What Social Security, IPERS, IRAs and 401(k)s really cost you — and the window before RMDs that lowers your lifetime tax bill.
Last reviewed August 26, 2026 by Casey Redmond, CFP®, co-founder of Ignite Financial in Cedar Falls, Iowa.
Short answer: Most Iowa retirees don't know how much taxes that will owe in retirement and how it can change from year to year. Iowa exempts nearly all retirement income for anyone 55 or older, and a new federal deduction for people 65 and older runs through 2028. A couple with $100,000 of income from an IRA and Social Security often owes around $5,000 in federal tax — roughly 5%.
When most people picture retirement, they picture one monthly check — Social Security, maybe a pension, maybe a withdrawal from savings — and they assume they get to spend every dollar of it.
Taxes don't retire when you do.
But here's the part that surprises people in the other direction: for a lot of Iowa retirees, the tax bill is much smaller than they've been told. Iowa has quietly become one of the friendlier states in the country for retirement income, and a federal change that took effect in 2025 gave people 65 and older another deduction on top of the standard one.
So the goal isn't to scare you. It's to get the number right.
In most first meetings, taxes in retirement haven't really come up yet. Not because people aren't thinking about retirement — they've thought about it plenty — but because the question they've been asked their whole working life is "how much have you saved," not "how much of it do you actually keep." And for the folks who have thought about it, the next sentence is usually some version of "I know I should probably do something, I just don't know what."
Both are fine places to start. But a number that's too high and a number that's too low both lead to bad decisions. If you assume your tax bracket is what you actually pay, you'll overestimate the bill, under-spend, and work longer than you need to. If you assume you'll owe nothing, you'll get a surprise in April.
Let's walk through it.
For most people, retirement income comes from a mix of buckets, if you will, and each one is taxed on its own rules:
The mistake I see most often is treating all of that as one pile. It isn't one pile. It's the difference between a manageable tax bill and an expensive one.
Notice the pattern. In Iowa, the retirement buckets are exempt and the everything else buckets are not. That's a genuinely useful planning fact, and it's the opposite of what most national articles will tell you.
No, for most of it. Since 2023, Iowa has excluded retirement income from state tax for anyone who is 55 or older, disabled, or a surviving spouse. That covers IPERS and other pensions, 401(k)s, 403(b)s, 457s, traditional and Roth IRAs, and qualified annuities. Social Security is exempt too. As of 2026, everything else is taxed at a flat 3.8%.
Two things people miss:
It's tied to age 55, not to retirement. If you retire at 52, you're waiting three years for the exclusion.
It doesn't cover everything. Interest, dividends, capital gains in a taxable account, rental income, part-time work, and non-qualified annuities are all still taxable in Iowa.
We wrote a longer piece on this — Does Iowa Tax Retirement Income? — if you want the detail. The short version: Iowa has moved a lot of the planning weight to the federal side, which is where we spend most of our time now.
Fact: Plenty of retirees still owe federal tax on Social Security, pensions, and IRA withdrawals. For a household living on $80,000 to $120,000, the federal bill usually lands somewhere in the 4% to 8% range once the deductions are counted — well under the bracket most people have in mind.
But the more common problem isn't guessing the wrong number. It's never running the number at all.
Fact: It still is, federally. This one caused real confusion in 2025, and I still get the question almost weekly.
The 2025 tax law did not eliminate tax on Social Security. What it did was create a separate deduction for people 65 and older:
For a married couple where both spouses are 65 or older, that's $12,000 on top of the standard deduction and on top of the existing extra deduction for being 65+. It's meaningful. It's also temporary, and that matters for planning — more on that in a minute.
Social Security itself is still taxed the old way: depending on your total income, somewhere between none and 85% of the benefit gets pulled into your taxable income.
Let's just say a married couple, both 66, living here in the Cedar Valley. They pull $60,000 from a traditional IRA and receive $40,000 from Social Security. On paper that's $100,000.
