Ask an Advisor: How Can Tax Rates in Retirement Be Higher Than Your Earning Years?

I recently attended a retirement seminar at a local community college where the instructor talked about potentially higher tax rates in retirement due to the new RMD age. I have been under the impression throughout my saving career that tax rates in retirement are supposed to drop, especially if you pace your withdrawals. How can tax rates in retirement be higher than your earning years?

-Sumit

Let’s start with the simplest answer and then build from there.

Required minimum distributions (RMDs) are certainly a reason that a person’s tax rate might go up in retirement, but they’re not the only reason. There are a number of possible scenarios in which a person faces higher taxes in retirement when compared to their earning years.

If you need help planning for taxes in retirement, consider matching with a financial advisor.

RMD Rules Could Lead to Higher Taxes

Under the SECURE 2.0 Act, RMDs begin at age 73 (or age 75 if you were born in 1960 or later). As a result, those whose RMD age is 75 can leave their savings invested for two extra years. This extra time in the market can mean an even larger balance for annual distributions.

However, these larger distributions can potentially push you into a higher tax bracket. Larger distributions can also trigger Medicare’s income-related monthly adjustment amount (IRMAA), leading to higher monthly premiums for Medicare Parts B and D. (Consider talking to a financial advisor who can help you plan for RMDs or avoid IRMAA.)

To calculate your RMDs, take your account balance from December 31 of the previous year and divide it by the IRS life expectancy factor corresponding to your age.

For example, say that you’re 73 years old with $1.2 million in a traditional IRA (as of December 31 of the previous year. To calculate your RMD, you would divide $1.2 million by 26.5 and get $45,283. You have until April 1 of year after you turn 73 to take your first RMD. However, if you opt to delay your first RMD until then, you’ll have to take another RMD by the end of that year.

Estimate your required distributions using our RMD Calculator and explore how they fit into your broader retirement plan.

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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RMD Amount for 401(k) #2

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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.

Greater Income

Ask an Advisor: How Can Tax Rates Be Higher in Retirement Than Your Earning Years?

Even with a larger salary and healthy savings, many retirees are surprised to find that their income increases in retirement.

While up to 85% of Social Security benefits are taxable, the combination of those payments and retirement account withdrawals can provide significant income. Add in pension income, taxable investments, rental income and part-time work, and a retiree may land in a higher tax bracket than during their primary earning years.

Inheriting pre-tax money can also drive up income in retirement because inherited IRAs now have a 10-year window to be fully distributed. Therefore, the full amount of the inherited IRA will be added to the beneficiary’s income within 10 years. (If you need help managing your income streams in retirement, this tool can help you match with a financial advisor.)

The Widow(er) Tax

In retirement, the death of a spouse often does not result in a significant reduction in income. However, the surviving spouse’s retirement income is now subject to the single tax bracket instead of the much-preferred married filing jointly bracket.

The widow(er) tax is an oft-overlooked tax rate increase that affects married couples when the first spouse dies. It can have a pronounced impact on your retirement budget. For example, for a couple with $50,000 in taxable retirement income, this could increase taxes each year by close to $1,000. For a couple with $100,000 in income, the tax increase would be closer to $5,000. (A financial advisor can help you navigate financial changes that may affect your tax situation.)

Large One-Time Expenses

A retiree may plan to take their pre-tax distributions evenly over time, but life rarely goes exactly as planned.

People may pay higher taxes in retirement during years when large distributions have to be taken from a pre-tax account to cover one-time expenses. Hopefully, that distribution is for something fun like an RV or a trip with the grandkids, but it also may be needed for a new roof or long-term care.

In either case, taking a lump sum distribution will drive up your income tax bill, as well as your IRMAA.

Tax Code Changes

The tax code is written in pencil. While some provisions tend to stick around longer than others, none of it is set in stone.

Until recently, many advisors expected individual tax rates to rise after the Tax Cuts and Jobs Act expired in 2026. However, the passage of the One Big Beautiful Bill Act (OBBBA) in July 2025 made most of those TCJA-era tax cuts permanent and introduced several new provisions that will shape tax planning for years to come.

Under the new law, the existing income tax brackets remain largely the same. This means that the automatic rate increases previously projected for 2026 will not occur under current rules.

That said, OBBBA also includes a few notable changes. It expands deductions for certain workers, introduces a new bonus deduction for taxpayers age 65 and older (through 2028) and increases the standard deduction.

While these changes may benefit many retirees, they may also shift how taxable income is calculated, depending on the mix of retirement income sources.

Still, remember that tax policy may change in the future. Congress can adjust rates, deductions or credits at any time, causing individual factors, such as RMDs, taxable Social Security benefits or Medicare premium surcharges, to potentially push retirees into higher tax brackets.

Planning ahead remains a key way to manage your tax exposure during retirement. (And, if you need more help planning for potential tax rate increases, consider speaking with a financial advisor.)

Legacy Planning

When it comes to tax planning, you must consider more than just the taxpayer’s life expectancy.

Pre-tax money passed on to heirs will still be subject to taxes at some point in the future. If the inheritance takes place during the beneficiary’s peak earning years, it could create a significant increase in taxes compared to what the original taxpayer would have paid – even without the addition of any of the other contributing factors.

Understanding what you may pay in taxes now versus in the future will largely determine your specific tax planning strategy. Any strategies that intentionally change the timing of income must also consider how tax rates might change over time. This applies when accelerating income from Roth conversions or capital gains harvesting, or accelerating deductions through tax-efficient charitable giving.

While these strategies may create new financial flexibility for the future, they may also trigger higher taxes in a given year of retirement. (And, if you need more help with your financial plan, consider matching with a financial advisor.)

Bottom Line

The belief that taxes will decrease in retirement is a common myth that can lead to inaction when it comes to tax planning. The best way to avoid skyrocketing taxes in retirement is to follow a retirement tax strategy tailored to your individual situation. Tax planning is about consistent action over time and not just a one-time major event. Small hinges will swing big doors when it comes to reducing a person’s retirement tax bill.

Tips for Finding a Financial Advisor

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.
Consider a few advisors before settling on one. It’s important to make sure you find someone you trust to manage your money. As you consider your options, these are the questions you should ask an advisor to ensure you make the right choice.

Steven Jarvis, CPA, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.

Please note that Steven is not a participant in the SmartAdvisor Match platform, and he has been compensated for this article. Taxpayer resources from the author can be found at retirementtaxpodcast.com. Financial Advisor resources from the author are available at retirementtaxservices.com.