- The “Silent Tax” — Medicare IRMAA Surcharge
One of the most overlooked costs for retirees in 2026 is the Income-Related Monthly Adjustment Amount (IRMAA) — an extra charge added to your Medicare Part B and Part D premiums if your Modified Adjusted Gross Income (MAGI) from two years prior exceeds certain thresholds. In 2026, the MAGI cutoff is around $109,000 for singles and $218,000 for joint filers, and the additional premiums can range significantly higher than standard premiums.
This isn’t income tax in the traditional sense, but it comes straight out of your retirement cash flow — and even a single large withdrawal, Roth conversion, or sale of assets at the wrong time can bump you into higher IRMAA bracket years later, surprising retirees who thought they were being careful.
Tip: Plan income strategically — spread withdrawals across years, consider Roth conversions earlier in lower-income years, (or before you are receiving Medicare benefits), and consult with a tax professional to avoid potential IRMAA surprises.
- Federal Income Taxes and Social Security
Many retirees assume Social Security is untaxed, but up to 85% of benefits can become taxable depending on your total income — including pension payouts, IRA withdrawals, dividends, or capital gains. Research suggests that once Social Security income becomes taxed some retirees may end up spending down other assets faster to make up for the taxes on Social Security.
- Required Minimum Distributions (RMDs) (Tax Bomb!)
Traditional IRAs, 401(k)s, and other tax-deferred accounts require you to start taking distributions at a specific age. While SECURE 2.0 has adjusted RMD ages and rules, the essential point remains: RMDs force income onto your tax return and can push you into a higher tax bracket or trigger other costs like IRMAA or Social Security taxation. There are no RMDs on Roth IRAs though since they’re tax-free.
- State Taxes — The Hidden Charges
Many retirees think they’ve “escaped taxes” by moving to retirement havens like Florida or Texas. But even in “tax-free” states, retirees can still face:
- Property taxes
- Sales taxes on everyday items
- Taxes on pension and retirement income sources
- State taxes on investment income or capital gains
The State of Michigan just passed a law removing state income taxes on withdrawals from IRAs, pensions and qualified employer plans like 401k’s and 403bs. Inherited IRA’s, deferred compensation plans and Roth conversions are all still state taxable.
For 2026, federal tax brackets and deductions saw some inflation adjustments, but there’s still a risk of “bracket creep” — where inflation bumps you into higher tax brackets without real increases in spending power.
- Coordinating Withdrawals and Capital Gains
Selling investments in retirement, taking lump-sum withdrawals, or harvesting gains from taxable accounts can have cascading tax effects. Capital gains can stack on top of traditional retirement income, pushing you into higher brackets and triggering higher Medicare premiums and Social Security taxation. Strategic taxable withdrawal and spreading gains over multiple years can help.
Final Thoughts: Plan Early
Taxes in retirement don’t disappear — they just change shape. What does disappear are tax deductions. The big takeaways:
- Don’t ignore IRMAA and Medicare surcharges.
- Understand how Social Security and RMDs interact with other income.
- Coordinate withdrawals across accounts to minimize taxes.
Retirement tax planning isn’t optional; it’s essential to preserve your wealth and ensure income lasts as long as you do. If you’re unsure where to start, consulting a retirement specialist who is familiar with 2026 tax rules and retirement strategies can make all the difference.
Call us for a free face-to-face or Zoom confidential conversation at 810-232-2300.
Katrina Savage
Alliance Financial Group, Inc.
Investment Advisory Services offered through Redhawk Wealth Advisors, Inc., an SEC Registered Investment Advisor. SEC Registration does not imply any level of skill or understanding. Insurance and annuity products sold separately through Alliance Financial Group, Inc. Alliance Financial Group and Redhawk Wealth Advisors are unaffiliated and separate legal entities.
