Why a $20,000 IRA Withdrawal Can Add $37,000 to Your Income
Written by Troy Sharpe CFP®, CPWA®, CTS®, Founder and CEO
Reviewed/Updated: September 2026
Tax Year being used for illustrations: 2026
A $20,000 IRA withdrawal sounds like it should increase your taxable income by $20,000. But in retirement, one income decision can change the tax treatment of another source of income.
In the example below, a married couple receives $80,000 of Social Security and takes distributions from an IRA. When they increase their IRA withdrawal by $20,000, their adjusted gross income rises by $37,000—not $20,000—and their federal income tax increases by about $4,440.
The additional $17,000 comes from Social Security benefits that become taxable because the larger IRA withdrawal increases their provisional income. This example shows why your marginal tax bracket alone may not tell you the full tax impact of taking additional income from an IRA.
Quick Answer
Why can a $20,000 IRA withdrawal increase AGI by $37,000?
In this example, the $20,000 IRA withdrawal is taxable income, but it also causes another $17,000 of Social Security benefits to become taxable. Together, those two effects increase adjusted gross income by $37,000.
$20,000 IRA withdrawal
+ $17,000 newly taxable Social Security
= $37,000 increase in AGI
Because that additional $37,000 remains within the couple’s 12% ordinary-income bracket in the example, their federal income tax increases by approximately $4,440.
Key Takeaways
- Provisional income is not taxable income or AGI. It is an intermediate calculation used to determine how much of your Social Security becomes taxable.
- Social Security taxation is progressive. For married couples filing jointly, the calculation changes as provisional income moves through the $32,000 and $44,000 thresholds.
- “Up to 85% of Social Security is taxable” does not mean Social Security is taxed at an 85% tax rate.
- Additional IRA income can cause Social Security that was previously not taxable to become taxable.
- In this example, a $20,000 additional IRA withdrawal causes another $17,000 of Social Security to become taxable, increasing AGI by $37,000.
- This is why knowing your marginal tax bracket alone may not reveal the full tax impact of an additional retirement-account withdrawal.
Who This Is For
This example may be especially useful if you:
- Receive or expect to receive Social Security in retirement
- Take withdrawals from a traditional IRA, 401(k), or other pre-tax retirement account
- Are trying to determine how much income to withdraw each year
- Assume your marginal federal tax bracket tells you the entire tax cost of an IRA distribution
- Want to understand how different retirement-income sources can affect one another on your tax return
How the Calculation Works
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transcript
You take another $20,000 out of your retirement account. What would you expect to happen to the income on your tax return? Well, it’s probably pretty simple. You took out $20,000, so you would expect your income to go up by $20,000.
But that’s not what happens here. You withdraw $20,000 and your adjusted gross income increases by $37,000. Now, how does that work? You take out $20,000, but your AGI goes up $37,000.
And on top of that, your federal tax bill increases by about $4,400. So where did the other $17,000 of income come from? Well, in today’s video, I’m going to show you exactly where it came from. And once you see this calculation, you’ll understand why simply knowing your tax bracket doesn’t always tell you the tax impact of an IRA distribution.
But first, you need to understand something about Social Security that a lot of people don’t. The married couple in today’s video, they receive $80,000 of Social Security and they owe zero federal income tax. We’re also going to show you how that’s possible. So let’s see what happens.
They’re married, both 67, and together they receive $80,000 a year from Social Security. For now, that’s their only income. We’re going to progress this as we go through the video. But here’s the first place that people get confused.
To determine how much of Social Security is taxable, we first must calculate something called provisional income. Provisional income is not taxable income; it’s not AGI, or adjusted gross income. It’s simply an intermediate calculation that helps determine how much of your Social Security gets added to AGI. So let’s calculate it together.
We begin with one half of your Social Security benefit. So if it’s $80,000 combined as a married couple, half of that is $40,000. And in this example, we have no other income yet. So provisional income is $40,000.
Now, we use that $40,000 to determine how much of your Social Security is taxable. For a married couple filing jointly, the first threshold you need to know is $32,000. So they’re at $40,000. Now that $40,000 of provisional income means they’re $8,000 above the first threshold.
And in the first range, we take 50% of the amount above that threshold. So $8,000 is the difference between $40,000 and the first threshold. So $40,000 minus $32,000 is $8,000. And I said we take 50% of that.
Why Only $4K of $80K Social Security Is Taxable
So 50% of $8,000 equals $4,000. So that’s where the $4,000 comes from. We’re not taking 10% of provisional income. We’re measuring how far provisional income crossed the threshold and then applying the calculation to that excess.
So out of the $80,000 of Social Security income they actually received, only $4,000 of it gets added to adjusted gross income. But we’re still not at taxable income yet. So you have gross income, then you get to adjusted gross income, then you take your deductions, and you end up at taxable income. So this $4,000 calculation that we just ran through gets added to adjusted gross income.
There’s still some more work to do before we determine how much tax we owe. So now you have to take your standard deduction or your itemized deductions. So the deductions come off, and for this couple, we’re using the regular standard deduction. And because they’re both over the age of 65, they receive a bonus deduction and also the enhanced senior deduction.
