What You Need To Know About Your 2025 Tax Return That Can Change Your 2026 Retirement Income
Written by
Heather Altamirano
Edited by
Rebekah Evans
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Tax season isn’t just about paying the IRS — it’s a time to look out for your nest egg. Choices you make on your 2025 tax return can impact your 2026 finances.
Everything from Social Security taxation to Medicare premiums can affect your retirement accounts if you make the wrong move. Here’s what tax experts say retirees need to know.
How 2025 Taxes Affect Your 2026 Retirement
Making strategic changes before filing is often the last chance to safeguard your money.
“Because the U.S. tax system is progressive, the timing of income and deductions matters as much as the amount,” said Peter Diamond, federally-licensed tax and accounting expert. “Shifting income or accelerating deductions can move someone into a different tax bracket. Once the year ends, those decisions are locked in — making proactive planning essential.”
Hidden Costs of Medicare Premiums and IRMAA
For retirees, tax planning doesn’t just affect what’s owed to the IRS — it can also determine how much they pay for Medicare coverage.
“Many retirees are surprised to learn that Medicare Part B and Part D premiums are based on income from two years prior,” said Jenny Groberg, founder and CEO of BookSmarts Accounting and Bookkeeping. “A one-time income spike — like a Roth conversion or large IRA withdrawal — can raise Medicare costs for an entire year.
These surcharges are called Income-Related Monthly Adjustment Amounts (IRMAA), per Kiplinger. Even if your higher income is temporary, it can cause premiums in 2026 to increase, leaving less money in your pocket.
Ripple Effect of Social Security Taxation
Your reported income also determines how much of your Social Security benefits are taxable.
“If your combined income — adjusted gross income plus non-taxable interest and half of your Social Security benefits — exceeds certain thresholds, up to 85% of benefits can be taxed,” Diamond explained. “Simple timing adjustments on a 2025 return can help minimize this impact and preserve more cash flow in 2026.”
Income reported in one year doesn’t just affect that year’s taxes — it can ripple into retirement benefits and costs years later, according to MedicareResources.org.
Strategic Moves That Can Protect Retirement Income
Planning strategies can help retirees manage both current taxes and future income, like Roth IRA conversions, which allow you to move assets from a traditional IRA to a Roth IRA by paying tax on the converted amount now, according to Fidelity.
“In return, future qualified withdrawals are tax-free if you are at least age 59 1/2 and the Roth account has been open for at least five years,” Diamond said.
Additionally, for retirees aged 70 1/2 and older, Qualified Charitable Distributions (QCDs) allow direct donations from an IRA to a qualified charity, per Charles Schwab. QCDs reduce taxable income and may help lower IRMAA surcharges.
“Strategic Roth conversions during lower-income years or using QCDs can reduce taxable income now and protect retirement cash flow,” Groberg said. “These are relatively simple moves that can have a lasting impact.”
However, Diamond cautioned against assuming retirement automatically means lower taxes.
“If taxes are lower, it may simply be because income is lower and most people don’t want a lower income in retirement. Retirees often have more free time and higher spending, which makes proactive planning even more important.”
Timing Decisions Is Key
Common decisions made on a 2025 return can unintentionally increase taxes or reduce benefits next year. According to Diamond, often-seen pitfalls include:
- Taking large distributions from traditional IRAs or 401(k) plans can push income into a higher tax bracket.
- Executing large one-time transactions, such as major Roth conversions or realizing substantial capital gains, can raise modified adjusted gross income (MAGI) and trigger IRMAA surcharges.
- Timing Social Security benefits or other income without considering combined income thresholds increases the taxable portion of benefits.
The Most Overlooked Mistakes
One of the most overlooked yet impactful choices on a 2025 tax return is how large discretionary income events are handled.
“Significant IRA distributions, Roth conversions or capital gains don’t just affect the current-year tax bill,” Diamond said. “They can also increase future Medicare premiums or the taxation of Social Security benefits.”
Spreading these events across multiple years — rather than concentrating them in a single year — can materially improve net retirement income.
Another mistake Diamond advises to watch out for involves cryptocurrency.
“Unlike stocks and securities, most direct cryptocurrency holdings are not currently subject to the wash sale rules,” he said.” As a result, an investor as an example purchased bitcoin for $100,000 and sees it decline to $50,000 may sell the asset, realize a $50,000 capital loss and repurchase it shortly thereafter, effectively maintaining the same market exposure.”
That realized loss can be used to offset capital gains recognized in the same year, improving overall tax efficiency. As retirees look to 2026, thoughtful planning ahead of filing 2025 taxes is a chance tosecure retirement accounts and a financially comfortable future.
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