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:
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free 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.
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.).
-
Is Trump's Tax Plan Speeding Up the Looming Social Security Funding Crisis?
Social Security Social Security's combined retirement funds are running out of cash, and its insolvency date is expected to occur in less than a decade.
-
How to Keep Your Work Friends After You Retire
Work friendships can boost teamwork, lift your spirits, and make the job more fun. But when you retire, these friendships can fade. Here's a look at why that happens and what you can do about it.
-
I'm an Annuities Expert: Here Are Two Ways to Use Annuities to Benefit From the OBBB
To qualify for a new tax break included in the One Big Beautiful Bill Act, some older adults need to lower their taxable income. Annuities can make that happen.
-
Here's Why Munis Aren't Just for Wealthy Investors Now
Buyers of all levels should be intrigued by municipal bonds' steep yield curve, strong credit fundamentals and yield levels offering an income buffer.
-
I'm a Financial Planning Pro: Do Your Family a Final Favor and Write Them a Love Letter
Specify your preferences in this personal document that shares your wishes on how you want to be remembered and celebrated. Your family will thank you for easing an emotional time.
-
The Future of Financial Advice Is Human: Gen Z Trusts Advisers, But AI Skills Matter
Graduates entering the workforce trust human advisers more than AI tools with their financial planning. But AI can still enhance the client/adviser relationship.
-
I'm a Wealth Adviser: If You're a DIY Investor, Don't Make These Five Mistakes
Even though you may feel confident because of easy access to investing information, you may be making mistakes that could compromise your long-term performance. Here's what you should know.
-
Building a Business That Lasts: The Critical Steps to Avoid Blunders
'Another Way' author David Whorton offers advice on how to build an 'evergreen' business that endures by avoiding common pitfalls that can lead to failure.
-
I'm a Financial Pro: Why You Shouldn't Put All Your Eggs in the Company Stock Basket
Limit exposure to your employer's stock, sell it periodically and maintain portfolio diversification to protect your wealth from unexpected events.
-
How Will the One Big Beautiful Bill Shape Your Legacy?
The One Big Beautiful Bill Act removes uncertainty over tax brackets and estate tax. Families should take time to review estate plans to take full advantage.