Nobody is withholding anything anymore
This is what catches people in their first year or two of retirement. A pension or an IRA distribution can have federal tax withheld, but usually only if your parents fill out a form asking for it. Social Security withholds nothing unless they file a Form W-4V. Interest, dividends, and investment sales withhold nothing at all. Your parents can go a whole year feeling like their income is modest and still land on a four-figure tax bill, plus a penalty for not paying along the way.
The fix is simple once you know about it. The IRS won't charge an underpayment penalty if your parents pay in either 90% of what they end up owing this year, or 100% of what they owed last year — 110% if their income was over $150,000. That second number is the useful one, because it is already known. Take last year's total tax, divide by four, and either have it withheld or send it in quarterly.
Where you have the choice, I would take withholding over quarterly payments. Withholding counts as if it were paid evenly through the year no matter when it actually happened, so a December withdrawal with tax withheld can fix a problem that four missed quarterly payments created.
Where the money comes from decides what it costs
Not all retirement income is taxed alike, and the differences are large enough to plan around:
- Traditional IRAs and 401(k)s. Every dollar out is ordinary income. This is the money your parents deferred tax on for forty years, and the bill comes due on withdrawal.
- Roth accounts. Qualified withdrawals are tax-free and, just as usefully, invisible — they don't count toward the income tests that drive Social Security taxation and Medicare premiums.
- Pensions and annuities. Usually fully taxable, but partly tax-free if your parents put after-tax money in. The 1099-R should show which.
- A regular brokerage account. Long-term gains and qualified dividends get their own lower rates, and in 2026 a married couple with taxable income under $98,900 pays zero federal tax on long-term gains. In a low-income year that is a real opportunity.
- Social Security. Anywhere from none to 85% of it is taxable, depending on everything else — which is worth its own section.
The Social Security thresholds that never move
Whether your parents' Social Security gets taxed depends on a number the IRS calls combined income: their adjusted gross income, plus any tax-exempt interest, plus half of their benefits.
Here is the part worth knowing: those thresholds have never been adjusted for inflation. The $25,000 figure was set in 1983 and the $34,000 figure in 1993, and neither has moved since. A retiree who sat comfortably below the line twenty years ago is above it now without having gotten any richer. That is why almost every set of parents ends up paying tax on some of their benefits, and why nobody should feel they did something wrong when it happens.
What your parents can control is the other income — the size of an IRA withdrawal, whether a gain gets realized this year or next. Moving a few thousand dollars across a December 31st line can change how much of the benefit is taxed.
What the new senior deduction actually does
The 2025 tax law created an extra deduction for people 65 and older, and it got reported in a lot of places as "no tax on Social Security." It is not that. Social Security is taxed exactly the way the table above describes.
What your parents actually get is a $6,000 deduction per person aged 65 or over — $12,000 for a couple where both qualify — for tax years 2025 through 2028. Three details matter:
- They get it whether or not they itemize, which is unusual and genuinely helpful.
- It phases out above $75,000 of income for a single filer and $150,000 for a couple, shrinking by six cents per dollar above that. A married couple has to file jointly to claim it at all.
- It stacks on top of the age-65 standard deduction they already had — another $3,300 for a married couple, or $2,050 for someone single, above the regular $32,200 or $16,100.
Added up, a married couple both over 65 taking the standard deduction shelters roughly $47,500 of income in 2026 before owing a dollar of federal tax. A lot of parents are surprised to find they may owe nothing at all.
The year the required withdrawals start
Money in a traditional IRA or 401(k) cannot sit there forever. Starting at age 73 — or 75 for anyone born in 1960 or later — the IRS requires a minimum withdrawal every year. The retirement page covers how the amount is figured; what matters here is that the withdrawal is ordinary income, and it is often what pushes a household over the Social Security and Medicare lines described above. Missing a required minimum withdrawal is expensive: a 25% penalty on whatever should have come out, dropping to 10% if corrected promptly.
If your parents give to charity anyway, there is a better way to do it. From age 70½ they can send money straight from an IRA to a charity as a qualified charitable distribution, up to $111,000 each in 2026. It counts toward the required withdrawal but never shows up as income, which can keep them under those thresholds. The legacy planning page goes further into this.
Decisions worth running past someone first
Most unnecessary retirement tax payments come from a reasonable decision made in isolation. These are the ones to talk through first:
- A Roth conversion. Often smart, but it adds income this year and can splash into Social Security taxation, Medicare premiums, and capital-gains rates all at once.
- Selling a house, a business, or a big appreciated position. One year of unusual income, several years of consequences.
- Anything that pushes income over the Medicare cliff. Above $109,000 for a single filer or $218,000 for a couple, Part B premiums jump — from $202.90 a month to $284.10 per person at the first tier. It is based on income from two years earlier, so 2026 premiums reflect the 2024 return, and one dollar over a threshold costs the whole step.
- Moving to another state, or spending half the year in one. State treatment of pensions, Social Security, and withdrawals varies enormously, and residency is a question of facts, not intentions.
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