New York Elder Law Attorney
Some limits and deadlines have wiggle room, but IRS rules, especially those regarding retirement rules, aren’t among them.
The “retirement rule of $1 more” refers to the costly situations created when an increase, even by as much as $1, can trigger tax consequences or increase Medicare costs. Want to avoid crossing this expensive line? Here’s how.
Medicare’s Threshold—Meet IRMAA
The complexities of Medicare make it easy to make expensive mistakes. One survey revealed that more than 50% of people queried didn’t know that Medicare Part B – how doctor’s fees are paid – isn’t free. You have to pay monthly premiums for the coverage. What most folks don’t know: high incomes will lead to higher premiums.
If you exceed certain thresholds, expect to receive a welcoming letter from Medicare telling you that you’ve fallen into the IRMAA category. Income Related Monthly Adjustment Amount (IRMA) is based on the Modified Adjusted Gross Income (MAGI) from two years prior. In 2025, the first surcharge starts at $103,000 for singles and $206,000 for married couples filing a joint return.
If you do a Roth Conversion, take RMDs (Required Minimum Distribution) from your retirement accounts or added a new project to a retirement/side hustle, you could end of paying higher health costs for an entire year.
There’s some hope for the IRMAA threshold. If you had a major life change, including a death of a spouse, loss of a job, or income is higher because of a qualifying event, you can try to appeal using SSA-Form 44. It’s worth the effort, but there’s no guarantee of reduced premiums.
Social Security Tax Traps
Depending on how much you earn from other sources, your Social Security benefits might be subject to federal tax – as much as 85%. The SS tax calculation is based on “provisional income,” which means half of your SS benefits plus all other income, including wages, IRA withdrawals and tax-exempt interest.
Cross the $25,000 limit for singles or $32,000 for married joint filers, and the tax hit begins. It’s been decades since the formula has been updated, so every year the number of people hitting and exceeding the threshold increases.
The new tax law doesn’t eliminate federal taxes on SS, but it does give Americans age 65 and older with income under $75,000 (for individuals) and $150,000 for couples a $6,000 boost to their already existing extra standard deduction from 2025 to 2028.
Capital Gains Tax Windows
The tax code gives a 0% long term capital gain rate to many retirees, but this window closes fast. Ordinary income, including withdrawals from IRAs or 401(k) stays below capital gains, but even a modest income increase can move you into a higher tax bracket. Depending on where you land, those gains could be taxed at 15% or 20%.
In 2025, married joint filers can realize up to $96,700 in long term capital gains with zero federal tax if there’s little or no other income. But you may still need to pay state taxes. And go just $1 over ordinary income and your gains may become taxable.
Remember your RMDs from traditional IRAs and 401(k)s? They’re taxed as ordinary income, so every time you receive an RMD, your income tax increases and so can your tax bracket, Medicare premiums and how much of your Social Security benefits are taxed.
But wait—there’s more. Small increases in income can disqualify retirees from a number of other tax breaks and credits, including the Saver’s Credit, deductions for medical and charitable donations.
What Can You Do to Minimize These Threshold Costs?
The best defense against the Retirement Rule of $1 More is planning ahead. Talk with your CPA to discuss your income, strategies and make the necessary adjustments. One method is to use taxable retirement accounts before tapping pre-tax ones to take advantage of lower, 9% capital gains rate. Another is to convert IRAs and 401(k)s to Roths in lower tax years. If you don’t need your RMDs, you could use them for a Qualified Charitable Distribution (QCD), which allows you to donate up to $100,000 to a qualified nonprofit.
We recommend a conversation with our office to discuss how to structure retirement income with your estate plan. There are a number of opportunities available to minimize your chances of stepping over that expensive threshold.
Resource: Kiplinger July 8, 2025 “The Retirement Rule of $1 More”