How Worried Should I Be About the 'Tax Torpedo'?
Navigating taxes in retirement can be tricky. Here's what to look out for, especially when it comes to the tax hit you could take on your Social Security benefits.


For most people, federal income taxes are straightforward during their working years because income is primarily from a paycheck. However, in retirement it can become much more complicated because your income may come from multiple sources with different tax characteristics.
A key component of your income in retirement is Social Security. A calculation based on your overall income dictates how much of your Social Security benefit is taxable. That calculated income (sometimes called “provisional” or “combined” income) is essentially half of your Social Security benefit plus your other gross income and any tax-exempt interest.
None of your Social Security benefits are taxable up to a certain threshold of provisional income . For income above that threshold, there’s a graded scale of taxation:

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
- If your provisional income is $25,000 to $34,000 for single filers (or $32,000 to $44,000 for joint filers), then up to 50% of your benefits are taxable.
- If your provisional income is more than $34,000 ($44,000 for joint filers), then up to 85% of your benefits are taxable.
This can create a unique situation to avoid: what researchers dub the “tax torpedo.” You’ve been hit by this torpedo if you pay a high marginal tax rate because additional income causes more Social Security to become taxable. The marginal rate then decreases at higher income levels, which may not be something you’d expect in our progressive tax system.
Here’s an example of how you could be hit by this tax torpedo.
Suppose you and your spouse collect $60,000 in combined annual Social Security benefits. Your only other income so far this year is $65,000 of distributions from IRAs. Your provisional income is $95,000. At that level, you haven’t quite reached the 85% cap on taxability of Social Security. If you take an additional $1,000 from your IRA, you might expect to pay $220 more in taxes since you’re in the 22% bracket. However, since that $1,000 results in $850 more Social Security subject to tax, your tax bill actually goes up by $407 ($1,850 times 22%). Your marginal tax rate is really 40.7% at this point, but at higher income levels it eventually goes back down to 22%.
So how bad is this torpedo, and what should you do about it?
1. Figure out whether you’re a likely target.
The first step is being aware that this may be an issue. It may not be obvious, even looking at your tax return or software. One common trigger is required minimum distributions (RMDs), since you have no choice but to receive taxable income.
People in the 10%, 12%, and 22% federal tax brackets could be affected, especially if they paid the maximum Social Security payroll tax in some of their working years. If you expect to be in one of these brackets, consider working with a financial planner or tax professional to fine-tune your retirement expense, income, and tax projections. That can help you determine whether additional planning is necessary.
Your Marginal Tax Rate Could Be Higher Than Advertised
Ordinary Marginal Tax Rate (A) | Additional Social Security Benefits Taxed (B) | Total Marginal Rate (A x (1+B)) |
---|---|---|
10% | 50% | 15% |
10% | 85% | 18.5% |
12% | 50% | 18% |
12% | 85% | 22.2% |
22% | 85% | 40.7% |
Note: Not all people in these brackets will have the higher marginal rate.
While “torpedo” sounds bad, a 22.2% marginal rate isn’t exactly disastrous. With that in mind, you might focus on situations resulting in the 40.7% marginal rate.
A Torpedo Worth Avoiding: Approximate Income Ranges Resulting in 40.7% Marginal Rate
Married Filing Jointly
Social Security Income | Other Ordinary Income | Total Gross Income |
---|---|---|
$55,000 | $62,000-$64,000 | $117,000-$119,000 |
$60,000 | $60,000-$67,000 | $120,000-$127,000 |
$70,000 | $58,000-$72,000 | $128,000-$142,000 |
$80,000 | $56,000-$77,000 | $136,000-$157,000 |
$90,000 | $54,000-$82,000 | $144,000-$172,000 |
Single
Social Security Income | Other Ordinary Income | Total Gross Income |
---|---|---|
$20,000 | $37,000-$39,000 | $57,000-$59,000 |
$25,000 | $36,000-$41,000 | $61,000-$66,000 |
$30,000 | $35,000-$44,000 | $65,000-$74,000 |
$35,000 | $34,000-$46,000 | $69,000-$81,000 |
$40,000 | $33,000-$49,000 | $73,000-$89,000 |
$45,000 | $32,000-$51,000 | $77,000-$96,000 |
Assumptions: All filers are over age 65 and use the standard deduction. While qualified dividends and long-term capital gains are included in the definition of provisional income, they are not considered in this illustration.
