How to Avoid the Social Security Tax Torpedo

While retirees may be chagrined to discover that taxes don’t end when they leave the workforce, an unseen threat looms behind the U.S. tax code. The Social Security tax torpedo is as destructive as it sounds, blowing up the budgets of unsuspecting retired folks eagerly awaiting their first Social Security check. However, having a clear understanding of your Social Security taxes can help you dodge this torpedo in retirement.

A financial advisor can help you create a financial plan to minimize your taxes in your golden years.

What Is the Social Security Tax Torpedo?

The Social Security tax torpedo is a spike in taxes that retirees may faceafter receiving Social Security income.

Specifically, 50% to 85% of your Social Security check may be taxable, depending on your income level and life circumstances. In addition, your Social Security income can increase your marginal tax rate, meaning the top portion of your income enters the next tax bracket.

As a result, unsuspecting retirees may pay heavier taxes than anticipated, which means their Social Security benefits will provide less of a financial boost than expected.

Tax Torpedo Implications

The government bases your retirement taxes on your modified adjusted gross income (MAGI) plus any nontaxable interest (usually from municipal bonds) and half of your Social Security benefits. The resulting sum is your combined income, which is subject to different taxes, depending on the amount and the filer’s status.

For instance, single filers with a combined income of $25,000 to $34,000 pay taxes on 50% of their benefits. Any income above this amount results in taxes on 85% of the benefits. Likewise, those married filing jointly with combined incomes between $32,000 and $44,000 will pay taxes on 50% of their benefits. Any amount above this is subject to tax on 85% of the benefits.

Remember, the tax torpedo does not mean you will lose 85% of your Social Security benefits to income taxes. Instead, you’ll owe your regular income tax rate on 85 cents of every dollar you receive from Social Security.

Additionally, your income tax rate isn’t the same across all your income because of how tax brackets work. The U.S. tax code imposes progressive taxes on your income the higher it is.

Suppose you’re a single filer in 2025 with a combined income of $35,000, including $15,000 in Social Security benefits. Because your combined income exceeds the $34,000 threshold, up to 85% of your benefits ($12,750) becomes taxable.

If your total taxable income places you in the 22% marginal bracket, the added tax from your Social Security would be about $2,000 to $2,300, depending on your deductions and other income sources. By comparison, if your combined income were $34,000 or less, only up to 50% of your benefits (about $7,500) would be taxable, creating an additional tax burden closer to $1,000 to $1,200 at the same tax rate.

How to Avoid the Social Security Tax Torpedo

A senior calculating his taxes to avoid the Social Security tax torpedo.

Losing your hard-earned Social Security benefits to Uncle Sam is not a foregone conclusion. There are a few ways you can sidestep the Social Security tax torpedo while maximizing your financial wellness and preserving quality of life.

Use a Roth IRA

Roth IRAs are retirement accounts where contributions are made with after-tax dollars. This means you don’t get a tax deduction when you contribute.

However, distributions during retirement are tax-free. As a result, your Roth IRA income doesn’t count towards your taxable income. This helps reduce the likelihood that you’ll pass the threshold determining whether 50% or 85% of your Social Security benefit is taxed.

Live in a Tax-Friendly State

Nine states tax your Social Security check, adding to the federal tax burden.

Donate Your IRA Income to Charity

Qualified charitable distributions (QCDs) allow you to donate money directly from your traditional IRA to charity. The government does not count the first $108,000 of donations as taxable income.

While doing so won’t directly affect your Social Security tax, it will lower your overall taxable income. This can potentially reduce the portion of your Social Security benefits subject to taxation.

Remember, this advantage applies only to traditional IRAs.

Buy a Qualified Longevity Annuity Contract (QLAC)

A qualified longevity annuity contract (QLAC) is a specialized annuity that provides a guaranteed income stream later in life.

You can transfer $210,000 from a traditional IRA or 401(k) to a newly opened QLAC, reducing the required minimum distributions (RMDs) you’ll take from your retirement account. This way, the distributions from your 401(k) or IRA won’t increase your annual income as much, mitigating Social Security taxes.

Your QLAC has a delayed RMD age compared to traditional retirement accounts. While the government requires RMDs from a 401(k) or IRA at age 73, you can delay distributions from your QLAC until age 85. But remember, you will owe taxes on QLAC distributions in the year you receive them.

