Trap No. 2: Must take required minimum distributions
Required minimum distributions, or RMDs, must generally be made from tax-deferred retirement accounts, including traditional IRAs, after a person reaches age 70 1/2. The distributions are treated as ordinary income and may push a taxpayer above the threshold where Social Security benefits become taxable.
"This is a double-edged sword," says Weisman. "If you are over 70 1/2, you are required to begin taking distributions from IRAs (except Roth IRAs) and other retirement accounts."
"Here again, you take half of the Social Security benefits plus all other income to determine whether Social Security benefits are taxable. RMDs will be included and drive that up," says Levenhagen.
You can't avoid required minimum distributions, but you can avoid being surprised at tax time.