2. Start planning well before you reach age 70½.
The tax torpedo is just one reason to plan thoroughly years ahead of RMDs. If you don’t think you’ll need all of your RMDs for spending in retirement, you might consider a series of Roth conversions before turning 70. While you will have to pay taxes on the conversions, you reduce RMDs later.
For example, suppose that the same couple with $60,000 of Social Security benefits had non-retirement assets to fund their spending and taxes before age 70. They could have potentially converted Traditional IRA assets to a Roth IRA at a 12% tax rate. That would reduce RMD income later in the 22% bracket, including some effectively at the 40.7% “torpedo” rate. That could save them tens of thousands of dollars in taxes in retirement.
3. Consider course corrections.
Either before or after RMDs, having some flexibility can help you limit highly taxed income. If you’re approaching a torpedo range, you may want to fund additional spending needs with income sources that generate little or no taxable income. This could include drawing on your cash reserve, a Roth account, or the sale of investments with small gains. If you’re at the high end of the torpedo range, you could take more taxable distributions once you’re past the 85% cap, freeing up cash to use next year so you can stay below the range.
4. Don’t let taxes trick you into a bad Social Security claiming decision.
The torpedo tends to hit people with large Social Security benefits. But that’s not a good reason to claim Social Security early and reduce monthly benefits.
For many people, it’s best to delay Social Security claiming until full retirement age or later. Waiting as long as possible to claim benefits reduces the chances of outliving your money while also maximizing survivor benefits (if you’re the higher earner).
While Social Security is part of a broader retirement income plan, taxes should be a secondary consideration. And remember, at least 15% of Social Security income is exempt from federal income taxes no matter what. Considering that benefit (and possibly exemption from state taxes), it doesn’t make sense from a tax standpoint to reduce your lifetime benefit and rely more on fully-taxable income.
In short, it’s worth evaluating the tax torpedo and considering strategies to avoid it. But don’t panic. With a little financial planning, it won’t sink your retirement.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Roger Young is Vice President and senior financial planner with T. Rowe Price Associates in Owings Mills, Md. Roger draws upon his previous experience as a financial adviser to share practical insights on retirement and personal finance topics of interest to individuals and advisers. He has master's degrees from Carnegie Mellon University and the University of Maryland, as well as a BBA in accounting from Loyola College (Md.).
-
Donating Complex Assets Doesn't Have to Be Complicated
If you're looking to donate less-conventional assets but don't know where to start, this charity executive has answers, such as considering a donor-advised fund (DAF) for its tax benefits and ease of use.
-
Travel trends you can expect this summer
The Kiplinger Letter Domestic trips will trump foreign travel amid economic uncertainties, though some costs are down.
-
Donating Complex Assets Doesn't Have to Be Complicated
If you're looking to donate less-conventional assets but don't know where to start, this charity executive has answers, such as considering a donor-advised fund (DAF) for its tax benefits and ease of use.
-
Think a Repeal of the Estate Tax Wouldn't Affect You? Wrong
The wording of any law that repeals or otherwise changes the federal estate tax could have an impact on all of us. Here's what you need to know, courtesy of an estate planning and tax attorney.
-
In Your 50s? We Need to Talk About Long-Term Care
Many people don't like thinking about long-term care, but most people will need it. This financial professional recommends planning for these costs as early as possible to avoid stress later.
-
Social Security Pop Quiz: Are You Among the 89% of Americans Who'd Fail?
Shockingly few people have any clue what their Social Security benefits could be. This financial adviser notes it's essential to understand that info and when it might be best to access your benefits.
-
Such Attractive Yields in High-Grade Munis Are Rare and May Not Last Long
According to this munis expert, the last time munis were this cheap was a brief period in 2023. If you kicked yourself for missing out then, you have a second chance now.
-
Financial Analyst Sees a Bright Present for Municipal Bond Investors
High-tax-bracket investors have an excellent opportunity to secure low-volatility, high-quality returns at yield levels rarely seen in over a decade.
-
I'm an Insurance Pro: How Not to Get Dumped by Your Insurance Agent
Your insurance agent or broker might show you the door if you do any of these five things. Being a good customer is about more than paying your bill on time.
-
Two Estate Planning Issues You Should Never Overlook
This estate planning attorney explains why proper asset titling and beneficiary designations make a big difference when it's time to transfer your wealth.