Major Tax Bracket Changes: What They Mean
Investopedia’s latest article dives into the IRS’s release of the 2026 federal income tax brackets, outlining new marginal rates and income thresholds that will impact tax returns filed in 2027. The story underscores that knowing where you fall in these brackets is more than just a tax prep technicality—it’s a strategic lever for retirement planning, especially when managing withdrawals, Roth conversions, and navigating required minimum distributions (RMDs).
As I highlight in the piece, “most retirement income—Social Security, pensions, and RMDs from IRAs and 401(k)s—remains taxable, and the order and timing of withdrawals can have a huge effect on your tax bill.” The article explains that distributions from traditional retirement accounts are treated as ordinary income and, if not managed intentionally, can unintentionally bump a retiree into a higher bracket—leading to a larger slice of each dollar lost to taxes.
For those approaching or in retirement, these changed brackets aren’t just background noise. They’re a call to action to revisit your withdrawal strategies, especially since RMDs are “common bracket-busters,” often forcing you to take income that might not be needed and risking higher taxes overall. That’s why I guide clients to look seriously at Roth conversions in lower-income years. Strategically moving assets from pre-tax to Roth accounts now means paying tax at today’s potentially lower rates, decreasing your later RMD burden—and, crucially, providing tax flexibility for heirs.
The article also notes that retirees can keep themselves out of higher brackets by carefully choosing which accounts to tap in which order, and by timing capital gains or income-producing sales wisely. For many, years with less earned income provide a “tax window” to accelerate Roth conversions or capture capital gains at lower rates.
Bottom line:
Tax bracket changes set the rules of the game, but your approach to withdrawals, conversions, and account sequencing determines your ultimate tax bill in retirement. As I emphasize for clients, knowing your bracket isn’t just tax trivia—it’s essential for minimizing taxes now and down the road, giving you (and your heirs) more flexibility and more money to work with.