Retirement Tax Planning
Keep More of What You Saved — Before, During, and After Retirement
Federal & Maryland Tax Strategy for DC Metro Families
For most Maryland retirees, the biggest financial risk isn’t the market — it’s taxes. A pension, TSP or IRA distributions, Social Security, and investment income can stack into brackets that cost $20,000–$40,000 or more per year in unnecessary taxes. The window to act is the years before RMDs force your hand. We’ve helped Maryland families — including federal employees and MCPS retirees — build proactive retirement tax strategies since 2010.
Social Security
MAGI (Single, 2025)
Top Income Tax Rate
Age 65+ (2024)
(SECURE 2.0)
The Income Stacking Problem — Why Many Maryland Retirees
Pay More Tax Than They Expect
During your working years, your income is mostly one source — your salary. In retirement, multiple taxable income streams arrive simultaneously and interact in ways that can push you into brackets and surcharges you never anticipated.
🔢 How Income Stacking Works — Typical FERS Retiree, Age 73 (Married Filing Jointly)
This MAGI is just under the IRMAA threshold ($106K single, $212K MFJ). A single large distribution — emergency, renovation, gifting — could push past the threshold and add $888–$2,400/yr in Medicare surcharges. It also sits in the 22% federal bracket. If the pre-tax TSP balance grows faster than spending depletes it, future RMDs push deeper into the 24% bracket and well past IRMAA.
The Three Tax Interactions That Surprise Retirees Most
1. RMDs Push Social Security Into 85% Taxability
Before RMDs, many retirees are below the Social Security combined income threshold. When the IRS forces large distributions from pre-tax accounts at age 73+, the combined income rises — pushing Social Security from 0% or 50% taxable to the 85% maximum. The RMD didn’t just create its own tax bill. It also raised the effective tax rate on Social Security income that was previously largely untaxed.
2. A Single Distribution Triggers Two Years of IRMAA
IRMAA uses a 2-year lookback — your 2025 Medicare premiums are based on 2023 income. A large Roth conversion, IRA withdrawal, or home sale in one year elevates Medicare premiums for the following two years. A $50,000 distribution that pushes MAGI from $200,000 to $250,000 (MFJ) can trigger an additional $3,000–$5,000 in Medicare surcharges — invisible until the premium bill arrives.
3. Pre-Tax Accounts Grow Faster Than RMD Drawdown
If a pre-tax IRA or TSP earns 6–7% annually but the RMD percentage only requires distributing 3.6–4.8% (at ages 73–78), the account continues to grow even while being drawn down. This means the tax problem compounds: larger balances create larger future RMDs, which push into higher brackets. Without proactive Roth conversion or drawdown strategy in the gap years before age 73, the problem gets larger with time, not smaller.
Federal Tax Brackets + Maryland Income Tax —
What Maryland Retirees Actually Pay
2024 Federal Income Tax Brackets
| Rate | Married Filing Jointly (2024) | Single (2024) | Retirement Strategy Note |
|---|---|---|---|
| 10% | $0 – $23,200 | $0 – $11,600 | Prime conversion target — convert down to top of this bracket first |
| 12% | $23,201 – $94,300 | $11,601 – $47,150 | Most valuable conversion zone — broad range, historically low rate |
| 22% | $94,301 – $201,050 | $47,151 – $100,525 | Still reasonable for conversions if future RMDs would push into 24%+ |
| 24% | $201,051 – $383,900 | $100,526 – $191,950 | Conversion may still make sense if future rate environment is higher |
| 32%+ | $383,901+ | $191,951+ | Converting into 32%+ rarely makes sense unless future rates are clearly higher |
🏛️ Maryland State Income Tax
Maryland has 8 income tax brackets ranging from 2% to 5.75%. In addition, each Maryland county levies its own income tax surcharge — one of the highest in the country:
- Montgomery County: 3.20% surcharge
- Prince George’s County: 3.20%
- Howard County: 3.20%
- Anne Arundel County: 2.81%
- Baltimore City: 3.20%
- Frederick County: 2.96%
Combined top rate (Montgomery County resident): 5.75% + 3.20% = 8.95% on ordinary income. Added to 22–24% federal, a Maryland retiree in the 22% bracket effectively pays 30–33% combined on ordinary income including TSP/IRA distributions.
