I don’t really agree these days, but aside from this, a little extra money never hurts. Nine in ten Americans say they’re stopping to pick up money from the ground.
But what if that extra dollar installed some major strings?
It is a challenge many retirees or soon-to-be retirees face. Most people think from a tax perspective. But the real trouble often lies at the threshold, with one small financial move quietly being a hidden line that costs thousands of dollars.
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Even a dollar could cross the wrong line, causing a higher Medicare premium, smash Social Security into a taxable column, lose capital gains breaks and be hit by penalties tied to a retirement account.
Call it an additional $1 resignation rule. That’s the idea that unless you have a thoughtful plan, even a modest increase from Ross conversion, part-time jobs, or sales of advanced inventory can lead to a cascade of unintended consequences, for example, part-time jobs, or selling advanced inventory.
Here, in addition to the fact that the extra dollars can do the most damage, there is a way to stay ahead of it.
Another $1 rule: Falling off a Medicare cliff (Irmaa)
Most Americans need to enroll in Medicare at age 65, but the confusion over the program is moving deeply. One survey found that half of Americans think it’s free. However, like private insurance, Medicare comes with monthly premiums. For higher income users, these costs can rise sharply.
If your income exceeds a certain threshold, you may collide with a Medicare Premium surcharge (income-related monthly adjustments), known as Irmaa. These are not incremental increases. They are cliffs. Go over the limit and pay a dollar. Both you and your spouse will pay hundreds more each month for Medicare parts B and D.
Irmaa is based on revised adjusted gross revenue (MAGI) two years ago, explains Melissa Caro, founder of My Retirement Network. In 2025, the first additional fee will start at $103,000 for single filers and $206,000 for married couples jointly filed.
“People don’t recognize Ross’ conversion. RMDs can count everything, even part-time income,” adds Karo. This means that one unplanned transaction could raise healthcare costs over the course of a year.
Fortunately, there is some relief if a surge in income, such as unemployment or spouse death, is linked to a major life change. “If your income is unusually high due to a qualified event, you may be able to appeal the additional fee using SSA Form-44,” said Stephen Maggard, CFP® and Financial Advisor at Abacus Planning Group.
Step into the Social Security Tax Trap
According to Gallup, social security is a major source of income for most retirees. However, depending on the amount of income from other sources, up to 85% of benefits could be subject to federal tax.
It all depends on what you call “provisional income,” which includes half of your Social Security benefits and all other income. This includes IRA withdrawal, wages and even tax-free interest, Caro notes.
Once that number exceeds $25,000 for a single filer and $32,000 for a married couple, the tax meter begins to run. Additionally, up to 85% of benefits will be taxed if they exceed $34,000 (single) or $44,000 (joint).
“This formula hasn’t been updated for decades,” says Karo.
Capital gains tax goes from 0 to 20
One of the more generous features of the tax law is the 0% long-term capital gains rate available to many retirees. However, the window may close quickly.
This is because normal revenues, such as a massive withdrawal from a 401(k) or traditional IRA, are stacked under capital gains. So even a modest bump in income can tweak you to a higher tax range and change the profits taxed on profits that are taxed at 15% or 20%.
In 2025, a couple who are co-married can achieve up to $96,700 in long-term capital gains and pay 0% in federal taxes, assuming they have little or no other income. But he said, “This is not the case with state taxes, which can make people trip over if they’re not careful.”
Again, adding just one dollar in your regular income risks sending some of those profits to a higher bracket. That’s why advisors emphasize that adjustments with the rest of your retirement income are all about.
Taxman comes to resignation
Death and taxes. Two things that are inevitable. And when you get to a retirement account, the IRS will confirm that you will pay the latter long before the former.
Withdrawals from pre-tax accounts such as traditional IRAs and 401(k)s are taxed as normal income. So the amount withdrawn affects everything else, including how much tax brackets, Medicare Premiums, and Social Security are taxed.
So, taxes are often an important part of a retirement strategy, the advisor says. Once the required minimum distribution (RMD) begins at age 73, they can easily push your income past multiple thresholds.
RMD is based on account balances and life expectancy. And the ages to start them were pushed back under the safe Act 2.0, which could leave even larger balances, and potentially larger distributions behind.
Other despicable gradual outs and taxes
Even a modest increase in income can be quietly disqualified from valuable tax deductions and credits such as Saver credits and medical expenses and charitable contribution deductions.
One big surprise? Loss on ACA Premium Tax Credit. If you sign up for health insurance in the market, the premium is based on your income. If a certain threshold is exceeded, some or all of the subsidy will be repaid at the time of tax. “It’s not a fun surprise to have,” says Haggard.
He also points out net investment income tax as another pitfall. When a couple’s revised adjusted gross income exceeds $250,000, 3.8% Surtax earns investment income, including capital gains, dividends, and interest.
How to plan the “Additional Dollar Rule”
“Being strategic and actually planning can save six numbers in the process of retirement,” says Bill Shafransky, CFP® and senior wealth advisor at Moneco Advisors.
It means meeting with a tax expert or financial advisor once a year, confirming your goals, discussing your strategy, and making appropriate adjustments.
For example, Shafransky suggests that you have a lower capital gains rate before tapping your pre-tax account early in your retirement, and before tapping your pre-tax account.
Haggard highlights another important tactic. Roth conversion. Before RMD starts, converting some of your pre-tax savings into a low-income era can reduce your future tax burden. “This will save you money in the process of resignation,” he says.
Don’t you need a full RMD? Qualified Charitable Distribution (QCD) allows you to donate up to $100,000 directly from your IRA to non-qualified nonprofit organizations. The amount doesn’t count towards your income, but it still meets your RMD.
The location of the asset can also play a role. “When you mix taxable, taxable and loss accounts, you have flexibility,” says Karo. “You can pull from losses in your high income era and avoid crossing the costly threshold.”
She encourages retirees to “treat loose income as part of a broader income plan.” Part-time jobs are great for your lifestyle and purpose, but you can throw away your tax strategy without an explanation.
There is at least one other thing that Americans share. It’s a dislike for taxes. The Tax Foundation has found that they are willing to pocket extra dollars, just as many people want tax reform.
But until Congress agrees, your best defense is a good plan.
Tax tail doesn’t want dogs to waving. However, during his retirement, he doesn’t want to go down the cliff for another dollar.