So you add all of that up, and together that’s $47,500 of deductions that they get to remove or reduce their adjusted gross income by to determine their taxable income. So they only have $4,000 of adjusted gross income. So after deductions, the taxable income is zero. Now it’s important to point out that you don’t get money back because your standard deductions brought you to a negative number.
Because if you have $4,000 of adjusted gross income and you subtract $47,500 of deductions, you end up at negative $43,000 and some change. You don’t receive a check for $43,000 because the standard deduction brought you into negative territory. But the federal income tax is zero. So that’s the sequence I want you to understand.
First, we calculate provisional income. That determines how much of your Social Security gets added to AGI. Then, standard or itemized deductions reduce AGI to get you to taxable income. And those are separate steps.
Now let’s make this look like an actual retirement. They’re still receiving the same $80,000 of Social Security, but now they’re also taking $40,000 from their IRA. Let’s see what happens upstream.
How the Social Security Tax Thresholds Work
Half of Social Security is still $40,000. Now you add the $40,000 IRA withdrawal, and provisional income goes from $40,000 to $80,000. Now we’ve moved through both Social Security thresholds. This next part is important because you have to understand the thresholds.
So if you’re married filing jointly and your provisional income is less than $32,000, 0% of your Social Security gets added to your adjusted gross income. If it’s between $32,000 and $44,000, up to 50% of your Social Security gets added to your adjusted gross income. And if it’s above $44,000, up to 85% of your Social Security gets added to AGI. Now, this phrase “up to” is very important because in order to determine how much of your benefit gets added to your adjusted gross income, we have to do a quick calculation.
So think of these as progressive calculations. Think of provisional income as moving through bands. First, it moves through the band between $32,000 and $44,000. So that’s $12,000 of space in between that band.
That band represents up to 50% of your benefit being added to your AGI. So when you completely fill that $12,000 band, 50% of it is $6,000. So that’s $6,000. We’re going to set it to the side because this is a progressive calculation.
But it will be added to your adjusted gross income. So because we’ve also crossed over the $44,000 threshold, and in this example our provisional income is $80,000, we also have to add $36,000 above that second threshold. That portion is calculated at 85%. So $36,000 times 85% equals $30,600.
So remember when I said we set the $6,000 aside. Now we have the excess above $44,000, the second threshold. We’re going to add those two together. So $6,000 plus $30,600 equals $36,600 of taxable Social Security.
We’re not replacing the 50% calculation with the 85% calculation. The first band was already filled. Then we added the amount created in the second band.
Why 85% Taxable Does NOT Mean an 85% Tax Rate
And I want to stop for a second and make one quick clarification because I’ve heard this misspoken by clients or from clients many times over the years. Whenever they hear that up to 85% of Social Security can become taxable, it does not mean that there’s an 85% Social Security tax rate. It just means that up to 85% of your benefit can be added to your adjusted gross income to determine how much tax you eventually pay.
But it very well could be less than 85% of your benefit. It could be 50%, it could be 60%, it could be 20%, it could be zero percent. That’s how originally, in our first example, we got to zero tax owed on our Social Security benefits. And the Social Security income in that example was $80,000.
So it’s important to understand that it’s an “up to” percentage. And then whatever that number is, it gets added to your adjusted gross income. The actual tax rates come later. Remember, they come after the deductions are taken out and we get to taxable income.
So let’s look at our tax return. IRA income is $40,000. Taxable Social Security is $36,600. Add those together, and adjusted gross income is $76,600.
So you subtract out the $47,500 of deductions—the standard deduction, bonus deduction, and enhanced senior deduction—and that leaves $29,100 of taxable income. Well, on $29,100 of taxable income, federal income tax is about $2,996. Same $80,000 Social Security check, but once IRA income came into the picture, much more of that Social Security was pulled onto the tax return.
Many of you who have followed this channel may have heard me reference this as the net was cast and it brought more of your Social Security into a state of taxation. So I think back to when I was a kid and we had the fishing nets and you’d swing it around and you’d throw it out there and you’d drag it in. All the weights at the bottom would come together, and you’d hope you caught a bunch of little small fish and maybe you had bait to go catch some bigger fish.
But that’s what I’m describing. So when you take money out of the IRA, it’s very similar to casting that net out. And ultimately what you’re doing is you’re dragging more of your Social Security into a state of taxation where it’s just out there being free and swimming and not paying any taxes.
Where the Extra $17K of Taxable Income Comes From
That IRA distribution, and as you’ll see later sometimes other income, can bring it into a state of taxation. Now we’re ready for the $20,000 withdrawal. I started this episode because I said this couple needs another $20,000. So they go back to the IRA to take the income that they need, and IRA withdrawals rise from $40,000 to $60,000.
So naturally you’d expect their adjusted gross income to go up by $20,000. But let’s see what actually happens. Now, as you’re aware, we’re already above that second threshold, the 85% threshold. So that extra $20,000 lands in the 85% portion of the calculation.
This makes this next piece very simple. $20,000 times 85% equals $17,000. The IRA withdrawal directly adds $20,000 of IRA income, but it also causes $17,000 more of your Social Security to become taxable. Now combine those two effects.