✅ Maryland Tax Advantages for Retirees
- Pension Exclusion: Up to $36,200 of pension income excluded from Maryland taxable income for those age 65+ (or retired due to disability). Applies to federal, state, and local government pensions as well as qualifying private pensions.
- Military Retirement: Fully excluded from Maryland income tax.
- Senior Tax Credit: Homeowners’ Property Tax Credit available for seniors; income-tested benefit can reduce property tax bills significantly.
- Capital gains: Maryland taxes capital gains as ordinary income — no preferential rate. This makes tax-loss harvesting and qualified dividend strategy more important for Maryland investors.
- No Social Security exemption: Unlike Virginia, Pennsylvania, and most other nearby states, Maryland taxes Social Security income at the state level.
⚠️ TCJA — The Rate Environment Uncertainty
The Tax Cuts and Jobs Act of 2017 reduced individual income tax rates and expanded brackets. These provisions were scheduled to sunset after 2025, reverting to higher pre-TCJA rates. As of early 2026, legislation to extend or make permanent these provisions (including the One Big Beautiful Bill Act) has been proposed but not yet finalized by Congress.
The planning implication: nobody knows what future tax rates will be. Retirees with large pre-tax IRA or TSP balances are betting those future distributions will be taxed at today’s rates or lower. If TCJA rates revert or new legislation raises rates, that bet fails — and the tax cost of those distributions rises significantly.
The uncertainty itself is a planning argument for Roth conversions now — locking in known current rates rather than betting on unknown future ones.
Roth Conversion — Converting the Right Amount, in the Right Years, to the Right Bracket
🎯 The Gap Years — Your Most Valuable Tax Planning Window
For most retirees, there is a window between the retirement date and age 73 (when RMDs begin) where income is lower than it will ever be again. The pension covers fixed expenses. Social Security may not have started yet (if delaying). No RMDs are forcing distributions. This is the optimal window to convert pre-tax IRA, TSP, or 401(k) funds to Roth — paying tax at current known rates before forced distributions make the bracket problem worse.
Convert at controlled amounts. Stay in 12% or 22% bracket. No RMD adding to base income.
RMD is mandatory regardless. Adding a Roth conversion on top piles income further into higher brackets.
Roth balances distribute tax-free. No MAGI impact. No IRMAA. No SS taxability increase.
Bracket-Filling Roth Conversion Strategy — Married Filing Jointly (2024)
| Scenario | Base Taxable Income | Bracket Top | Conversion Headroom | Tax Rate on Conversion |
|---|---|---|---|---|
| Pension $36K · SS $0 · No RMD yet | ~$6,800 after std deduction | 12%: $94,300 | ~$87,500 at 12% | 10–12% |
| Pension $36K · SS begins · No RMD yet | ~$37,500 (with SS 85% taxable) | 12%: $94,300 | ~$56,800 at 12% | 12% |
| Pension $36K · SS $22K · RMD $28K | ~$94,700 (near 22% boundary) | 22%: $201,050 | ~$106,350 at 22% | 22% (limited headroom above IRMAA) |
| Same + large RMD from grown IRA | $130,000+ | 24%: $383,900 | Conversion rate = 24% | 24% — hard to act before it’s mandatory |
Standard deduction (MFJ 2024): $29,200 + $1,550 per person age 65+ = $32,300 for couple both 65+. SS taxability calculation uses combined income formula. Numbers illustrative.
