Key takeaways
- The torpedo is the range of provisional income where each dollar of other income makes 50 or 85 cents of Social Security taxable on top of itself.
- A retiree in the 12% bracket can pay an effective 22.2% on IRA withdrawals inside the range; one in the 22% bracket can pay 40.7%.
- The range is roughly $32,000 to $87,000 of provisional income for a couple with a $50,000 benefit, and its edges depend on the benefit amount.
- Roth conversions before claiming, qualified charitable distributions, and the order of withdrawals are the tools that steer around it.
Most retirees know Social Security can be taxed. Fewer know that the way it's taxed creates a band of income where the marginal rate on an IRA withdrawal is far higher than the bracket. Advisors call it the tax torpedo. It's arithmetic, built into the 1983 and 1993 rules that tax benefits, and it hits middle-income retirees harder than wealthy ones.
The mechanism
The taxable share of Social Security depends on provisional income: adjusted gross income without benefits, plus tax-exempt interest, plus half the benefit. Below $32,000 for a joint return ($25,000 single), none of the benefit is taxable. Between $32,000 and $44,000 ($25,000 to $34,000 single), up to 50% becomes taxable. Above $44,000 ($34,000 single), up to 85% does. Our post on how Social Security is taxed walks through the formula; this one is about what it does to you.
Inside those ranges, an extra dollar of IRA withdrawal does two things. It's taxable itself, and it drags 50 or 85 cents of Social Security into taxable income that wasn't there before. So taxable income rises by $1.50 or $1.85 for each $1 withdrawn, and the bracket rate applies to all of it.
- In the 12% bracket, in the 85% range: 12% × 1.85 = 22.2% effective.
- In the 22% bracket, in the 85% range: 22% × 1.85 = 40.7% effective.
- In the 10% bracket, in the 50% range: 10% × 1.5 = 15%.
The torpedo ends when 85% of the benefit is already taxable. From there, an additional dollar is taxed at the bracket rate alone. So the rate on IRA withdrawals climbs from 12% to 22% to 40% and then drops back to 22%. That's why it's called a torpedo: a hump in the middle of the income range, not a cliff at the top.
Where it sits
The edges depend on the size of the benefit, because the torpedo runs until 85% of the benefit is taxed. For a couple receiving $50,000 a year in Social Security, the 85% cap is reached at roughly $87,000 of provisional income, so the high-rate zone runs from about $32,000 to $87,000 of provisional income, or roughly $7,000 to $62,000 of other income. For a couple with a $30,000 benefit, the zone is narrower and ends sooner. Bigger benefits, wider torpedoes.
And that range is where a great many retired households live. A couple with Social Security and $40,000 to $60,000 of IRA withdrawals is squarely inside it. Households with $200,000 of other income are past it entirely and pay the bracket rate; households with almost no other income never reach it.
An example
A couple receives $50,000 of Social Security and takes $45,000 from their IRA. Provisional income is $45,000 plus $25,000, or $70,000, so $26,000 of the excess over $44,000 at 85% plus $6,000 from the first tier makes about $28,100 of the benefit taxable. Their taxable income, after the $32,200 standard deduction, is about $40,900, in the 12% bracket. (We're ignoring the extra standard deduction for age 65 and the temporary senior deduction here to keep the arithmetic simple; they lower taxable income but don't change the point.)
Now they take $10,000 more from the IRA for a roof. The extra $10,000 pushes another $8,500 of benefits into taxable income, so taxable income rises by $18,500. At 12%, the tax on the $10,000 withdrawal is $2,220. That's 22.2% on a couple that thinks of itself as being in the 12% bracket. Had they taken the $10,000 from a Roth account or a taxable account with little gain instead, the tax would have been zero or close to it.
The three tools
Roth conversions before claiming. The years between retirement and the start of Social Security are the best window for conversions in most plans, and the torpedo is one of the reasons. Income recognized before benefits begin is taxed at the bracket rate alone. The same income recognized after claiming is taxed at 1.85 times the bracket, up to the cap. A household that converts enough in its early sixties to keep IRA withdrawals below the torpedo zone for the rest of retirement hasn't managed the problem. It's removed it. Our guide to Roth conversion strategy covers the mechanics.
Qualified charitable distributions. From age 70½, giving directly from an IRA to charity satisfies RMDs without adding to AGI, which keeps provisional income down. For a charitable retiree in the torpedo zone, a QCD is worth 22% to 40% of the gift in tax saved, far more than an itemized deduction most retirees can't use anyway.
Withdrawal order and account mix. In years when spending needs exceed what can be withdrawn below the torpedo, the excess should come from Roth or taxable accounts rather than the IRA. Which requires having those accounts. That's the argument for building Roth balances during working years and for holding some savings outside retirement accounts. The withdrawal order post explains how we sequence it.
Delayed claiming interacts with it
Delaying Social Security to 70 raises the benefit, which widens the torpedo zone. But it also means more years of IRA withdrawals before benefits start, taxed at the bracket rate alone, and a larger benefit that's at most 85% taxable replacing IRA withdrawals that are 100% taxable. On balance, for most couples, delaying still comes out ahead. The claiming decision should be made with the torpedo modeled, not ignored.
Who shouldn't worry about it
Households whose other income is well above the 85% cap pay the bracket rate, and the torpedo is irrelevant to them (IRMAA and the NIIT take its place). Households whose income is entirely Social Security pay nothing. It's the households in between, often with $1 million to $2 million in IRAs and modest other income, where it costs the most and where planning actually changes the outcome.
What we'd do
Every retirement income plan we build projects provisional income year by year and marks the torpedo zone on it, alongside the bracket edges and the IRMAA tiers. The withdrawal plan for each year is set to stay below the zone where possible, to fund the excess from other accounts where not, and to convert in the years before claiming so the problem shrinks over time. It's one of the clearest cases we know where a tax projection changes what a retiree should do with their accounts.
Frequently asked questions
Is the tax torpedo the same as the Social Security tax?
The torpedo is the high effective marginal rate that results from Social Security taxation as other income rises through the phase-in range. Social Security taxation is the rule; the torpedo is its side effect on other withdrawals.
Does it apply to Roth withdrawals?
No. Roth withdrawals aren't in AGI and don't count in provisional income, which is why they're the escape route.
Do the thresholds rise with inflation?
No. The $25,000, $32,000, $34,000 and $44,000 figures have never been indexed, so each year more retirees fall into the zone.
Does Florida tax Social Security?
No. Florida has no income tax, so for our clients the federal calculation is the only one.
Joseph G. Valerio, CFP®, EAFounder and Lead Advisor at Valerio Wealth Management, a fee-only, fiduciary virtual family office in Miami, Florida. One advisor, credentialed in both financial planning and federal tax. About Joseph
This article is general education, not individualized advice, and it is not tax, legal, or accounting advice. Figures reflect federal law for the year stated and can change. Valerio Wealth Management does not prepare or file tax returns. Speak with a qualified professional about your own situation before acting.
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