Retirement Planning Guidebook: Navigating the Important Decisions for Retirement Success (The Retirement Researcher Guide Series)

by Wade Pfau

These tax rates could be even higher if there were long-term capital gains that further get pushed from the 0 percent tax bracket to the 15 percent tax bracket as Social Security becomes taxable. For this to be relevant, the household would need to still be in the 12 percent tax bracket and in a range where a dollar of income is taxing 85 percent of a dollar of Social Security. If this also then pushes $1.85 of long-term capital gains from the 0 percent to the 15 percent tax bracket, then suddenly the marginal tax rate is 49.95 percent. With the tax rates scheduled to return in 2026, the 12 percent tax bracket becomes 15 percent, which then increases the overall marginal tax rate to 55.5 percent for this perfect tax storm. Retirement tax rates will not always be lower in retirement, especially when a dollar of income leads to tax on that income, tax on more of Social Security, and tax on more of long-term capital gains or qualified dividends.