AUTHOR: Randy Dobkin on 7/18/2024 FIRST: baldscreen on 7/18/2024 | RECENT: Mark Eckman on 7/20/2024
Comments
From Copilot AI: Short takeaway: The Social Security tax torpedo is a nasty jump in your marginal tax rate that happens when additional income causes more of your Social Security benefits to become taxable. It’s not an official tax bracket — it’s a hidden one — and it can push your real marginal rate into the 30–50%+ range, even for retirees who think they’re in a much lower bracket.
Below is the clean, structured explanation you’ve been looking for. What the “tax torpedo” actually isWhen you add income in retirement — usually from IRA withdrawals, pensions, capital gains, or work income — the IRS may require that a larger portion of your Social Security benefits become taxable.
Because up to 85% of your benefits can become taxable, each extra dollar of income can cause:
More tax on the new dollar, and
More tax on Social Security benefits that were previously untaxed
This creates a double‑tax effect, which is why the marginal rate spikes.
I wouldn't mind having all Soc Sec income taxable. That would eliminate the tax torpedo (85% increase in some marginal rates) and maybe encourage more IRA withdrawals.
Yes, you can buy TIPS at TreasuryDirect, but I prefer Fidelity. There is no fee, you get the same deal. And at a broker you can buy in a traditional IRA, the best place for TIPS.
Seems to me you don't buy a bond fund for price appreciation, you buy it for the dividends. So there's no need to wait for it to recover unless your crystal ball tells you interest rates are going down. Things aren't as bad as they seem; if its price has gone down, its yield has gone up, helping your total return. I've gotten rid of most of those pesky bonds in our taxable account, but if I still had a fund, I'd sell it for the tax loss and buy the TIPS in my traditional IRA. (Just bought the new 10-year TIPS for 2.4+% real yield to extend my ladder.)
Comments
From Copilot AI: Short takeaway: The Social Security tax torpedo is a nasty jump in your marginal tax rate that happens when additional income causes more of your Social Security benefits to become taxable. It’s not an official tax bracket — it’s a hidden one — and it can push your real marginal rate into the 30–50%+ range, even for retirees who think they’re in a much lower bracket. Below is the clean, structured explanation you’ve been looking for. What the “tax torpedo” actually is When you add income in retirement — usually from IRA withdrawals, pensions, capital gains, or work income — the IRS may require that a larger portion of your Social Security benefits become taxable. Because up to 85% of your benefits can become taxable, each extra dollar of income can cause:
- More tax on the new dollar, and
- More tax on Social Security benefits that were previously untaxed
This creates a double‑tax effect, which is why the marginal rate spikes.Post: Taxing Social Security benefits
Link to comment from August 8, 2026
FICA tax is payroll tax, not income tax. And what you collect from Soc Sec can exceed what you paid in FICA taxes. I'm for simplifying the tax system.
Post: Taxing Social Security benefits
Link to comment from August 8, 2026
I wouldn't mind having all Soc Sec income taxable. That would eliminate the tax torpedo (85% increase in some marginal rates) and maybe encourage more IRA withdrawals.
Post: Taxing Social Security benefits
Link to comment from August 7, 2026
What are the lowest fee funds? Maybe there's actually a good one.
Post: When your 401(k) excludes target date funds
Link to comment from August 6, 2026
Another thing Jim Dahle says is that companies can get in trouble for having a lousy 401(k).
Post: When your 401(k) excludes target date funds
Link to comment from August 5, 2026
Or maybe just index the capital gain exclusion for inflation.
Post: $400,000 Mistake
Link to comment from August 2, 2026
Yes, you can buy TIPS at TreasuryDirect, but I prefer Fidelity. There is no fee, you get the same deal. And at a broker you can buy in a traditional IRA, the best place for TIPS.
Post: Taking a Loss?
Link to comment from August 1, 2026
One advantage of buying at auction in September is there's no bid/ask spread.
Post: Treasury Inflation Protected Securities (TIPS) are a Generational Bargain Right Now
Link to comment from July 30, 2026
I think Rob Berger mentioned this in a recent YouTube video if you want to look that up.
Post: Treasury Inflation Protected Securities (TIPS) are a Generational Bargain Right Now
Link to comment from July 29, 2026
Seems to me you don't buy a bond fund for price appreciation, you buy it for the dividends. So there's no need to wait for it to recover unless your crystal ball tells you interest rates are going down. Things aren't as bad as they seem; if its price has gone down, its yield has gone up, helping your total return. I've gotten rid of most of those pesky bonds in our taxable account, but if I still had a fund, I'd sell it for the tax loss and buy the TIPS in my traditional IRA. (Just bought the new 10-year TIPS for 2.4+% real yield to extend my ladder.)
Post: Taking a Loss?
Link to comment from July 29, 2026