Almost every retiree on the Emerald Coast tells themselves a story before age 65. "When I retire, I will be in a lower tax bracket." Sometimes it is true. Often it is not. The ones who learn the hard way usually find out the same month they take their first required minimum distribution and open a Medicare premium notice.
The fix is tax diversification. It means building three different kinds of money before retirement, so you can choose where dollars come from in any given year. Done right, it leaves a retiree with more spendable income than any single account type can deliver alone.
Why "Lower Bracket in Retirement" Often Misses
Three forces conspire to push retirement tax rates higher than people expect.
The first is required minimum distributions. Under SECURE Act 2.0, retirees born between 1951 and 1959 must begin taking RMDs in the year they turn 73. Anyone born in 1960 or later has until age 75. The penalty for missing one is 25 percent of the shortfall, dropping to 10 percent if corrected promptly. RMDs are based on the prior year-end balance of every traditional IRA and pre-tax 401(k) you own, and after strong market years they land larger than people planned for.
The second is Social Security taxation. The thresholds that determine whether your benefits are taxed are not indexed for inflation. They have sat at $25,000 single and $32,000 joint since 1984, with the 85 percent tier kicking in at $34,000 single and $44,000 joint since 1993. Above those upper thresholds, up to 85 percent of your Social Security check becomes federally taxable. Most middle-income retirees cross these lines easily.
The third is IRMAA, the income-related surcharge that raises Medicare premiums. In 2026, the standard Part B premium is $202.90 a month. The first IRMAA tier kicks in at $109,000 in modified adjusted gross income single, $218,000 joint, based on the tax return from two years prior. At the top tiers, total Part B premiums can reach $689.90 per month per person, and Part D surcharges add another $14.50 to $91.00 on top.
Stack a big RMD on top of taxable Social Security on top of an IRMAA cliff and the marginal cost of one more dollar can run well above your federal bracket.
The Three Buckets
A tax-diversified retiree has three pools of money, each with its own tax rules.
The traditional bucket holds pre-tax 401(k), 403(b), TSP and traditional IRA balances. Contributions and growth are deferred. Every dollar that comes out is ordinary income.
The Roth bucket holds Roth IRA, Roth 401(k) and converted Roth dollars. Qualified withdrawals are completely tax-free, including the growth. Roth IRAs have no required minimum distribution during the original owner's lifetime, which makes them powerful for legacy planning.
The taxable bucket holds individual brokerage accounts, joint accounts and trust accounts that you fund with after-tax money. Long-term capital gains and qualified dividends are taxed at 0, 15 or 20 percent at the federal level, and this bucket also gets a step-up in cost basis at death for heirs.
Owning all three gives you a tax dial. In a heavy income year, you lean on Roth and taxable accounts to keep AGI down, protect your IRMAA tier and avoid pushing Social Security into the 85 percent zone. In a low-income year, you pull from the traditional bucket, fill up the lower brackets at the cheapest rate and consider Roth conversions on top.
Roth Conversions Are the High-Leverage Lever
The 2026 federal tax brackets are 10, 12, 22, 24, 32, 35 and 37 percent. For joint filers, the 12 percent ceiling sits at $100,800 and the 24 percent ceiling at $403,550. The standard deduction is $32,200 for joint filers and $16,100 for singles. The One Big Beautiful Bill Act made the 2017 Tax Cuts and Jobs Act rates permanent, which removed the cliff that hung over conversion planning.
For many retirees in the gap years between leaving work and starting RMDs at 73 or 75, this creates a generational opportunity. You can convert just enough traditional IRA money each year to fill up the 12 or 22 percent bracket, pay tax now at a known rate and move those dollars into a Roth where they grow tax-free for life and beyond. Vanguard, Fidelity and Schwab all publish "fill the bracket" calculators for exactly this exercise.
The trap is doing too much in one year. A Roth conversion increases your modified adjusted gross income, which can push you into a higher IRMAA tier two years later, reduce ACA premium tax credits if you are pre-65 or trigger the 3.8 percent Net Investment Income Tax. The right size of conversion is rarely the maximum size.
Florida's No-State-Tax Advantage Compounds the Math
Florida has no state income tax. For a Northwest Florida retiree, every dollar of pension, IRA distribution, Roth conversion or Social Security benefit avoids state tax. The same Roth conversion that costs a retiree in a state with a 5 percent income tax costs a Pensacola or Destin retiree zero at the state level. The federal math is the only math, which is why retirees from higher-tax states often establish Florida residency before converting.
Audience-Specific Angles
For business owners selling a Gulf Coast company, the sale year is usually the worst time to convert and the year after is often the best. Coordinating the sale, any installment note and conversions in the lower-income years is where most of the planning dollars are.
For special needs families, the rules differ. First-party SNTs, third-party SNTs and ABLE United accounts each have distinct tax treatments. Roth dollars are particularly useful because they can pass to a properly drafted SNT without dragging the beneficiary's income up.
For veterans, VA disability income is not federally taxable and does not count toward provisional income or IRMAA, which leaves more headroom for Roth conversions than a civilian household enjoys. TSP-to-Roth conversions in the gap years before RMDs are particularly powerful.
A qualified charitable distribution is the other quiet superpower. Starting at 70 1/2, an IRA owner can send up to $111,000 directly to a qualified charity in 2026, and the distribution counts toward your RMD without showing up in AGI.
The Window Matters
The years between retirement and the start of RMDs are the most flexible tax window most people will have. Your income is low, your bracket is low, Social Security has not started and Medicare premiums are not yet set. That window does not last. Plan early, build all three buckets while you can, and let the dial do the work.
Sources
- IRS releases tax inflation adjustments for tax year 2026
- 2026 Tax Brackets and Federal Income Tax Rates, Tax Foundation
- Retirement Plan and IRA Required Minimum Distributions FAQs, IRS
- RMD Rules for 2026, Schneider Downs
- Medicare Premiums 2026: IRMAA Brackets and Surcharges, Kiplinger
- Social Security Tax Planning Guide 2026
- Reducing RMDs With QCDs in 2026, Charles Schwab
- Florida Retirement Tax Friendliness, SmartAsset
