income by contributing to accounts like traditional IRAs, 401(k)s, and health savings accounts (HSAs). All of these have contribution limits that typically change every year. So if you can, try to max these out.
Delay Social Security
You can begin collecting Social Security at age 62. But for every year you delay Social Security past your full retirement age, you get an 8 percent increase in your monthly benefit. And your benefits would be maximized if you delay until age 70.
But by delaying Social Security benefits, and instead drawing from sources like taxable brokerage accounts or tax-advantaged retirement accounts, you have more control over your income. And you can thus have a better picture of your provisional income. And if you withdraw funds from a traditional IRA or 401(k), you essentially reduce your account balances and future RMDs, which add to your taxable income.
What About Other Hidden Taxes?
Earlier, we mentioned NIIT and IRMAA. Income plays a role here too. So let’s take a closer look.
NIIT is a 3.8 percent tax on the lower of your net investment income or the amount by which your MAGI exceeds certain levels.
Those thresholds for the 2025 and 2026 tax years are $200,000 for single filers and $250,000 for those married filing jointly.
IRMAA is a surcharge on your Medicare Part B and Part D premiums. But the surcharge is based on your MAGI from two years prior.
You could owe IRMAA in 2026 if your 2024 MAGI was greater than $109,000 if filing single or if it was greater than $218,000 as a couple filing jointly.
The 2026 IRMAA can range from $284.10 to $689.90 for Medicare Part B premiums.
And the IRMAA for Part D premijms could range from an extra $14.50 to $91.
Some of the strategies we mentioned such as Roth conversions and maximizing pretax accounts could also help you avoid or reduce the impact of NIIT and IRMAA down the line.
The Bottom Line
High-income earners and even those with moderate income may face tax torpedoes, especially in retirement. These are specific tax burdens that you may have to deal with if you have high income levels.
Ways to reduce your taxable income include maximizing pretax retirement accounts, using Roth accounts and delaying Social Security. But these moves may not work for everyone. Still, it’s important to understand how these plans of action may work. You should discuss these methods with a qualified tax professional or tax adviser to figure out which path may be best for you.
The Epoch Times copyright © 2026. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