✅ Roth Conversion Benefits
- Tax-free growth and distributions in retirement
- No RMDs during owner’s lifetime (SECURE 2.0)
- Roth distributions don’t affect MAGI → no IRMAA impact
- Roth distributions don’t make Social Security more taxable
- Heirs receive Roth IRA income-tax-free (10-year rule applies)
- Locks in known current tax rate vs. unknown future rate
⚠️ Roth Conversion Cautions
- Tax is due in the year of conversion — need cash available to pay it
- Large conversions can trigger IRMAA surcharges 2 years later
- Maryland taxes conversions at state rates (no exclusion — conversions are not pension income)
- Converting too much in one year can push above the 12% or 22% bracket
- 5-year rule for converted funds (under age 59½) — not a concern for most retirees
- Not always optimal if in very high bracket now vs. expected lower bracket later
🔗 Federal Employee Roth Notes
- Roth TSP does not require RMDs during owner’s lifetime (SECURE 2.0, effective 2024)
- TSP cannot be converted to Roth directly — must roll to Roth IRA
- Partial TSP rollover strategy: keep G Fund in TSP, roll C/S/I to IRA for Roth conversion
- FERS pension provides taxable income base — important for conversion math
- Full IRA & Roth strategy →
IRMAA — The Medicare Tax Penalty Most Retirees
Don’t Know About Until It’s Too Late
IRMAA is based on income from two years ago. You can’t fix it retroactively. But you can plan around it prospectively — if you know it’s coming.
2025 IRMAA Surcharge Schedule — Medicare Part B + Part D
| MAGI (Single) | MAGI (MFJ) | Part B Monthly Premium | Added IRMAA Surcharge/mo (per person) | Annual Extra Cost (couple) |
|---|---|---|---|---|
| ≤ $106,000 | ≤ $212,000 | $185.00 | $0 | $0 |
| $106,001 – $133,000 | $212,001 – $266,000 | $259.00 | +$74.00 | $1,776/yr extra |
| $133,001 – $167,000 | $266,001 – $334,000 | $370.90 | +$185.90 | $4,462/yr extra |
| $167,001 – $200,000 | $334,001 – $400,000 | $482.90 | +$297.90 | $7,150/yr extra |
| $200,001 – $500,000 | $400,001 – $750,000 | $559.00 | +$374.00 | $8,976/yr extra |
| > $500,000 | > $750,000 | $594.90 | +$409.90 | $9,838/yr extra |
2025 Part B IRMAA rates. Part D IRMAA surcharges add additional amounts (~$13–$81/mo per person). Annual extra cost shown per couple (2 persons).
⏰ The 2-Year Lookback Problem
IRMAA for 2025 Medicare is based on 2023 MAGI. If you had a large IRA distribution, Roth conversion, or home sale in 2023, you’re paying elevated premiums now — and can’t undo it. This means IRMAA management requires planning 2 years ahead, not reacting after the fact.
🎯 IRMAA Management Strategies
- Spread large Roth conversions across multiple years to stay under $106K single / $212K MFJ threshold
- Use QCDs to satisfy RMDs — QCDs don’t appear in AGI, eliminating IRMAA impact of that distribution
- Draw from Roth accounts in years when MAGI would otherwise cross a threshold
- Time home sales and other capital gain events to avoid stacking with other income
- Life Insurance / IUL distributions: policy loans are not MAGI — no IRMAA impact
📋 IRMAA Life Change Exceptions
If your income drops significantly due to a qualifying life event (retirement, death of spouse, divorce, loss of income-producing property), you can request IRMAA reconsideration using SSA Form SSA-44. This can reset the surcharge based on a more recent year’s income rather than the 2-year lookback. Always file if your circumstances have meaningfully changed.
