Cliff Choreography

The federal tax structure layers several income-tested cliffs and surcharges on top of the nominal bracket schedule. Each one bites a different range and behaves differently. The yearly decumulation puzzle is to choose which cliff you live under and to fill the bracket exactly to its edge.

The cliffs, ranked by binding order at higher incomes:

• IRMAA tiers (Part B & D surcharges, two-year lookback, hard cliffs, section “IRMAA: The Stealth Tax with Cliffs”). Per-spouse, brutal in absolute dollars, and the most common binding constraint in retirement. The 2026 first tier hits at $109,000 single / $218,000 MFJ MAGI. The cliff geometry is unforgiving: unlike federal income-tax brackets, which apply only to the dollars above the bracket threshold, IRMAA snaps the entire year’s premium surcharge on the moment your MAGI ticks one dollar over the tier line. On a married couple, the Tier 1 surcharge runs roughly $2,100–$2,400 per year combined (Part B plus Part D, both spouses); a single dollar of avoidable Roth conversion or gain harvest can trigger the full surcharge, payable retroactively from the second January after the income year. The dollar cost of overshooting Tier 1 by $1 is therefore around $2,000; the dollar cost of overshooting Tier 2 by $1 is closer to $3,500. Plan to the dollar, not to the thousand.
• NIIT 3.8% surcharge on net investment income above $200,000 single / $250,000 MFJ MAGI, not indexed (section “Net Investment Income Tax (NIIT)”). Bites earlier than most IRMAA tiers for singles, later for couples. Unlike IRMAA, NIIT is a phase-on, not a cliff, and applies only to the investment-income slice above the threshold.
• LTCG bracket steps 0% $\to$ 15% at approximately $49,000 / $98,000 of taxable income in 2026, and 15% $\to$ 20% at approximately $540,000 / $610,000 (all indexed annually). Each is a small cliff for the next dollar of gain.
• Social Security 85% phase-in (section “The Social Security Tax Torpedo”). Binding for mass-affluent retirees; mostly already at the 85% ceiling at higher incomes.
• The senior bonus deduction phase-out (2025–2028 only, age 65+). The $6,000 per-person deduction (section “The Senior Bonus Deduction (2025–2028)”) bleeds away at 6% of MAGI above $75,000 single / $150,000 MFJ, fully gone at $175,000 single or $350,000 MFJ for a couple claiming the full amount. Minor in dollars, but it is live exactly during the early-retirement conversion window—fold it into the headroom math rather than discovering it in April.
• State-tax cliffs vary. California has no LTCG preference; New York exempts limited retirement income but with sharp phase-outs; some states cliff IRMAA-style on senior credits. Know the local geometry.
• ACA premium subsidy cliff For early retirees on a marketplace plan before Medicare. The original cliff at 400% of the federal poverty line was softened to a phase through 2025 and the OBBBA-era reset; whatever the current rule, model the marginal implicit rate carefully if you are pre-65.

The yearly puzzle, mechanically:

1.

Estimate baseline AGI from non-discretionary sources: pensions, Social Security, taxable dividends and interest, required distributions, and earned income.

2.

Identify the binding cliff above that baseline.

3.

Compute remaining headroom to that cliff in dollars.

4.

Allocate the headroom across discretionary actions: Roth conversion (dollar-for-dollar ordinary income), realized LTCG (which can interact with 0% bracket, IRMAA, and NIIT separately), and any other elective income.

5.

Hold a 5–10% safety margin against the cliff. Year-end actual income overshoots projections more often than it undershoots, and the cost of a one-dollar overrun on IRMAA exceeds the benefit of the last dollar of conversion fill.

6.

Re-run in December against actual numbers and finalize the last conversion tranche.

When two cliffs sit close together—as IRMAA tier 1 ($218,000 MFJ MAGI) and NIIT ($250,000 MFJ MAGI) often do—pick the better target consciously rather than letting the year drift into the gap. The gap is not a planning destination; it is the worst of both.