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The Social Security “Tax Torpedo” Hiding Inside Your 401(k)
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Subscribe26 MAY 2026 / FINANCE
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Many US retirees struggle with tax returns due to 1984-era income thresholds for Social Security taxation, which have not been updated to acknowledge changes like the mainstream adoption of 401(k)s, wage growth, and rising healthcare costs. Social Security benefits begin to be taxed when combined income exceeds $25,000, with up to 85% taxable beyond $34,000, and additional taxable income associated with other retirement plans can further complicate taxation; taxation on these benefits could potentially reduce the flow of tax revenue back into Social Security trust funds, which could become depleted by 2034 due to demographic shifts and reduced revenue sources.
A lot of retirees thought the painful part was over once the paychecks stopped. Then the tax return showed up. A client walks into a CPA office with what sounds like a perfectly normal retirement setup: a healthy 401(k), Social Security benefits, maybe so...
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