Quick Summary

In retirement, the taxes to watch most closely are taxes on withdrawals from traditional retirement accounts, potentially taxable Social Security benefits, Medicare IRMAA surcharges tied to income, and capital gains from taxable investments. The good news is that these costs are not separate puzzles: with thoughtful timing and a coordinated retirement-income plan, you can make more informed decisions about where to draw income and when.

I am Erin O’Brien, CFP®, Enrolled Agent, and founder of Purposeful Money. I help women in Southwest Florida and clients nationwide approach these decisions in plain English, without judgment, so their money can support the life they want in their Season of You™.

Retirement Income Is Not All Taxed the Same Way

One of the first things I want clients to understand is that retirement is not a single tax bracket or a single type of income. A dollar withdrawn from a traditional IRA is generally treated differently from a qualified Roth IRA withdrawal. A dollar from a brokerage account may include capital gain rather than ordinary income. Social Security has its own formula, and Medicare has another.

That is why tax planning for retirement should be integrated with retirement income planning, investment management, Social Security decisions, and the life goals behind your plan. At Purposeful Money, I do not believe you should have to translate financial jargon before you can participate meaningfully in decisions about your own money.

Required Minimum Distributions Can Create Bracket Creep

Traditional IRAs and most employer retirement accounts are funded with money that generally has not yet been taxed. Eventually, the IRS requires you to begin withdrawing a minimum amount each year. These withdrawals are called required minimum distributions, or RMDs.

Under current 2026 federal rules, most people born from 1951 through 1959 generally begin RMDs at age 73. Those born in 1960 or later generally begin at age 75. Your first RMD is generally due by April 1 of the year after the year you reach your applicable RMD age, but delaying that first withdrawal can mean taking two taxable RMDs in the same calendar year. Subsequent RMDs are generally due by December 31 each year.

RMDs are generally taxable as ordinary income. They can push you into a higher federal income-tax bracket, increase the taxable portion of Social Security, and contribute to higher Medicare costs. This is what many people mean by “bracket creep” in retirement: income sources that seemed manageable on their own stack together in ways that raise the cost of each additional dollar.

The RMD is a minimum, not necessarily the best amount to withdraw for your overall plan. I look at it alongside cash-flow needs, charitable giving goals, investment allocation, and the rest of your tax picture.

Why Social Security Benefits Can Become Taxable

Many retirees are surprised to learn that Social Security benefits may be subject to federal income tax. Whether benefits are taxable depends on your “combined income,” which is generally your adjusted gross income, plus tax-exempt interest, plus one-half of your Social Security benefits.

For a single filer, benefits may become partly taxable when combined income exceeds $25,000, and up to 85% of benefits may be taxable above $34,000. For married couples filing jointly, the comparable thresholds are $32,000 and $44,000. These are not inflation-indexed thresholds, which means more retirees can be affected over time.

This is one reason the question of when to claim Social Security deserves careful consideration. Social Security claiming strategies are about more than your monthly benefit amount. They can also influence the taxes you pay, the income you need from investments, and the longevity of your portfolio. My Social Security & Medicare Guidance helps connect these important decisions to the rest of your retirement plan.

Medicare IRMAA Uses a Two-Year Lookback

Medicare premiums can also rise when income crosses certain thresholds. IRMAA, short for Income-Related Monthly Adjustment Amount, is an additional amount higher-income beneficiaries may pay for Medicare Part B and Part D.

In general, Medicare uses the modified adjusted gross income reported on your federal tax return from two years earlier to determine whether IRMAA applies. In other words, your 2026 Medicare premiums are generally based on income reported on your 2024 return. A large IRA withdrawal, Roth conversion, capital gain, sale of a business interest, or other one-time income event can therefore affect premiums later.

That does not mean you should avoid every income-generating decision. It means we should understand the tradeoffs before acting. If income drops because of a qualifying life-changing event, such as retirement, loss of pension income, divorce, or the death of a spouse, Medicare may allow you to request a reconsideration using more current information.

Capital Gains Matter in a Tax-Smart Withdrawal Strategy

Taxable brokerage accounts can be valuable in retirement because selling an investment is not automatically taxed like an IRA withdrawal. Generally, only the gain is taxable, not the portion representing your original investment. Assets held longer than one year may qualify for long-term capital-gains rates, which can be lower than ordinary income-tax rates.