Retirement Tax Strategies with Maryland in Mind
📋 Maryland Pension Exclusion — Maximizing It
Maryland allows residents age 65+ to exclude up to $36,200 (2024) of qualifying pension income from Maryland taxable income. This applies to FERS/CSRS federal pensions, MSRPS/MCPS state pensions, and qualifying private pensions. The exclusion is per person — a married couple where both receive pension income can each claim up to $36,200, potentially excluding $72,400 from Maryland income tax.
What doesn’t qualify: IRA/TSP/401(k) distributions are NOT pension income for the exclusion. Roth distributions are not counted. Social Security is not excluded (Maryland taxes SS fully).
At 5.75% state rate + 3.20% county, the $36,200 exclusion is worth approximately $3,240/year per person in Montgomery County. Both spouses claiming it: ~$6,480/year.
🔴 Maryland Taxes Social Security — Unlike Most Nearby States
Maryland is one of the few Mid-Atlantic states that taxes Social Security income at the state level. Virginia, Pennsylvania, and Delaware do not tax SS income at all. Maryland applies its full 2–5.75% state rate plus county surcharge to the federally taxable portion of Social Security (up to 85% taxable at federal).
Example: $22,000 Social Security benefit, 85% taxable = $18,700 federally taxable. At 8.95% combined Maryland + Montgomery County: approximately $1,674/year in state/county tax on Social Security alone.
Planning implication: Strategies that reduce federally taxable SS income (Roth distributions, QCDs, lower AGI) also reduce Maryland state tax on SS income.
💝 Qualified Charitable Distributions (QCDs)
A QCD allows IRA owners age 70½ or older to transfer up to $105,000/year (2024, indexed) directly from the IRA to a qualifying charity. The amount is excluded from AGI — it satisfies part or all of the RMD without adding to MAGI.
The three-way benefit: (1) Satisfies RMD obligation — no tax on the distributed amount. (2) Reduces MAGI — directly lowers IRMAA calculation and Social Security taxability. (3) Charitable giving is effectively 100% deductible even if you take the standard deduction (most retirees do).
A $20,000 QCD for a charitably-inclined retiree may save $1,800–$3,600 in federal + Maryland taxes vs. taking the RMD as cash and donating separately.
📈 Social Security Taxation — Managing the Threshold
Up to 85% of Social Security is federally taxable when combined income (AGI + non-taxable interest + ½ of SS) exceeds $44,000 (MFJ). For most federal and state employee retirees with a pension, the combined income threshold is crossed automatically — 85% of SS is virtually always taxable.
The planning lever: income sources that don’t count toward combined income — Roth distributions, policy loans from life insurance, and direct charitable distributions from an IRA (QCDs) — effectively reduce the taxable portion of SS income. Each dollar shifted from a taxable distribution to a Roth distribution reduces SS taxability proportionally. Social Security planning →
🏡 Maryland Capital Gains — No Preferential Rate
Federally, long-term capital gains are taxed at 0%, 15%, or 20% depending on income (0% for MFJ income up to $94,050 in 2024). Maryland does not have a preferential capital gains rate — gains are taxed as ordinary income at 2–5.75% state + county surcharge.
For Maryland investors, this makes tax-loss harvesting particularly valuable — losses offset gains that would otherwise be taxed at both federal AND full Maryland ordinary income rates. It also makes qualified dividends (taxed at preferential federal rates but ordinary Maryland rates) and tax-exempt municipal bond interest more compelling relative to taxable bonds.
🏠 Maryland Property Tax Credits for Seniors
Maryland’s Homeowners’ Property Tax Credit limits the amount of property taxes a homeowner must pay in relation to income. For homeowners whose combined household income does not exceed $60,000 (and for lower incomes the benefit is proportionally larger), the credit can significantly reduce annual property tax bills.
Montgomery County also offers a Senior Property Tax Credit for residents 65+ with income below $75,000. Applications must be filed by September 1 each year. Many eligible seniors miss this credit entirely — it requires an annual application, not automatic enrollment.
