Retirement tax terms in plain English

Tax rules come with a lot of jargon. Here is what each term means, in everyday words, with a link to the full guide when you want more. Figures are for 2026.

10-year rule: The rule that most non-spouse heirs must empty an inherited IRA by the end of the 10th year after the owner's death. Read more
5-year rule: Two different Roth clocks. One decides when earnings come out tax-free. The other applies a 10% penalty to converted money withdrawn within five years if you are under 59½. Read more
AGI (adjusted gross income): Your total taxable income before the standard deduction. A Roth conversion adds to your AGI for the year.
Annuity: A contract with an insurance company. Depending on the type, it can protect money from market losses, grow at a set or index-linked rate, or pay income for life. Guarantees depend on the insurer's ability to pay.
Annuity bonus: Extra money an insurer adds when you buy some annuities. Bonuses often come with longer surrender periods, lower caps or a vesting schedule. Read more
Basis: Money in a retirement account that has already been taxed, such as nondeductible IRA contributions. It isn't taxed again when it comes out or is converted.
Filling a bracket(bracket topping): Converting just enough each year to reach the top of your current tax bracket, so none of the conversion is taxed at the next, higher rate. Read more
Fixed index annuity (FIA): An annuity whose interest is linked to a market index, with a floor so you don't lose value from index drops. Gains are limited by caps or participation rates. Read more
Income rider: An optional annuity feature, usually for a yearly fee, that guarantees lifetime income based on an income value. That income value is not cash you can withdraw. Read more
IRMAA(Income-Related Monthly Adjustment Amount): An extra charge on Medicare Part B and Part D premiums for people with higher income. It uses your income from two years earlier, so a 2026 conversion can raise your 2028 premiums. Read more
MAGI (modified adjusted gross income): Your AGI with certain items added back. For Medicare's IRMAA, it is your AGI plus tax-exempt interest. Different programs define it slightly differently.
Marginal tax rate: The rate you pay on your next dollar of income. It is what a Roth conversion really costs you, which is why people convert just enough to fill a bracket.
MYGA (multi-year guaranteed annuity): A fixed annuity that pays a set interest rate for a set number of years, similar to a CD but issued by an insurer. Read more
Pre-tax money: Money in a 401(k), 403(b), 457(b), TSP or traditional IRA that you got a tax break on when you saved it. You owe income tax on it when it comes out.
Pro-rata rule: When you have both after-tax and pre-tax money in your IRAs, each conversion is treated as a mix of both. You can't convert only the after-tax part. Read more
Provisional income: The income figure the IRS uses to decide how much of your Social Security is taxable: your other income plus half of your benefits. Up to 85% of benefits can be taxed. Read more
QCD (qualified charitable distribution): A gift paid straight from your IRA to a charity, allowed from age 70½. It counts toward your RMD and isn't added to your taxable income. Read more
Recharacterization: Undoing a Roth conversion. It has not been allowed since 2018, so a conversion is final once it is done.
RMD (required minimum distribution): The amount the IRS makes you withdraw from pre-tax retirement accounts each year once you reach your RMD age: 73 if you were born 1951 to 1959, and 75 if you were born in 1960 or later. It is taxed as ordinary income. Read more
Roth conversion: Moving money from a pre-tax account, such as a traditional IRA or 401(k), into a Roth IRA. You pay income tax on the amount you move in the year you move it. After that, the money can grow and come out tax-free under current law. Read more
Roth IRA: A retirement account funded with money that has already been taxed. Qualified withdrawals are tax-free, and the original owner never has to take required withdrawals. Read more
Senior deduction ($6,000): An extra deduction of up to $6,000 per person age 65 or older for 2025 through 2028. It shrinks as income rises above $75,000 (single) or $150,000 (joint), so a large conversion can reduce it.
Standard deduction: The part of your income that isn't taxed if you don't itemize. For 2026 it is $32,200 for married couples filing jointly and $16,100 for single filers, plus an extra amount for people 65 or older.
Surrender charge: A fee for taking out more than the allowed amount from an annuity during its first several years. Most contracts let you withdraw about 10% a year without the fee. Read more
Tax bracket: A range of taxable income taxed at one rate. Only the dollars inside a bracket are taxed at that bracket's rate, so moving into a higher bracket does not raise the tax on the income below it. Read more
Tax torpedo: The range of income where each extra dollar also makes more of your Social Security taxable. In that range, a conversion can cost more than your bracket rate suggests. Read more
Traditional IRA: An individual retirement account where most of the money has never been taxed. You pay income tax when you take it out, and the IRS makes you take some out every year once you reach your RMD age.
Uniform Lifetime Table: The IRS table used to figure most RMDs. You divide last year's December 31 balance by the number for your age, such as 26.5 at age 73. Read more
Widow's penalty: The higher tax a surviving spouse often pays after moving from joint to single tax brackets, usually on much the same income. Read more