Why Reaching 73 in 2027 May Increase Taxes on Social Security Benefits

Turning 73 does not change the size of your Social Security check. But for people who reach that age in 2027, a tax rule can alter how much of their income the IRS counts, which may quietly make more of their Social Security benefits taxable.

The issue is the required minimum distribution, or RMD, which is a mandatory withdrawal from certain retirement accounts. It is not a Social Security rule, but the two systems overlap in a way that can surprise many retirees. The details matter, especially when it comes to the timing of that first withdrawal.

What a required minimum distribution is

An RMD is the minimum amount the IRS requires you to withdraw each year from certain tax-deferred retirement accounts once you reach age 73, according to the IRS. The rule applies to traditional IRAs, SEP IRAs, SIMPLE IRAs and most employer retirement plans, including 401(k)s. Roth IRAs are not subject to RMDs during the original owner's lifetime, and designated Roth accounts inside a 401(k) or 403(b) are also exempt while the owner is alive, per IRS guidance.

People who are still working for the company that sponsors their retirement plan may be able to postpone RMDs from that specific plan until they retire, unless they own more than 5% of the business, the IRS says. That exception does not apply to IRAs.

The amount is not random. It is calculated by dividing the account balance as of December 31 of the previous year by a life-expectancy factor from the IRS Uniform Lifetime Table in IRS Publication 590-B. In general, a larger balance or an older age means a larger required withdrawal, and that withdrawal counts as ordinary taxable income.

The first-RMD deadline and the risk of two withdrawals in one year

The timing gets more complicated with the first RMD. The IRS allows some flexibility: you can take that first withdrawal by December 31 of the year you turn 73, or you can delay it until April 1 of the following year, according to the IRS.

That flexibility has a downside.

If you postpone your first RMD into the next year, you still must take your second RMD by December 31 of that same year. As a result, two taxable distributions can end up in one tax year, which can push you into a higher tax bracket and increase the share of your Social Security benefit that becomes taxable in that year.

The IRS gives a similar example: a person who turns 73 in a given year and delays the first RMD until April 1 of the following year must still take a second RMD by December 31 of that year, creating two distributions in the same calendar year.

How Social Security benefit taxation works

Social Security benefits can become partly taxable based on a measure known as combined income, sometimes called provisional income. The Social Security Administration defines combined income as adjusted gross income, plus any tax-exempt interest, plus half of your annual Social Security benefits.

The thresholds, which have not been indexed for inflation since they were set by law, are as follows, according to the IRS:

Single filers or head of household

With combined income between $25,000 and $34,000, up to 50% of benefits may be taxable. Above $34,000, up to 85% may be taxable.

Married couples filing jointly

With combined income between $32,000 and $44,000, up to 50% of benefits may be taxable. Above $44,000, up to 85% may be taxable.

Married people filing separately who lived with their spouse at any point during the year

They generally have no threshold at all, meaning benefits may be taxable regardless of combined income, per IRS guidance.

One important point often misunderstood is that having up to 85% of your benefits taxable does not mean an 85% tax rate. It means up to 85 cents of each benefit dollar is added to your taxable income, where it is taxed at your regular marginal income tax rate.

A before-and-after example

Consider a hypothetical single filer who receives $2,071 a month in Social Security, which matches the Social Security Administration's estimated average monthly benefit for a retired worker. That amounts to about $24,852 a year in benefits.

Before the first RMD: Suppose this retiree's only other income is $10,000 a year in pension income, with no taxable IRA withdrawals yet. Half of Social Security benefits, or $12,426, plus other income of $10,000 equals combined income of about $22,426, which is below the $25,000 threshold. In this case, none of the Social Security benefit would be taxable.

After the first RMD: Now suppose the same retiree takes a first RMD of $15,000 from a traditional IRA, in addition to the $10,000 in pension income.

Combined income becomes roughly $12,426, which is half of benefits, plus $25,000 from pension income and the RMD, or about $37,426. That crosses both the $25,000 and $34,000 thresholds for single filers, meaning up to 85% of the retiree's Social Security benefit could now be included in taxable income, according to IRS rules. The retiree has not lost any benefit amount, but a larger share of it is now subject to income tax.

This is a simplified hypothetical example. Actual combined income calculations depend on a worksheet in IRS Publication 915 and should include all sources of income.

Turning 73 does not change the benefit amount

It is worth repeating that turning 73 does not alter the dollar amount of your Social Security check. The RMD rule belongs to the tax code for retirement accounts. What changes is your taxable income picture, which can affect how much of your already determined Social Security benefit the IRS treats as taxable.

Your Social Security payment stays the same unless you have separate changes, such as a cost-of-living adjustment or a change in Medicare premiums withheld from your check.

Why this matters for retirement planning

Because the RMD rule and the Social Security tax-threshold rule interact but are not formally linked, a retiree can move from owing little or no tax on benefits to having a meaningful share taxed simply because an account balance has entered RMD territory.

People approaching 73 may want to review projected RMD amounts, pension income and other withdrawals together rather than looking at Social Security taxation on its own. The IRS provides worksheets in Publication 915 to estimate combined income, and the SSA's online tools can help retirees understand how their benefit interacts with other income. A tax professional or financial advisor can also help with projections based on individual accounts and filing status.

The bottom line

Turning 73 does not reduce your Social Security benefit, but it can trigger required withdrawals that raise your taxable income and pull more of your benefit into taxable territory, especially if a delayed first RMD causes two distributions to fall in the same tax year. Understanding combined income and the difference between a higher taxable percentage and a higher tax rate can help retirees avoid an unwelcome tax-season surprise.

Reviewing account balances and projected RMDs well before the year you turn 73 can provide more flexibility in managing withdrawal timing and the resulting tax impact. The IRS worksheets and a qualified tax advisor can help clarify the details.