Income Stacking: How RMDs Push Tampa Bay Retirees Into Higher Tax Brackets

Imagine your retirement income as a stack of blocks. Each income source is a block. Put them on top of each other, and they rise higher. The higher the stack, the more you're pushing into higher tax brackets. For most retirees in the Tampa Bay area, this stacking effect is the single largest driver of unnecessary taxes.

Let's build a realistic example. You're 73, retired for ten years. You have:

- Social Security: $36,000 per year

- Pension: $30,000 per year

- Investment income (dividends, interest): $15,000 per year

- Required Minimum Distribution: $35,000 per year

Your total income: $116,000.

Now, you might think you'll be in the 22% tax bracket based on this income. In 2025, the 22% bracket for single filers goes from roughly $47,000 to $100,500. But you're at $116,000, which puts you in the 24% bracket. The additional $15,500 above the 22% bracket is taxed at 24%, not 22%. That's an extra $300 in taxes compared to staying in the 22% bracket.

But the impact is actually larger because of how Social Security taxation works. Once your 'provisional income' (which includes RMDs and certain investment income) exceeds certain thresholds, portions of your Social Security become taxable. For single filers, that threshold is $25,000 (combined income) for 50% of Social Security to become taxable, and $34,000 for 85% of Social Security to become taxable.

In your example with $116,000 in income, your provisional income is well above both thresholds. Likely 85% of your Social Security ($30,600) is taxable, not just the portion above the threshold. The IRS has effectively converted your 'tax-free' Social Security into partially taxable income. That's another $7,344 in federal income (at 85% of $36,000 times 24% = roughly $7,344) that you wouldn't have if your income had been structured differently.

Next, consider Medicare premiums. IRMAA—Income Related Monthly Adjustment Amount—is based on your Modified Adjusted Gross Income from two years prior. At certain income thresholds, your Medicare Part B and Part D premiums increase substantially. For 2025, single filers earning over $103,000 face IRMAA surcharges. Your example income of $116,000 puts you in the second surcharge tier.

The Part B premium surcharge could be an additional $77.50-155 per month ($930-1,860 per year). The Part D surcharge could add another $75-200 per month depending on your drug plan.

Here's the real kicker: these surcharges are not marginal. They're like invisible taxes that don't show up on your 1040. You think you're paying 24% federal tax, but your true marginal rate on the last dollar of income is actually closer to 30-32% when you account for the IRMAA impact (since it's not a traditional tax, it doesn't reduce your AGI).

All of this is driven by that $35,000 RMD. If you had planned better, you could have reduced it.

In Wesley Chapel and throughout the Tampa Bay area, the solution is advance planning. Starting years before age 73, you could strategically convert portions of your traditional IRA to a Roth, reducing your future RMDs. Let's say you reduced your future RMD to $20,000 instead of $35,000. Your total income would be $101,000 instead of $116,000.

At $101,000, you stay comfortably in the 22% bracket. Your Social Security taxation stays at 50%, not 85%. Your IRMAA surcharges might disappear or drop to a lower tier. Your true tax rate on the last dollar of income is closer to 22-24%, not 30-32%.

The difference: roughly $3,600 per year in federal income tax, plus potentially $1,000-2,000 per year in avoided IRMAA surcharges. Over 20 years of retirement, that's $92,000-112,000 in additional taxes you pay by not managing the stack.

But most people don't understand this interplay. They see their 22% or 24% bracket and think they understand their tax situation. They don't realize that the last dollar of income is actually being taxed at 30%+ when you account for Social Security taxation, Medicare surcharges, and bracket creep.

There's also the Pennsylvania retiree advantage here—Florida has no state income tax. But that advantage only matters if you manage your federal taxes. A retiree in Pennsylvania faces both state and federal income tax stacking. In Florida, you avoid the state piece, but you still need to manage federal stacking.

The practical solution is to work backward from your RMD. If you know you'll have $35,000 in RMDs at 73, and you want to keep your income below $103,000 (to avoid IRMAA surcharges), you can calculate how much other income you can safely have. For most people, the answer is: convert some of that RMD-creating traditional IRA to a Roth well in advance.

Professionals call this 'managing the brackets,' and it should be a core part of retirement planning in the decade before you turn 73. The math is real. The savings are substantial. And the only people who benefit from you not doing this planning is the IRS.