5 Retirement Tax Traps That Catch High-Earning Couples Off Guard

If you’re a high-earning couple, you probably assume you’re doing “most of the right things” for retirement: maxing out employer plans, investing consistently, and building a sizable nest egg.

But there’s a quieter threat that trips up a lot of otherwise well-prepared couples: retirement tax traps. Not outright mistakes, but combinations of rules, income levels, and timing that can cause larger-than-expected tax bills, higher Medicare premiums, and fewer options later in life.

This article is general education only. Tax rules change, your situation is unique, and nothing here is personal tax, legal, or investment advice. Before acting, always consult a qualified tax professional and a certified financial advisor who understands your full picture.

At Vertex Capital Advisors, we focus on retirement income and tax planning for pre-retirees, retirees, and widows, helping you understand how these moving parts fit together in real life.

Here are five retirement tax traps that often catch high-earning couples off guard—and questions to raise with your advisory team.

Tax Trap #1: The “Double RMD” Year

Once you hit the Required Minimum Distribution (RMD) age, the IRS expects you to start taking at least a minimum amount out of your pre-tax retirement accounts—traditional IRAs, SEP IRAs, SIMPLE IRAs and most employer plans.

Today, most retirees must begin RMDs at age 73, with the first required withdrawal due by April 1 of the year after you reach that age.

Here’s the part many high-earning couples miss:

• If you delay your very first RMD until that April 1 deadline,

• You still must take your second RMD by December 31 of that same year.

That means two taxable distributions in one calendar year. For high-earning couples who already have sizable income from work, pensions, or investments, this can:

• Push a larger portion of income into a higher tax bracket.

• Increase the taxable amount of Social Security benefits.

• Trigger or increase Medicare IRMAA surcharges (see Trap #2).

• Push you into the 3.8% Net Investment Income Tax (see Trap #4).

Questions to discuss with your advisor and tax professional:

• Does it make sense to take my first RMD in the year I turn 73, instead of waiting until April 1 of the following year?

• Should we proactively draw down pre-tax accounts in earlier years (before 73) to smooth out future RMDs?

• How do potential Roth conversions fit into this picture?

Tax Trap #2: Medicare’s IRMAA “Stealth Tax”

Many high-earning couples are surprised to find that Medicare premiums are effectively means-tested. If your income crosses certain thresholds, you pay extra monthly surcharges called IRMAA—Income-Related Monthly Adjustment Amounts—on Medicare Parts B and D.

A few key points:

• IRMAA is based on your Modified Adjusted Gross Income (MAGI) from two years prior. For 2025 Medicare costs, the Social Security Administration typically looks at your 2023 tax return.

• For 2025, married couples filing jointly begin paying IRMAA surcharges when their income exceeds $212,000.

• As income rises, surcharges increase in tiers. High-earning couples can see hundreds of dollars per month, per person added to Medicare premiums.

The trap:

A one-time event—large capital gain, Roth conversion, sale of a business, or particularly large RMD—can push you over an IRMAA threshold for an entire year of higher premiums, even if your income drops back down later.

Because of the two-year lookback, a decision you make at age 63 or 64 might not show up in your Medicare premiums until you’re 65 or 66.

Questions to discuss with your advisor and tax professional:

• How close is our current income to the IRMAA thresholds for couples?

• Are there ways to spread out income events—for example, staged Roth conversions instead of one large conversion?

• If we recently retired and our income is now lower, should we discuss a possible IRMAA appeal with Social Security?

Tax Trap #3: The Social Security “Tax Torpedo”

Many couples are surprised to learn that up to 85% of their Social Security benefits can be taxable, depending on overall income.

The IRS uses a formula called “combined income”, which includes:

• Your adjusted gross income (AGI),

• Plus any nontaxable interest,

• Plus half of your Social Security benefits.

For couples filing jointly:

• Below certain income thresholds, Social Security benefits may not be taxable.

• As combined income increases, up to 50%, and then up to 85% of benefits become taxable.

Here’s the “torpedo” part:

Additional income—such as:

• Larger IRA withdrawals,

• Capital gains,

• Required Minimum Distributions,

• Roth conversions, or

• Part-time work,

may not only be taxed themselves, but can also pull more of your Social Security into the taxable column, creating a steeper-than-expected effective tax rate.

Questions to discuss with your advisor and tax professional:

• How will our different income sources in retirement interact with Social Security taxation?