Use our RMD Calculator to estimate how much you’ll need to withdraw from your retirement accounts when you reach your RMD age.

Required Minimum Distribution (RMD) Calculator

Estimate your next RMD using your age, balance and expected returns.

Quickly estimate your RMDs and when to take them

RMD Amount for IRA(s)

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RMD Amount for 401(k) #1

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About This Calculator

This calculator estimates RMDs by dividing the user's prior year's Dec. 31 account balance by the IRS Distribution Period based on their age. Users can enter their birth year, prior-year balances and an expected annual return to estimate the timing and amount of future RMDs.

For IRAs (excluding Roth IRAs), users may combine balances and take the total RMD from one or more accounts. For 401(k)s and similar workplace plans*, RMDs must be calculated and taken separately from each account, so balances should be entered individually.

^*The IRS allows those with multiple 403(b) accounts to aggregate their balances and split their RMDs across these accounts.

Assumptions

This calculator assumes users have an RMD age of either 73 or 75. Users born between 1951 and 1959 are required to take their first RMD by April 1 of the year following their 73rd birthday. Users born in 1960 and later must take their first RMD by April 1 of the year following their 75th birthday.

This calculator uses the IRS Uniform Lifetime Table to estimate RMDs. This table generally applies to account owners age 73 or older whose spouse is either less than 10 years younger or not their sole primary beneficiary.

However, if a user's spouse is more than 10 years younger and is their sole primary beneficiary, the IRS Joint and Last Survivor Expectancy Table must be used instead. Likewise, if the user is the beneficiary of an inherited IRA or retirement account, RMDs must be calculated using the IRS Single Life Expectancy Table. In these cases, users will need to calculate their RMD manually or consult a finance professional.

For users already required to take an RMD for the current year, the calculator uses their account balance as of December 31 of the previous year to compute the RMD. For users who haven't yet reached RMD age, the calculator applies their expected annual rate of return to that same prior-year-end balance to project future balances, which are then used to estimate RMDs.

This RMD calculator uses the IRS Uniform Lifetime Table, but certain users may need to use a different IRS table depending on their beneficiary designation or marital status. It's the user's responsibility to confirm which table applies to their situation, and tables may be subject to change.

Actual results may vary based on individual circumstances, future account performance and changes in tax laws or IRS regulations. Estimates provided by this calculator do not guarantee future distribution amounts or account balances. Past performance is not indicative of future results.

SmartAsset.com does not provide legal, tax, accounting or financial advice (except for referring users to third-party advisers registered or chartered as fiduciaries ("Adviser(s)") with a regulatory body in the United States). Articles, opinions and tools are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. Users should consult their accountant, tax advisor or legal professional to address their particular situation.

Compare Your Income Level to Tax Brackets

Understanding the income thresholds for different tax brackets can help you plan withdrawals from retirement accounts. By staying within lower tax brackets, you may reduce the portion of your Social Security benefits subject to taxation.

Delay Social Security

Social Security benefits are not taxed until you start receiving them. By waiting to claim, ideally until age 70, you can reduce taxable income during your 60s while also increasing your eventual monthly benefit.

Using other income sources such as withdrawals from a traditional IRA or 401(k) can help cover expenses in the meantime. This approach may lower those account balances before required minimum distributions (RMDs) begin, giving you more flexibility to manage your income and tax bracket in your 70s.

Bottom Line

A senior surprised by unexpected taxes commonly known as the Social Security tax torpedo.

Understanding and proactively addressing the possibility of a Social Security tax torpedo can increase your net income during retirement. By utilizing tools like Roth IRAs, charitable donations and QLACs, you can create a more tax-efficient retirement. Additionally, being mindful of how your income level relates to tax brackets and considering delaying Social Security can provide further avenues to optimize your financial well-being and quality of life in retirement.

Tax Planning Tips for Retirement

Consulting a financial advisor is a crucial step in planning for retirement and avoiding the Social Security tax torpedo. An advisor can give you personalized guidance tailored to your specific financial situation, goals and preferences. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Planning during your working years makes a tax-efficient retirement more doable. However, if you’re already retired, you can still lower your taxes and set yourself up for a brighter financial future.