However, a sale can still have ripple effects. Realized gains increase adjusted gross income and may affect the taxation of Social Security, Medicare IRMAA, and the tax rate on other capital gains. The 3.8% net investment income tax can also apply at higher income levels.

In a retirement drawdown strategy, I consider the “tax character” of each account: traditional tax-deferred accounts, Roth accounts, and taxable investments. The objective is not to make every annual tax bill as low as possible. It is to make choices that support your longer-term goals, flexibility, and lifetime tax awareness. This is a central part of Tax Planning & Preparation at Purposeful Money.

The Roth Conversion Window Before RMDs

For many women who have retired but have not yet started RMDs, there may be a valuable planning window. Earnings may be lower than during peak working years, while RMDs and Social Security may not yet be adding to taxable income. In the right circumstances, converting part of a traditional IRA to a Roth IRA during those years can allow you to intentionally recognize income at a known tax cost.

A Roth conversion is taxable in the year it occurs, so it is never automatically the right choice. The conversion can affect your tax bracket, Social Security taxation, Medicare premiums two years later, cash flow, and estate or legacy planning. But used thoughtfully, it may reduce future RMDs and give you more tax flexibility later in life.

I encourage clients to view Roth conversions as a multi-year decision rather than an all-or-nothing event. We can model different conversion amounts and consider how they fit with spending needs, charitable goals, and the retirement life you are building.

How My CFP® and Enrolled Agent Credentials Work Together

As a CFP® professional, I bring retirement, investment, insurance, estate-planning coordination, and cash-flow considerations into one holistic financial-planning relationship. As an Enrolled Agent, I also have federal tax expertise recognized by the IRS. That credential allows me to provide proactive tax planning, prepare federal tax returns, and represent taxpayers before the IRS when representation is needed.

For you, this can mean fewer disconnected conversations and more continuity between the plan we build and the tax return that reports the results. It is not about chasing a clever tax trick. It is about asking better questions throughout the year and seeing how one decision may influence another.

At Purposeful Money, my approach is relationship-first, judgment-free, and practical. Whether you are retiring as part of a couple, navigating a transition after the loss of a spouse, or simply ready to feel more confident about the next chapter, I want you to feel heard—not talked over. Your financial plan should make room for both the numbers and the purpose behind them.

FAQ

Do I pay Florida state income tax on retirement income?

Florida does not currently impose a personal state income tax, which can simplify planning for Southwest Florida retirees. Federal taxes, Medicare-related income surcharges, property taxes, sales taxes, and taxes connected to income from other states may still matter.

Are Roth IRA withdrawals taxable?

Qualified Roth IRA withdrawals are generally federal income-tax-free. The rules depend on factors including your age, the five-year holding period, and whether the distribution is from contributions, conversions, or earnings. Roth IRAs also do not have lifetime RMDs for the original owner under current federal law.

Can I take more than my RMD?

Yes. You can generally withdraw more than the required minimum, but the additional taxable distribution may affect your tax bracket, Social Security taxation, and Medicare premiums. It should be considered in the context of your full retirement-income plan.

Can charitable giving help with RMD planning?

For eligible IRA owners age 70½ or older, a qualified charitable distribution may allow direct gifts from an IRA to eligible charities, subject to IRS rules and annual limits. A properly completed qualified charitable distribution can count toward an RMD while generally excluding the distributed amount from taxable income.

When should I start tax planning for retirement?

Ideally, before you retire. But there is no single “too late” point. A review can be useful before leaving work, before claiming Social Security, before age 73 or 75 RMDs begin, and whenever a major life or financial change occurs.

Let’s Make the Tax Questions Feel More Manageable

You do not need to have every answer before starting the conversation. If you are approaching retirement or already living it and want a clearer, more life-centered view of your tax decisions, I would be glad to help. Schedule your Learn More Call with me, Erin, at Purposeful Money by calling 800-520-9793 or visiting Purposeful Money’s contact page.

This article is provided for educational and informational purposes only and is not individualized tax, legal, or investment advice. Federal tax rules, thresholds, and Medicare rules can change, and outcomes depend on your individual circumstances. Please consult appropriate qualified professionals regarding your specific situation.