• Does it make sense to delay Social Security or adjust when we claim, based on our broader tax picture?

• Can we structure withdrawals to avoid stacking multiple income sources in the same year?

Tax Trap #4: The 3.8% Net Investment Income Tax (NIIT)

High-earning couples often have substantial investment income from:

• Taxable brokerage accounts,

• Interest and dividends,

• Capital gains, or

• Rental properties.

The Net Investment Income Tax (NIIT) is a 3.8% additional federal tax on certain investment income for individuals whose Modified Adjusted Gross Income exceeds specific thresholds, including $250,000 for married couples filing jointly.

NIIT applies to the lesser of:

• Your net investment income, or

• The amount by which your MAGI exceeds the threshold.

For high-earning couples, NIIT can show up when:

• You realize large capital gains (for example, from selling a long-held stock position or investment property).

• You have high ongoing interest and dividend income.

• Significant retirement account withdrawals push your MAGI above the NIIT threshold, even if those withdrawals themselves aren’t “investment income.”

The trap is that NIIT often appears on top of your regular federal and state taxes—raising your marginal rate on certain investment income significantly.

Questions to discuss with your advisor and tax professional:

• How close are we to the NIIT income threshold?

• Are there opportunities to harvest losses, manage capital gain timing, or use tax-advantaged accounts to reduce exposed investment income?

• Should we consider re-positioning taxable investments toward more tax-efficient strategies?

Tax Trap #5: The Widow(er)’s Tax Penalty

This one is emotionally and financially difficult, and it hits many couples who have planned diligently.

In the year a spouse dies, the surviving spouse can usually still file as “married filing jointly.” In later years, however, the survivor typically must file as “single”, which means:

• Narrower tax brackets,

• A smaller standard deduction, and

• Lower income thresholds for IRMAA and other phase-outs.

This shift is sometimes called the “widow’s penalty”: the surviving spouse may pay higher taxes and Medicare costs on less income, especially if the couple did not plan ahead for this change.

Things that can amplify the widow(er)’s penalty:

• Large pre-tax balances (IRAs, 401(k)s) that now all belong to one person.

• RMDs calculated on those balances, but taxed at single brackets.

• IRMAA thresholds that are lower for single filers, leading to higher Medicare premiums at the same income levels.

Good planning tries to look not only at “our tax bill as a couple,” but also at “what happens to my spouse later if I’m not here.”

Questions to discuss with your advisor and tax professional:

• If one of us died in the next 5–10 years, what might our surviving spouse’s tax picture look like?

• Does it make sense to consider:

  • Strategic Roth conversions while both spouses are alive,

  • Beneficiary designations that help balance tax exposure, or

  • Other planning steps that could reduce the widow(er)’s penalty?

• How do these decisions interact with our estate planning, insurance, and legacy goals?

Bringing It All Together: Coordinated Retirement Tax Planning

Each of these tax traps—RMD timing, IRMAA, Social Security taxation, NIIT, and the widow(er)’s penalty—can be complicated on its own. But what really matters is how they interact together in your life.

For high-earning couples, thoughtful planning may include:

• Mapping out a multi-year tax plan, not just one tax return at a time.

• Coordinating:

  • When to claim Social Security.

  • How and when to draw from different accounts (taxable, pre-tax, Roth).

  • The timing of large income events (asset sales, business exits, Roth conversions).

• Stress-testing your plan for “what if” scenarios, such as:

  • Early retirement,

  • A market downturn,

  • A health event, or

  • The death of a spouse.

Because laws and thresholds change regularly, it’s important to review this plan periodically with your advisory team.

How Vertex Capital Advisors Can Help

At Vertex Capital Advisors, we work with pre-retirees, retirees, and widows who want clarity and confidence around their retirement income and taxes. Our planning process is designed to:

• Help you understand how different income sources will be taxed over time.

• Identify potential tax traps before they become surprises.

• Coordinate with your CPA and estate planning attorney so your retirement income, investments, and legacy plan work together.

Again, nothing in this article is specific advice for your situation. Before making any decisions, please consult:

• A qualified tax professional (such as a CPA or Enrolled Agent), and

• A certified financial planner who understands your goals, risk tolerance, and complete financial picture.

If you’d like to explore how these retirement tax issues might affect your own plan, you can connect with Vertex Capital Advisors through the contact information on our website and start a conversation about your retirement income and tax strategy.

Don't wait–reach out today.

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