Here's what actually happens in 2026:
Roughly 5%. That's it.
I want to be careful here, because this is the number that gets misquoted the most. Their bracket is 12%. Their effective rate — what they actually pay across the whole $100,000 — is about 5%. Those are two different things, and the difference between them is exactly where the planning opportunity lives.
(This is an illustration using 2026 federal figures and assumes no other income, no itemized deductions, and both spouses age 65 or older. Your numbers will be different.)
Fact: They can stay flat or go up, and there are two specific reasons why.
Required minimum distributions. Right now, RMDs begin at 73. Under current law that moves to 75 in 2033 for people born in 1960 or later. Once RMDs start, the IRS decides how much comes out of your IRA — you don't. A large pre-tax balance that felt like a win at 60 can push you into a higher bracket at 75, and drag more of your Social Security into taxable income along with it.
The loss of a spouse. More on that below, because it deserves its own section.
This is the part I'd want you to take away if you read nothing else.
Between the year you stop working and the year RMDs begin, there's often a stretch of years — sometimes ten or more — where your income is the lowest it will ever be again. That's the window.
Go back to our couple. Their taxable income is $46,500. The 12% bracket doesn't top out until $100,800. That means they have roughly $54,000 of room to convert traditional IRA money to Roth this year and still pay only 12% on it — while staying under the senior deduction phase-out and nowhere near the Medicare surcharge thresholds.
If they do that for several years running, they shrink the pre-tax balance that would otherwise drive their RMDs, their future Medicare premiums, and the tax bill their surviving spouse or their kids inherit. Tax planning is looking through the windshield. Tax prep is the rear-view mirror. This is windshield work.
The trade-off worth naming: you generally can't fill the 12% bracket with a Roth conversion and harvest capital gains at 0% in the same year. In 2026 the 0% capital gains rate runs up to $98,900 of taxable income for a married couple. A conversion uses that same space. One year of conversion, one year of gain harvesting is a common rhythm — but which one wins depends on your accounts and your timeline, not on a rule of thumb.
One more wrinkle specific to right now: that $6,000-per-person senior deduction ends after 2028, and it phases out on income. A big conversion in 2026 or 2027 can cost a couple up to $12,000 of deduction on top of the tax on the conversion itself. That's the kind of interaction that's easy to miss when you look at one decision in isolation.
If you're weighing this, we've written both sides of it: Will a Roth Conversion Make Sense for Me? and 6 Reasons NOT to Do a Roth Conversion.
This is the one nobody sees coming, and it's the reason I bring it up in meetings before anyone asks.
Take our same couple. One spouse passes away. The survivor keeps the larger of the two Social Security benefits — let's say $24,000 instead of $40,000 — and still needs about the same $60,000 from the IRA to run the household.
Income drops by $16,000. The tax bill goes up by about $2,000.
That's the widow's penalty. Same house, less money coming in, higher tax rate — because the standard deduction is cut roughly in half and the brackets for a single filer are much narrower. It also pushes the survivor closer to the Medicare surcharge thresholds, which are lower for single filers.
There's a financial answer here — Roth conversions while both spouses are alive are one of the few ways to soften it — and there's a non-financial side that matters just as much. Does your spouse know where the accounts are? Do they know who to call? We put together a guide for what to do when a spouse passes away and a piece on whether to inherit a spouse's traditional IRA, because the tax decision and the grief arrive at the same time, and that's a hard moment to be doing math.
Nobody calls IRMAA a tax, but that's what it acts like.
If your income crosses certain thresholds, Medicare charges you more for Part B and Part D. In 2026 the standard Part B premium is $202.90 a month, and the surcharge starts above $109,000 of income for a single filer and $218,000 for a couple. Those thresholds are adjusted for inflation each year.
The detail that trips people up: Medicare looks back two years. Your 2026 premium is based on your 2024 tax return. So a large Roth conversion, a farm sale, or a big capital gain this year shows up in your Medicare bill in 2028. It's a cliff, not a ramp — a dollar over the line raises the premium for the whole year.
