By Ted Stricker, CFP®

Collecting Social Security is one of the great American benefits, but with the rise of 401(k)s, IRAs, and taxable investment accounts, it’s become a lot more complicated.

Now, retirement income doesn’t come from just one place.

For most retirees, it’s a mix: Social Security, IRAs, maybe taxable investment accounts. And while that flexibility is valuable, it can also create an unexpected issue:

The way you take income can impact how much you pay in taxes.

One of the most overlooked dynamics is how IRA withdrawals interact with Social Security. Taken together without a plan, they can gradually increase your tax bill. Coordinated thoughtfully, they can help create a more efficient income strategy.

Why This Matters More Than Most Retirees Realize

Social Security isn’t always tax-free.

Depending on your income, up to 85% of your benefit can be subject to federal taxes. What determines that? A formula called “combined income.”

Combined income includes:

• Your adjusted gross income (AGI)
• Tax-exempt interest (like municipal bonds)
• 50% of your Social Security benefits

Here’s where it gets important:

Traditional IRA withdrawals increase your AGI.

Which means the more you withdraw, the more likely it is that a larger portion of your Social Security becomes taxable.

This creates a ripple effect. One decision can impact multiple parts of your financial picture.

The Hidden Tax Trap

Let’s say you need additional income one year and decide to take a larger IRA withdrawal.

That withdrawal:

• Increases your taxable income
• Raises your combined income
• Potentially causes more of your Social Security to be taxed

So instead of just paying taxes on the withdrawal itself, you may also trigger additional taxes on your benefits.

It’s not always obvious when this is happening, which is why many retirees are caught off guard.

Why Timing Matters

It’s not just how much you withdraw… it’s when.

For example, some retirees choose to:

• Delay Social Security while drawing from IRAs earlier
• Smooth income across years instead of taking large withdrawals all at once
• Be more selective about which accounts they pull from in a given year

These decisions can influence how income is recognized over time, thereby affecting taxation.

The goal isn’t to eliminate taxes, it’s to avoid unnecessary spikes.

Different Accounts, Different Tax Impact

Not all retirement income is treated the same.

Here’s a simplified breakdown:

Traditional IRA / 401(k):

• Fully taxable as ordinary income
• Increases combined income
• Can increase the taxation of Social Security

Roth IRA:

• Typically tax-free withdrawals (if qualified)
• Does not increase the combined income
• Does not impact Social Security taxation

Taxable Brokerage Accounts:

• Capital gains treatment may apply.
• Impact depends on gains vs. basis.

This is why many retirees benefit from having multiple “buckets” to draw from. It provides flexibility in how income is reported on a tax return.

A More Coordinated Approach

Instead of thinking about each income source separately, it can help to view retirement income as a system.

That might include:

• Looking at income across multiple years, not just one
• Spreading withdrawals to avoid large jumps in taxable income
• Being intentional about which accounts are used first
• Monitoring how close you are to key tax thresholds

Small adjustments, especially early in retirement, can influence outcomes over time.

Where Many Plans Fall Short

A common approach is to:

• Claim Social Security when it feels right.
• Withdraw from IRAs as needed.

Individually, those decisions may seem reasonable.

But without coordination, they can lead to:

• Higher-than-expected taxes
• Income spikes that push you into different thresholds
• Less control over your overall tax picture

A clear view of how withdrawals impact taxes can help you avoid surprises.

Bringing It All Together

How and when you draw income can matter just as much as the amount.

IRA withdrawals and Social Security don’t exist in isolation, they interact. And understanding that interaction can help you make more informed decisions about timing, sequencing, and distribution strategies.

For many retirees, this is one of the areas where a little planning can go a long way.

To avoid unexpected tax surprises as you coordinate Social Security and retirement withdrawals, schedule a meeting by calling (212) 221-1140 or email tstricker@brwealth.com.

 

Frequently Asked Questions

Why do IRA withdrawals affect Social Security taxes?

Because they increase your adjusted gross income, which is used to calculate how much of your Social Security is taxable.

How much of Social Security can be taxed?

Up to 85%, depending on your combined income level.

Do Roth IRA withdrawals impact Social Security taxes?

Generally, no. Qualified Roth withdrawals don’t increase taxable income or combined income.

About Ted

Ted Stricker, CFP®, is a partner at Bernath + Rosenberg with over 27 years of experience specializing in custom financial plans for business owners and affluent families. Since joining the firm in 2015, he has led the wealth management team in delivering practical, independent advice tailored to each client’s unique lifestyle and goals. Based out of the firm’s multi-state offices, Ted is a member of the Financial Planning Association and helps maintain Bernath + Rosenberg’s standing as a top-ranked national CPA firm in financial planning.

Professionals associated with Bernath & Rosenberg P.C. may be either (1) registered representatives with, and securities and advisory services offered through LPL Financial, Member FINRA/SIPC, a registered investment advisor; or (2) solely tax professionals of Bernath & Rosenberg P.C., and not affiliated with LPL Financial. Tax/accounting/CPA related services offered through Bernath & Rosenberg P.C. is a separate legal entity and not affiliated with LPL Financial. LPL Financial does not offer tax advice or Tax/accounting/CPA related services.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax situation with a qualified tax advisor.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.