$20,000 withdrawal plus $17,000 of Social Security being dragged into a state of taxation. And there’s your answer. They only withdrew $20,000, but their adjusted gross income increased by $37,000 because that withdrawal caused income that was already coming into the household and not taxable to become taxable. Now let’s take this one step further.
Before the extra withdrawal, taxable income was $29,100. Afterward, it’s $66,100. That’s the same $37,000 increase. And that additional $37,000 remains inside the 12% ordinary income bracket.
So $37,000 times 12% equals $4,440 of additional federal tax. That’s why the tax cost of the $20,000 withdrawal is much larger than simply saying $20,000 times my 12% income tax bracket. The withdrawal didn’t just make itself taxable; it caused something else, the Social Security income, to become taxable too. So let’s put it all together.
They took $20,000 from the IRA, adjusted gross income increased by $37,000, and federal taxes increased by $4,440. Now that doesn’t mean they’re in the 22% bracket, even though that’s effectively what they’re paying. They’re not. It means the withdrawal triggered another tax consequence.
So instead of only asking, “What tax bracket am I in?” I’d ask one more question when you’re looking at your numbers. What else does this income cause to become taxable?
Can a 0% Capital Gain Still Raise Your Tax Bill?
Now, imagine you’re this couple. You see that and think, okay, I’m not doing that again. Next year, I’ll take the extra money that we need for whatever happens or whatever need comes up from my brokerage account instead. After all, capital gains have their own tax system, their own tax rates.
Maybe the capital gain in the future will even fall into the 0% capital gains bracket. Problem solved, right? Well, not necessarily, because in the next example, the capital gain really is taxed at 0%, but the tax bill still increases. The amount of taxes owed still goes up.
Now how is that possible? Well, click this video right here, and that’s what we’re going to prove next.
➡️Watch the next video in this series: https://oakharvestfg.com/youtube-vlog/my-capital-gain-was-taxed-at-0-why-did-my-tax-bill-go-up/
Frequently Asked Questions
What is provisional income for Social Security?
Provisional income is an intermediate calculation used to determine how much of your Social Security benefits may become taxable. It is not the same thing as adjusted gross income or taxable income.
In the example in this video, the couple initially receives $80,000 of Social Security. Half of that amount, $40,000, is used in the provisional-income calculation before determining how much Social Security gets added to AGI.
Why does a $20,000 IRA withdrawal increase AGI by $37,000 in this example?
The IRA withdrawal directly adds $20,000 of income. Because the couple is already above the second Social Security provisional-income threshold, the withdrawal also causes an additional $17,000 of Social Security to become taxable.
That creates a total AGI increase of:
$20,000 + $17,000 = $37,000.
Does having 85% of Social Security taxable mean you pay an 85% tax rate?
No. The 85% figure refers to the portion of Social Security benefits that can potentially be included in taxable income. It is not an 85% tax rate.
Once the taxable portion of Social Security is determined and included in income, the normal applicable federal income-tax rates are used.
What are the Social Security provisional-income thresholds for a married couple?
In the example discussed in the video, the relevant married-filing-jointly thresholds are $32,000 and $44,000.
The calculations are progressive. Income moving through the first range can cause benefits to become taxable under the 50% calculation, while income above the second threshold can be subject to the 85% calculation. The results from the applicable portions are added together.
Can you receive $80,000 of Social Security and owe no federal income tax?
It can happen depending on the household’s other income and available deductions.
In this example, the couple has $80,000 of Social Security but no other income initially. Only $4,000 of the benefit is included in AGI after the provisional-income calculation. Their applicable deductions exceed that amount, leaving them with zero taxable income and therefore zero federal income tax.
Why isn’t the $40,000 of provisional income taxable income?
Because provisional income is only used to determine how much Social Security becomes taxable.
In the initial example, $40,000 of provisional income is $8,000 above the first $32,000 threshold. Fifty percent of that $8,000 excess equals $4,000. It is that $4,000 of taxable Social Security, not the $40,000 of provisional income, that gets added to AGI.
Can IRA withdrawals make more of my Social Security taxable?
Yes. IRA distributions can increase provisional income, which can cause a larger portion of Social Security benefits to be included in income.
That interaction is the reason the $20,000 additional IRA withdrawal in this example ultimately increases AGI by $37,000.
Is my tax bracket enough to determine the cost of an IRA withdrawal?
Not always.
Your marginal tax bracket tells you the rate applied to additional taxable income within that bracket, but an IRA withdrawal can also affect other calculations. In this example, it causes additional Social Security benefits to become taxable.
The better question is:
What else does this income cause to become taxable?
That line is worth preserving because it is the video’s actual belief shift.
Free Social Security Guide
Want to see how IRA withdrawals, capital gains, Medicare and other retirement decisions can interact with your Social Security? Download our free Social Security Decisions guide.
That guide is a particularly strong continuation because its “Tax Torpedo” section covers the same interaction and then expands it to capital gains, Medicare and other retirement-tax consequences. Download now: (opens in new tab)
