A traditional IRA or 401(k) withdrawal in retirement rarely stops at the tax on the withdrawal itself. Because of the way the government counts income, taking money out of a tax-deferred account can quietly drag a portion of a retiree’s Social Security benefits onto the tax return as well. Financial planners call the effect the tax torpedo, and it catches savers who assumed their Social Security check was tax-free.
How “combined income” decides what gets taxed
Social Security uses a special measure called combined income to decide how much of a benefit is taxable. The formula is adjusted gross income, plus any tax-exempt interest, plus half of the year’s Social Security benefits. A withdrawal from a traditional retirement account counts as ordinary income and lands in that first bucket, which raises combined income dollar for dollar.
As combined income climbs past set thresholds, a larger share of the Social Security benefit becomes taxable — up to a maximum of 85%. So a single $10,000 IRA distribution can be taxed on its own and, at the same time, make several thousand dollars of previously untaxed Social Security benefits taxable too.
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The thresholds that trigger the tax
The tipping points are low and have not moved in decades. For a single filer, none of the benefit is taxable when combined income stays under $25,000; between $25,000 and $34,000, up to 50% can be taxed; above $34,000, up to 85% is exposed. For a married couple filing jointly, the bands are $32,000 and $44,000.
Those figures were written into law in the 1980s and 1990s and, unlike tax brackets, are not adjusted for inflation. As benefits and account balances have grown over the years, more retirees each year cross the lines and see more of their Social Security taxed, even though the dollar thresholds themselves never change.
Why a single withdrawal can be taxed twice over
The compounding nature of the formula is what makes the effect sting. A retiree who takes an extra distribution to cover a home repair or a car purchase pays income tax on that money, which is expected. What is less obvious is that the same withdrawal can push combined income across a threshold and pull additional Social Security dollars into the taxable column, raising the effective tax rate on that withdrawal well above the retiree’s stated bracket.
In a narrow band of income, each additional dollar withdrawn can cause up to 85 cents of a benefit to become taxable at the same time, producing marginal rates that briefly run higher than the rate on much larger incomes. That is the mechanism behind the “torpedo” nickname.
Roth accounts and timing as pressure valves
Because the trigger is combined income, the source and timing of withdrawals matter. Money pulled from a Roth IRA or Roth 401(k) is generally not counted in the formula, so a retiree who draws from a Roth in a given year can cover expenses without inflating combined income or taxing more of a benefit. Spreading large expenses across tax years, rather than taking one big distribution, can also keep income under a threshold.
Some retirees use the lower-income years between leaving work and starting benefits or required withdrawals to convert traditional funds to Roth, paying tax then at a modest rate to reduce the taxable withdrawals — and the resulting benefit taxation — later. The right move depends on the individual’s bracket and balances, and the arithmetic is worth running before a large withdrawal, not after.
Required minimum distributions raise the stakes
The pressure grows once required minimum distributions begin. Starting at age 73 under current law, the government forces annual withdrawals from most traditional retirement accounts whether the money is needed or not, and those mandatory distributions feed straight into combined income. A retiree with a large tax-deferred balance can find that required withdrawals alone push most of a Social Security benefit into the taxable range every year.
Planning ahead is the main defense. Drawing down traditional accounts earlier, converting some to Roth during low-income years, or coordinating withdrawals with Social Security timing can keep more of the benefit out of the tax net. Left unmanaged, the interaction between account withdrawals and benefit taxation can cost a retiree far more than the headline tax rate suggests.
A handful of states add their own tax on Social Security benefits, though most do not, so the federal calculation is only part of the picture for some retirees. The practical takeaway is that a Social Security check is not automatically tax-free, and the amount that ends up taxable is partly within a retiree’s control. Mapping out withdrawals a year or more in advance, rather than reacting to a single large expense, is what separates a manageable tax bill from an unexpected one.
This article was researched and drafted with the assistance of AI and reviewed by The Financial Wire editorial team.
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David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
