Plan Now to Avoid Stealth Taxes this Year

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Plan Now to Avoid Stealth Taxes this Year

by Bob Carlson
Editor, Retirement Watch

04/12/2026

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Bob CarlsonRetirees and near-retirees need to worry more about Stealth Taxes than regular income taxes. 

Stealth Taxes include the amount of Social Security benefits added to gross income, the Medicare premium surtax (also known as IRMAA), the 3.8% net investment income tax and more. 

Some Stealth Taxes are directed specifically at retirees, such as the tax on Social Security benefits and the Medicare premium surtax. Others just happen to catch more retirees than other taxpayers. 

I call them Stealth Taxes because they increase income taxes without Congress enacting a tax rate increase. Instead, gross income is increased or an additional amount is added to regular income taxes. 

The key to the Stealth Taxes is adjusted gross income (AGI), because that is the starting point for computing most of the Stealth Taxes. 

AGI is on line 11 of the current 1040. Most of the Stealth Taxes require that some tax breaks be added to AGI to compute what is called modified AGI or MAGI. For most people, computing MAGI involves only adding any tax-exempt interest to AGI. 

Some people might have to add other items, such as tax-exempt foreign-earned income, and some of the Stealth Taxes have small differences in their computation of MAGI. But for most people, MAGI is the same as their AGI or is AGI plus tax-exempt interest. 

Most Stealth Taxes are computed using that year’s MAGI. But the Medicare premium surtax is determined using MAGI from two years earlier. 

Before putting away your 2025 income tax return, make a note of your AGI and see if it triggers any of the Stealth Taxes or if you are in a high Stealth Tax bracket (especially for the Medicare premium surtax). Then, consider actions you can take the rest of this year to reduce your 2025 AGI. 

The first step is to add all the income this year that is mandatory or over which you have no control. This income includes taxable Social Security benefits, any pension, required minimum distributions from IRAs and other retirement accounts, annuity payouts, interest and dividends from taxable account holdings and perhaps other sources. 

The total is a good estimate of your base or minimum AGI for 2025. 

The second step is to determine how close your base AGI is to triggering the Stealth Taxes or to the beginning or ending of a Stealth Tax bracket. 

For example, the Medicare premium surtax has six brackets. The monthly surtax in 2025 varies from $66 to $362, depending on the bracket you’re in.

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The fourth step is to decide the sources of the cash for the additional spending by considering the effect of the sources on your income taxes and your Stealth Taxes. 

When you’re close to triggering a Stealth Tax or being pushed into the next higher bracket, consider taking the cash from tax-free sources, such as distributions from Roth IRAs or health savings accounts. 

Or you might want to sell investments in taxable accounts that will generate tax losses or small capital gains. 

When additional taxable income won’t trigger or increase the Stealth Taxes, you might want to take the cash from taxable sources, such as distributions from traditional IRAs or 401(k) s. 

That reduces the future income from those taxable sources and saves tax-free and low-tax sources for years when you might need them to avoid Stealth Taxes. 

Finally, you want to consider how to avoid the Stealth Taxes in the future. The best strategies involve taking money out of traditional retirement accounts and paying the taxes today to reduce future ordinary income. To a better retirement,
Bob Carlson
Bob Carlson
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Want More Retirement Advice?

Check out my website, RetirementWatch.com, where you’ll find hundreds of free articles covering every aspect of retirement planning.

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About Bob Carlson:

Bob CarlsonRobert C. Carlson is the author of the books The New Rules of Retirementand Retirement Tax Guide, editor and investment director of the popular retirement newsletter, Retirement Watch, and editor of the free weekly e-letter, Retirement Watch Weekly.  Bob is a frequent speaker at investment conferences around the country, and you can also hear Bob as a featured guest on nationally-syndicated radio shows, such as The Retirement Hour, Dateline Washington, Family News in Focus, The Michael Reagan Show, Money Matters and The Stock Doctor.

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Published by RJ Hamster

I was born on 6 August 1956 in San Francisco, California to Janet and (the late) Richard Hovis. I grew up in Santa Monica, California where I attended elementary, junior high school, and high school (graduating in 1974), in addition to involvement in sports and recreation (Little League +, the Boy’s Club ++). Further, it was in elementary school – St. Augustine’s By-the -Sea Parish School that I found, and made the choice to truly journey with God. I attended Arizona State University from 1974 to 1977 – seeking to become an architect, however, I was not accepted, and, as such, I graduated with a Liberal Arts degree. Upon graduation from Arizona State University, I attended Cal Poly San Luis Obispo and studied City and Regional Planning at the Master’s level. I successfully completed one (1) year in a two (2) year program – I did not complete the Master’s degree in City and Regional Planning – due to personal reasons. I returned to Santa Monica where I started (October 1979) my career as graphic designer with Exxon Company, USA. I spent five years with Exxon Company, USA. While working with Exxon Company, USA I was accepted into architectural school – Sci-Arc in Southern California, however, I did not attend preferring to stay with Exxon.. In 1982 I married Laura Flosi and in April 1983 we had our one and only child – Lauren Alain Hovis – a gift from God. We moved to Phoenix, Arizona in 1984 from Los Angeles, where I went to work as a graphic designer with Kitchell CEM (from 1985 -1987). From 1987 – 1995 I was an independent contractor, and a registered representative in mortgage finance, financial management, graphic design, and drafting. Further, I attended the University of Phoenix and successfully obtained a Master’s in Business Administration (MBA) in 1982. I was also a member of the Scottsdale Jaycees, where I became very involved in community events and projects. In 1994, I accepted a cartography position with the Defense Mapping Agency in Reston, Virginia. As such, I relocated from Phoenix to Reston. In 1998, I was accepted and worked as a Visual Information Officer with the Central Intelligence Agency. In 2002, I worked as a Support Officer until my retirement (due to a need for shoulder surgery) in September 2018. Away from my Federal Government service, I have been involved in various organizations and activities in Northern Virginia. In November of 2011, I married Rebecca Ouellette in Santa Monica, California. I reside in San Tan Valley, AZ with my two hamster - Jess and Timothy, our fish, our lizard - RJ Lizard., and our cats - Pearl and Grey. As to hobbies, I enjoy playing sports, attending sporting events, mentoring individuals from financial management to hamsters, building models, photography, travel, multimedia design, managing partner for RJ Hamster, and jazz – smooth jazz to a samba or a bossa nova. Love and God Bless, Peter – aka RJ Hamster Jo hi

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