Fact: This is an annual job. Laws change — the senior deduction is a live example, and it's already scheduled to expire. Your income changes. Your spending changes. The plan you build at 65 isn't the plan you need at 73 when RMDs start, and it isn't the plan the survivor needs at 80.
We revisit this every year with clients for a simple reason: we don't want to leave the IRS a tip. Paying your fair share is part of the deal. Paying more than your share because nobody ran the numbers isn't.
We think of our role as the quarterback on this. Your CPA is focused on last year's return, your attorney on the estate documents. Somebody has to look at all of it together and ask how this year's decision affects the next year and twenty down the road.
One last thought, and it's the part I care about most. Getting the tax number right matters, but it's icing on the cake — it isn't the cake. The cake is what the money is actually for. If you're still working that part out, we wrote about the retirement rules that actually matter for a fulfilling life, and honestly, that's the harder question of the two.
We're a flat-fee, fee-only planning firm here in Cedar Falls. We don't sell products and we don't earn commissions — one fair fee for advice, whether you've saved $500,000 or $5 million. That's on purpose: it means when we tell you a Roth conversion doesn't make sense for you, there's nothing behind it but the math.
If you'd like to see what your own version of the table above looks like, schedule an introductory call. No cost, no pitch — we'll tell you honestly whether we're a fit.
And if you're still deciding who to work with, here are ten questions worth asking any advisor you talk to — including us.
Yes, federally. Depending on your total income, anywhere from 0% to 85% of your Social Security benefit is subject to federal income tax. The 2025 tax law did not change this — it added a separate $6,000 deduction for people 65 and older through 2028. In Iowa, Social Security is fully exempt from state income tax.
No, for most sources. Iowa excludes pensions, IPERS, 401(k)s, IRAs, and Social Security from state income tax for anyone 55 or older, disabled, or a surviving spouse. Interest, dividends, capital gains, rental income, and wages are still taxed at Iowa's flat 3.8% rate as of 2026.
Required minimum distributions currently begin at age 73. Under current law, that rises to 75 in 2033 for people born in 1960 or later. Your first distribution can be delayed to April 1 of the following year, though taking two in one year usually costs more in tax than it saves.
It's a federal deduction of $6,000 per person age 65 or older, available for tax years 2025 through 2028. You can claim it whether you itemize or take the standard deduction. It phases out above $75,000 of income for single filers and $150,000 for married couples, and disappears entirely at $175,000 and $250,000.
Less than most people expect. A married Iowa couple, both 65 or older, drawing $60,000 from an IRA and receiving $40,000 in Social Security would owe roughly $5,100 in federal tax in 2026 and nothing to Iowa — about 5% of the total. The exact figure depends on which accounts the money comes from and what other income you have.
The strategies that do the most work are usually: converting traditional IRA money to Roth in the low-income years before RMDs begin, choosing a withdrawal order across your pre-tax, Roth, and taxable accounts, staying under the Medicare surcharge thresholds, using qualified charitable distributions if you give, and planning ahead for the higher rates a surviving spouse will face. Which of these matters most depends on your mix of accounts and your timeline.
Casey Redmond, CFP® is co-founder of Ignite Financial, a flat-fee, fee-only registered investment advisor in Cedar Falls, Iowa, serving households in or near retirement across the Cedar Valley, throughout Iowa, and across the United States. A former teacher and school administrator, Casey focuses on the planning and relationship side of the practice. Ignite Financial is a member of NAPFA and holds to a written fiduciary oath.
This article is for educational purposes only and is not tax, legal, or investment advice. Tax laws change, and the rules described here reflect federal and Iowa law as of August 2026. The examples are illustrations based on stated assumptions, not projections of your results. Please consult your own tax professional before acting on anything here. Ignite Financial is a registered investment advisor. Registration does not imply a certain level of skill or training.