How the torpedo works

The IRS doesn’t look at your benefit alone. It adds up what it calls your “provisional income,” your other taxable income, any tax-exempt interest and half of your Social Security, and compares the total to a set of thresholds. Below $25,000 for a single filer or $32,000 for a couple, your benefit is tax-free. Above those lines, first up to 50%, then up to 85% of your benefit gets pulled into your taxable income.

Now here’s the part that ought to make every Utahn’s blood pressure tick up. Those thresholds were written into law back in the 1980s and 1990s, and Congress never indexed them to inflation, not once. A $25,000 line drawn in the 1980s still reads $25,000 today. Meanwhile your cost of living, your home value, and your annual Social Security raises have all marched steadily higher. The result is that more retirees get pulled into taxation every single year, not because Congress voted for it, but because they didn’t.

The “torpedo” nickname comes from what happens at the margin. As your other income rises, each additional dollar can drag more of your Social Security into the taxable column right alongside it, so a single extra dollar of an IRA withdrawal can effectively be taxed as though it were a dollar and a half. That’s how retirees who consider themselves solidly middle-income end up facing surprisingly steep marginal tax rates.

What the new senior deduction does — and doesn’t do

You may have heard that the 2025 tax law, the “One Big Beautiful Bill,” fixed all this. It helps, but let’s be precise. The law created a new $6,000 deduction for taxpayers 65 and older, running from 2025 through 2028, and for many lower- and middle-income retirees it does wipe out the tax on their benefits. But read the fine print: It’s temporary, it phases out for higher incomes and it does not change the provisional-income formula itself. The torpedo is still loaded. The new deduction just gives some folks a few years of cover.

Steering around it

Because the whole thing keys off provisional income, the retirees who pay the least are the ones who control which dollars land on that formula, and when. This is where thoughtful positioning matters.

Money inside a fixed index annuity grows tax-deferred, it isn’t throwing off taxable interest onto your 1099 every year the way a CD or a brokerage account does. That’s the same “ghost tax” on idle cash I’ve written about before, and it’s doubly costly here, because that interest doesn’t just get taxed itself, it can push more of your Social Security into the taxable column too. By keeping growth deferred until you actually need it, an FIA lets you manage your provisional income year by year, drawing income in a controlled way rather than being taxed on interest you never spent. Roth dollars help for the same reason: Qualified Roth withdrawals don’t count in the provisional-income formula at all.

The Utah angle

Here in Utah we get a small break, the state offers a Social Security tax credit, though it phases out and doesn’t reach everyone. But the federal torpedo doesn’t care what state you live in, and our rising incomes and home values along the Wasatch Front push more Utah retirees over those frozen federal lines every year.

The lesson isn’t to fear your Social Security; you earned it. The lesson is that how and from where you draw your other income determines how much of that benefit you actually keep. Plan the sequence, control the provisional income and you can keep the torpedo from ever finding its target.

Lyle Boss, The REAL BOSS Financial, a native Utahn and retirement specialist who has spent decades helping families across Utah and the Mountain West build secure, income-focused retirement plans. Boss Financial, 955 Chambers St. Suite 250, Ogden, UT 84403. Telephone: 801-475-9400. https://www.safemoneylyleboss.com/