Quick Read
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Affluent Americans need $2.6 million for retirement but have saved only 52% of that target on average, per HSBC.
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A $60,000 RMD can push a retiree's combined income to $73,000, making $22,134 of previously tax-free Social Security benefits taxable.
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Roth conversions, early IRA drawdowns, and qualified charitable distributions (up to $111,000 in 2026) can reduce future RMD tax exposure before age 73.
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Affluent Americans now believe they'll need $2.6 million for a comfortable retirement, up 26% year-over-year, according to a survey from HSBC( NYSE: HSBC ). Yet respondents in the U.S. have accumulated just 52% of that target on average. Among those still working, 64% envision easing into retirement instead of leaving their careers all at once.
Reaching that savings goal is one challenge. Keeping taxes from eating into the money is another. Picture Linda, a single retiree with a seven-figure traditional IRA. She's no longer collecting a paycheck and assumes her Social Security benefits won't face much taxation. But once the IRS requires her to start drawing from that account, the calculation changes.
Required IRA Withdrawals Start at 73 or 75
A traditional IRA lets investments grow tax-deferred for decades, but the IRS eventually requires withdrawals. For people born from 1951 through 1959, required minimum distributions (RMDs) begin for the year they turn 73. Those born in 1960 or later generally start at 75.
The first withdrawal can be delayed until April 1 of the following year, although that could mean taking two distributions in the same calendar year. Subsequent withdrawals are due by December 31. Missing the deadline can trigger a 25% excise tax on the shortfall, reduced to 10% if corrected in time.
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How IRA Withdrawals Reach Your Social Security
The IRS uses a formula called combined income to determine how much of your Social Security is taxable. Add your adjusted gross income (AGI), tax-exempt interest and half your annual benefits. For single filers, benefits generally remain tax-free when that total is $25,000 or less. Above that threshold, up to 50% can become taxable. Once combined income exceeds $34,000, the taxable portion can climb as high as 85%.
That doesn't mean Social Security is taxed at an 85% rate. It means as much as 85% of your benefits can be included in taxable income, where your regular federal income tax rates apply.
Here is how it plays out. Say Linda collects $2,170 a month, roughly the average retired worker's benefit after the 2027 benefit increase. That is $26,040 a year. With little other income, her combined income is $13,020, so none of her Social Security is taxed.
Now add a hypothetical $60,000 required withdrawal. Combined income jumps to $73,020, and the formula hits its ceiling: $22,134 of her benefits becomes taxable income. The same check that was tax-free at 70 is mostly taxable at 73.
The steepest squeeze comes before the taxable share reaches its 85% maximum. In that range, another $1,000 of IRA income can cause an additional $850 of Social Security benefits to become taxable. For someone in the 22% federal bracket, that could mean roughly $407 in additional income tax on the $1,000 withdrawal. Once the 85% ceiling is reached, that extra tax effect stops.
And Social Security taxes aren't the only concern. Large IRA withdrawals can also push retirees into higher Medicare premiums two years later. In 2026, a single filer with modified adjusted gross income above $109,000 pays $284.10 a month for Part B instead of the standard $202.90.
Three Levers That Work Best Before Your First Required Withdrawal
Withdrawal timing.Gradually leaving the workforce, as many HSBC respondents plan to do, can open a valuable tax-planning window. Once earnings fall but before RMDs begin, retirees may have room to draw down traditional IRAs at lower tax rates. Taking some money before claiming Social Security can also reduce the balance that eventually determines mandatory withdrawals.
Roth conversions.Moving money from a traditional IRA into a Roth IRA generally creates taxable income in the conversion year. But qualified withdrawals from the Roth later won't increase combined income or make more Social Security taxable. Spreading conversions across several lower-income years may help manage the upfront tax bill and reduce future required withdrawals.
Qualified charitable distributions.Starting at age 70½, you can direct IRA money to an eligible charity without including the qualifying distribution in taxable income. These gifts can also satisfy all or part of your required withdrawal. The annual limit is $111,000 per person in 2026. For retirees who already give to charity, this can fulfill that commitment without increasing the income used to determine Social Security taxation.
Your Withdrawal Plan Matters as Much as Your Savings Target
A larger nest egg can bring a bigger tax bill once required withdrawals begin. Before reaching your RMD starting age, estimate how much you'll have to withdraw and calculate your combined income, including half your expected Social Security benefits. If that pushes the total well above $34,000 for a single filer, the years before mandatory withdrawals begin may offer room to reduce the eventual tax burden.
The mistake hardest to undo is letting the years between retirement and 73 pass with no plan (we walked through how to defuse that first-year tax bomb in a free guide, here). Once required withdrawals start, the options get smaller. Filing status, a spouse's income, and state taxes all shift these lines, so run the numbers for your own household before settling on a strategy.
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