Quick Read – $35,000 withdrawal triggers $60,500 taxable income via provisional income rule, costing 22% marginal rate instead of 12%. – Rebuild your withdrawal plan around the $34,000 provisional income threshold using IRS Publication 915 this year. – A 67-year-old single…
tiree sits on a $1.4 million traditional 401(k), just turned on a $30,000 annual Social Security benefit, and spends roughly $70,000 a year. On paper the plan works
The portfolio yields enough, the bracket reads 12%, and Social Security fills the gap. The reality is that the very first dollar withdrawn from that 401(k) above a modest threshold gets taxed at roughly twice the posted rate, because of a 1984-era rule almost no one models correctly. The mechanism is provisional income, the figure the IRS uses to decide how much of Social Security is taxable.
It equals AGI plus tax-exempt interest plus half of Social Security benefits. The single-filer thresholds were written into law in 1984 and have never been indexed for inflation: above $25,000, up to half of benefits become taxable; above $34,000, up to 85% become taxable. With CPI now at 330.3, those dollar cutoffs are essentially fossils.