The Three-Bucket Strategy — Tax-Deferred, Taxable, and Tax-Free
Most retirees have all their savings in one bucket: pre-tax (IRA, TSP, 401(k)). Everything they withdraw is fully taxable. Building a tax-free income bucket gives you flexibility to control taxable income in any given year.
Bucket 1: Pre-Tax (Taxable)
Traditional IRA · TSP · 401(k) · 403(b) · Pension
- Contributions were pre-tax — tax deferred during accumulation
- Fully taxable on withdrawal (federal + Maryland)
- Subject to RMDs at age 73
- Every dollar withdrawn adds to MAGI → affects IRMAA, SS taxability
- Heirs pay income tax on inherited pre-tax accounts (10-year rule)
Most MD retirees are over-concentrated in this bucket. RMDs force distributions at the worst time — when income is already high.
Bucket 2: Tax-Free
Roth IRA · Roth TSP · Roth 457(b) · Cash Value Life Insurance · Municipal Bonds
- Roth IRA: Tax-free growth and withdrawal, no RMDs, no MAGI impact
- Roth TSP/457(b): No RMDs during owner’s lifetime (SECURE 2.0). Rollable to Roth IRA.
- Cash value life insurance (IUL/WL): Policy loans are not taxable income and not MAGI — zero IRMAA impact, zero SS taxability effect. Tax-deferred growth inside the policy.
- Municipal bond interest: Federal income tax-exempt; generally Maryland-exempt for MD-issued bonds
Bucket 3: Taxable (Brokerage)
Brokerage Account · Savings · CDs · Taxable Investments
- Interest and non-qualified dividends: ordinary income rates
- Qualified dividends and long-term gains: preferential federal rates (but ordinary Maryland rates)
- Step-up in basis at death — inherited assets may pass capital gains-free to heirs
- Most flexible — no RMDs, no early withdrawal restrictions
- Tax-loss harvesting available — sell losers to offset gains
Dividend and interest income adds to MAGI — affects IRMAA and SS taxability. Manage asset location carefully.
🎯 The Optimal Withdrawal Order in Retirement
There is no single universal optimal withdrawal sequence — it depends on current rates, future rate expectations, account balances, and goals. But a commonly effective sequence for Maryland retirees managing IRMAA and bracket exposure:
Cover fixed expenses with pension + SS income. Minimize additional distributions.
Convert pre-tax IRA/TSP to Roth during gap years — fill 12% or 22% bracket without crossing IRMAA threshold.
In high-income years, draw from Roth or policy loans (zero MAGI) rather than taxable accounts.
Use QCDs for charitable goals — satisfies RMD without adding to MAGI.
Lower MAGI → lower IRMAA → less SS taxable → lower MD state tax. All four benefits from one coordinated strategy.
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The Gap Years Won’t Last Forever.
Let’s Use Them to Reduce Your Lifetime Tax Bill.
The window between retirement and age 73 is the most valuable tax planning opportunity most Maryland retirees ever have. Every year it’s not used is a year of Roth conversion headroom that disappears. We build Roth conversion plans, IRMAA management strategies, and three-bucket income architectures for Maryland families — so the government’s share stays as small as legally possible, for as long as possible.
MD Life Insurance · Brookeville, MD 20833 · 301-569-2224 · info@mdlifeins.com · Licensed insurance producer. Tax information on this page is for educational purposes only and does not constitute tax advice. Tax laws change frequently and individual circumstances vary. Consult a licensed CPA, enrolled agent, or tax attorney for advice specific to your situation. Federal tax bracket figures are for 2024. IRMAA figures are 2025 Medicare Part B rates published by CMS. Maryland pension exclusion and income tax rates reflect 2024 Maryland tax law and are subject to annual adjustment. TCJA/legislative information reflects our understanding as of early 2026 — final Congressional action on any pending legislation should be verified with a qualified tax professional. We do not prepare tax returns and are not a CPA firm. Legal · Privacy Policy · Accessibility