Completing a long, fulfilling career is a feat that’s well worth celebrating. Retirement should offer financial clarity, not costly surprises or unexpected tax bills. Yet for many Americans, common—but often overlooked—tax codes can quietly reduce the income they worked so hard to build.

Unfortunately, these tax pitfalls aren’t just technical. They’re traps that can cost thousands when left unchecked.

Below, we highlight three of the most common retirement tax traps—and how proactive planning can help you avoid them.

Your Social Security Might Be Taxable

When Social Security was first introduced, it wasn’t taxable at all. In 1983, Congress introduced thresholds allowing up to 50% of benefits to be taxed. Ten years later, an additional tier was introduced, pushing the highest taxable amount up to 85% of one’s benefit.

Here’s the kicker: Those income thresholds—over $25,000 for individuals and $32,000 for couples to be taxed at 50%, and $34,000 and $44,000 to be taxed at 85%—have never been adjusted for inflation. That’s over 30 years of wage growth and cost-of-living increases, all without a single change to the brackets.

As a result, what used to be a tax that affected only the highest earners now affects the average retiree. In fact, the percentage of Americans who pay tax on their Social Security benefits has jumped from under 10% in 1984 to over 50% today.

If you want to avoid getting pushed into a higher tax bracket because of these outdated thresholds, it’s essential to coordinate how and when you draw income from other sources. Many retirees are surprised to learn that their “provisional income” includes half of their Social Security along with all the rest of their taxable income, such as required minimum distributions and tax-exempt interest.

Intentional strategizing—like delaying Social Security, converting some assets to Roth IRAs, or withdrawing more from after-tax brokerage accounts earlier in retirement—can reduce your provisional income and keep more of your benefits tax-free.

Which is to say, it’s not just about income levels: It’s about income timing.

The Standard Deduction Might Leave You Paying More

On the surface, retirees benefit from a higher standard deduction. In 2025, individuals aged 65 and older receive an additional $2,000 (or $1,600 for each spouse aged 65 and older). However, what appears to be a tax break can sometimes be a backdoor increase to your taxable income.

Here’s why: Most retirees have paid off their mortgages, meaning they can no longer deduct mortgage interest. They’ve also stopped working, so there’s no state income tax withheld from wages. And depending on where they live, their property taxes may be capped—or too low to make a significant difference. Together, these changes mean that itemizing often provides less benefit than it used to, even for generous givers or high savers.

That wouldn’t be an issue if the standard deduction always worked in your favor, but for many retirees, it doesn’t. Those who used to easily clear the itemized deduction threshold may now find themselves stuck with a higher taxable income simply because their deductible expenses dropped off.

One powerful workaround? Charitable bunching. If you group several years’ worth of charitable donations into a single year—using a Donor-Advised Fund (DAF), for example—you may clear the standard deduction line and get the full tax benefit. This strategy is especially effective in retirement when income fluctuates.

It’s also worth tracking qualified medical expenses, which are deductible beyond 7.5% of AGI. For retirees with larger out-of-pocket costs, these deductions can bring serious savings—if you’re proactive about capturing them.

Medicare Costs Are Directly Tied to Income

Many retirees are blindsided by how much Medicare actually costs—especially when IRMAA kicks in. Short for Income-Related Monthly Adjustment Amount, IRMAA is a surcharge added to Medicare premiums for those with higher income.

In 2025, if your Modified Adjusted Gross Income (MAGI) is above $106,000 (individual) or $212,000 (joint), you’ll start paying more for Part B and Part D premiums. The higher your income, the steeper the surcharge.

What’s even more frustrating is that IRMAA is based on your income from two years prior to your retirement. So if you retire at 65, your Medicare premiums could reflect what you earned at 63—when you were likely in your peak earning years.

There are some workarounds, however. For example, by coordinating Roth conversions, managing capital gains, and planning large distributions before or after that IRMAA look-back window, you can avoid unnecessary surcharges. And if you’ve already hit the threshold? Appeals are possible through Form SSA-44, particularly for life-changing events such as retirement.

Another way is to reduce your future MAGI by making Qualified Charitable Distributions (QCDs) from your IRA. These don’t count toward your MAGI and can satisfy your RMD, while helping to lower your tax bill and ultimately your Medicare premiums.

It’s true: Tax traps can catch you off guard, leaving you facing higher taxes and premiums that you never saw coming. But not if you have the right help at your side.

Here at Felton & Peel, we help you stay ahead by tailoring your retirement strategy to preserve your nest egg, reduce hidden tax burdens, and insulate your portfolio against unexpected hiccups. We’re here to help—and your first consultation is on us.