Retirees who take larger withdrawals from traditional retirement accounts can face more than a one-time tax bill. The extra income may increase federal taxes, make more Social Security benefits taxable and, in some cases, lead to higher Medicare premiums two years later.
The effect can continue beyond the year in which the money is spent. According to The Motley Fool, a retiree who withdraws additional funds to cover a tax bill may create more taxable income in the following year, potentially producing another tax obligation and another withdrawal.
How Higher Withdrawals Can Increase the Tax Bill
The Motley Fool illustrated the issue using a hypothetical married couple, both age 66, receiving $40,000 a year from Social Security. For 2026, the couple claims the $32,200 standard deduction for married filers, an additional $1,650 deduction for each spouse age 65 or older, and the $6,000 senior deduction available to qualifying people age 65 and above.
According to retirement expert Robert Brokamp, the couple would owe no estimated federal income tax if annual spending remained below roughly $73,500. That result reflects the deductions available to them, the partly tax-free treatment of Social Security and current federal tax rates.
The picture changes as spending rises and more money has to be taken from traditional retirement accounts, where withdrawals are generally taxed as ordinary income. At $80,000 in annual spending, the couple’s estimated federal tax bill would exceed $1,200. At $100,000, it would rise to more than $5,000.
With annual spending of $150,000, the estimated tax bill would exceed $11,000. At $200,000, it would reach almost $23,000. That tax expense may itself require another withdrawal. If the couple pays its 2026 tax bill in April 2027 by taking more money from a traditional retirement account, that withdrawal becomes part of its 2027 taxable income. A similar pattern could continue in later years.
The outcome is not the same for every source of retirement money. Qualified Roth withdrawals are tax-free. Selling investments held for more than a year in a taxable brokerage account can also produce different results because cost basis is not taxed, while qualifying gains are subject to long-term capital gains rates.
Social Security and Medicare Add Another Layer
Larger withdrawals can also affect the taxation of Social Security. The amount included in taxable income depends on combined, or provisional, income, which generally includes half of Social Security benefits plus other income sources.
According to The Motley Fool, municipal bond interest is included in that calculation even though it may otherwise be exempt from federal income tax, while qualified Roth withdrawals are not. As combined income rises, a larger share of Social Security benefits may become taxable.
Medicare creates a separate potential cost. Higher-income retirees can face the Income-Related Monthly Adjustment Amount, known as IRMAA, which raises premiums for Medicare Parts B and D. For 2026, the surcharge applies to single beneficiaries whose 2024 modified adjusted gross income exceeded $109,000 and married couples filing jointly whose income exceeded $218,000. Medicare uses income from two years earlier, so a large withdrawal in one year can affect premiums later.
Brokamp said the broader issue is not simply whether retirees spend more, but how they fund that spending. Roth assets, taxable accounts and traditional retirement accounts can produce different tax outcomes, making the source of a withdrawal an important part of the total cost.
