Retirement has long been pitched as a lower-tax stage of life, but a recent analysis from UBS Wealth Management warns that relief may be far shorter and narrower than most retirees expect.
Once required minimum distributions begin at age 73, the income they generate adds to Social Security benefits and other retirement income.
That layered income can push your effective tax bracket higher than it was during your peak earning years, the firm explained.
Required distributions can push retirees past their working-year tax bracket
Federal law requires those born between 1951 and 1959 to begin pulling money from traditional individual retirement accounts and 401(k) plans once they reach age 73, with the start age rising to 75 for anyone born in 1960 or later under the SECURE 2.0 Act.
These required minimum distributions are taxed as ordinary income and add to every other revenue stream you receive, according to UBS.
The problem worsens substantially for those who delayed withdrawals and allowed large balances to accumulate inside tax-deferred accounts for decades.
By the time distributions become mandatory, annual required amounts can rival or exceed the salary the retiree assumed they left behind.
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The dynamic has been called “the retirement myth,” explained Ed Slott, a certified public accountant widely recognized as a leading IRA authority, in a Morningstar interview.
Retirees who skip proactive planning can find themselves facing required distributions “far in excess of what your W-2 was,” Slott warned.
Withdrawal timing has drawn the same concern from certified financial planner Patrick Huey, owner of Victory Independent Planning.
Required distributions can act as “bracket-busters” that catch retirees off guard with forced taxable income, Huey said in a statement.
Bracket awareness extends beyond any single planning stage, said Catherine Valega, a certified financial planner and founder of Green Bee Advisory.
“Everyone should pay attention to their tax brackets, not just in or leading up to retirement, but always,” Valega told Yahoo Finance.
How Social Security stacks the retirement tax burden even higher
Social Security benefits are not fully sheltered from income tax, and the thresholds that trigger taxation have never been adjusted for inflation.
For married couples filing jointly, up to 85% of benefits become taxable once combined income crosses $44,000, according to IRS guidelines.
A high earner who waits until age 70 to claim benefits could receive up to $5,181 per month in 2026, according to Social Security Administration figures.
While that delay maximizes the guaranteed lifetime payout, the resulting income layers directly onto required distributions and other retirement revenue. The combined income formula includes your adjusted gross income, any nontaxable interest, and half of your Social Security benefit, the firm explained.
Even a relatively modest required distribution from a traditional IRA can push an otherwise comfortable household past the 85% taxability threshold.
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Capital gains rates climb alongside ordinary income in retirement
The tax impact extends beyond federal income brackets and into investment returns you may have been counting on for years.
Long-term capital gains rates are determined partly by total taxable income, so rising retirement distributions can increase what you owe on investment profits.
For married couples filing jointly in tax year 2026, long-term capital gains are taxed at 0% on taxable income up to $98,900.
MONECO Advisors Senior Wealth Advisor Bill Shafransky recommends keeping a close eye on how shifting income can affect one’s tax bracket, according to Investopedia.
So if we can keep people underneath that next bracket, that’s massively powerful for them, not just in the short-term, but also the long term as well.
That rate climbs to 15% across the middle income range and reaches 20% for joint filers with taxable income above $600,050, UBS reported.
A required distribution that lifts you into a higher ordinary-income bracket can simultaneously elevate your capital gains rate. High earners also face an additional 3.8% net investment income tax on top of the standard capital gains rates, UBS noted.
3 UBS-flagged strategies to lower taxable income before age 73
UBS describes the window between ages 59-and-a-half and 73 as a critical period for income smoothing, when distributions are voluntary and tax-deferred accounts remain accessible without early-withdrawal penalties.
During those transitional years, retirement accounts become accessible without early-withdrawal penalties, and distributions remain entirely voluntary, the firm explained.
3 ways retirees under age 73 can lower taxable income:
- Make voluntary early withdrawals from traditional IRAs and 401(k) plans, sized to fill the retiree’s current marginal bracket. After paying taxes on each withdrawal, you redirect funds into a taxable brokerage account to shrink the balance that later generates forced distributions, UBS noted.
- Convert traditional retirement accounts into Roth individual retirement accounts, which are entirely exempt from required distributions. Qualified Roth withdrawals are tax-free, though income tax is owed on the converted amount in the year of conversion, the firm wrote.
- Plan for qualified charitable distributions, available to IRA holders aged 70-and-a-half or older who give to charity. The distribution satisfies part or all of a required minimum distribution while being excluded from taxable income entirely, the firm outlined.
The narrow window within which retirees still control their tax bill
UBS’s analysis highlights a gap between what many retirees expect from their tax burden and what the tax code actually delivers.
Required distributions, frozen Social Security taxation thresholds, and income-linked capital gains rates can combine to push effective rates above working-year levels.
The three strategies the firm identified, early bracket-filling withdrawals, Roth conversions, and qualified charitable distributions, all target the same window between ages 59-and-a-half and 73, before mandatory withdrawals begin.
For retirees with large tax-deferred balances, the pre-age-73 period represents the narrowest window of flexibility in the entire timeline.
Related: Another analyst has blunt message on Social Security and retirees