Tax Brackets: Strategy Matters More Than Ever
The IRS has announced the federal income tax brackets for the 2026 tax year, introducing new rates and thresholds for both single filers and married couples. This update sets the landscape for income earned in 2026 and tax returns filed in 2027, with the top marginal rate of 37% applying to single taxpayers earning above $640,601 and married couples above $768,701. The other brackets step down incrementally—from 35% and 32%, down to the 10% baseline rate for lower incomes.
While it’s easy to gloss over tax bracket updates, financial planners stress that understanding where you fall on this ladder is crucial not just for retirees, but for every taxpayer making strategic decisions. As I emphasized for IndexBox, “The truth is, most retirement income—Social Security, pensions, and required minimum distributions (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.” Being aware of your bracket isn’t just a tax prep formality; it’s the backbone of proactive planning, especially around when and how you tap retirement accounts.
The article breaks down how distributions from traditional retirement accounts are taxed as ordinary income and, if not managed thoughtfully, can inadvertently push you into a higher bracket—meaning more of each dollar goes to taxes instead of your pocket. That’s why I advise clients to consider Roth conversions in lower-income years. Roth conversions can be a savvy way to lock in today’s tax rates, reduce future RMD pain, and, importantly, create tax flexibility for heirs.
Beyond Roth moves, these new brackets reinforce the importance of sequence-of-withdrawal strategies—deciding which account to draw from first, and when, to minimize your overall tax burden. “Knowing your tax bracket can help make smarter decisions about which accounts to tap in retirement and in what order to minimize taxes,” I noted. The impact of these decisions extends well beyond next April—affecting everything from net retirement income to legacy planning for your family.
Bottom line:
Tax bracket changes aren’t just numbers—they’re a call to review your withdrawal strategy, especially if you’re entering or living in retirement. Be deliberate about how you pull money out of IRAs, 401(k)s, and other accounts; coordinate with Social Security and pension timing; and always look to use lower-income windows for Roth conversions or other strategic moves. The brackets set the rules—how you play the game determines your after-tax wealth.