Gap 1: The Social Security Tax Trap
Updated October 2026 for 2026 rules.
Social Security looks at your provisional income: your other taxable income, plus any tax-exempt interest, plus half of your Social Security benefit. When that number passes the federal thresholds, part of your benefit becomes taxable.
| Filing status | Up to 50% taxable | Up to 85% taxable |
|---|---|---|
| Single | Over $25,000 | Over $34,000 |
| Married filing jointly | Over $32,000 | Over $44,000 |
Those thresholds were enacted in 1983 and 1993 and have never been adjusted for inflation, so every year more retirees cross them. Withdrawals from a 401k, IRA or TSP count toward provisional income. Qualified Roth withdrawals and properly structured life insurance loans do not.
Gap 2: Medicare IRMAA surcharges
The Income-Related Monthly Adjustment Amount raises your Medicare Part B and Part D premiums when your income is above set levels. Medicare uses your tax return from two years earlier, so 2026 premiums are based on 2024 income.
| 2024 income, single | 2024 income, joint | 2026 Part B premium per person, per month |
|---|---|---|
| $109,000 or less | $218,000 or less | $202.90 (standard) |
| $109,001 to $137,000 | $218,001 to $274,000 | $284.10 |
| $137,001 to $171,000 | $274,001 to $342,000 | $405.80 |
| $171,001 to $205,000 | $342,001 to $410,000 | $527.50 |
| $205,001 to $499,999 | $410,001 to $749,999 | $649.20 |
| $500,000 or more | $750,000 or more | $689.90 |
Part D adds its own surcharge on top. Because of the two-year lookback, a large withdrawal or Roth conversion at 63 or 64 can raise your premiums at 65 and 66. Timing matters.
Gap 3: Estate tax close to home
The federal estate tax exemption is now a permanent $15 million per person ($30 million for a married couple), indexed for inflation, with a 40% tax above it. Very few families will owe federal estate tax.
The DMV is different. Maryland taxes estates over $5 million and is the only state with both an estate tax and an inheritance tax, which can apply at 10% to assets left to heirs other than a spouse, children or other close family. Washington, DC has its own estate tax with an exemption far below the federal level. Virginia has neither.
Between home values, retirement accounts and life insurance, more DMV families cross the state lines than expect to. A will or trust, beneficiary designations that match your plan, and life insurance owned the right way can close this gap. We work with a licensed estate planning attorney partner for MD, DC and VA clients.
How Bucket 3 closes all three
Each gap is driven by taxable income or taxable estate value. Moving future retirement income into Bucket 3 lowers your provisional income and your MAGI, which can reduce the tax on Social Security and keep you under IRMAA thresholds. Life insurance can also provide liquidity to pay estate taxes without selling the house.
Run your own numbers in the Wealth Gap Calculator
Questions we hear often
Are the Social Security thresholds going up?
Not under current law. They are fixed in the tax code and are not indexed for inflation.
Can I appeal an IRMAA surcharge?
Yes, if your income dropped because of a life-changing event such as retirement, marriage, divorce or the death of a spouse. You file Form SSA-44 with Social Security.
Does life insurance count toward my estate?
It can. Policies you own are generally included in your taxable estate. An irrevocable life insurance trust can keep the death benefit outside it. Ask your estate planning attorney.