If Social Security isn’t your only retirement income, the IRS might tax a portion of your benefits, but using Roth retirement accounts can help avoid these taxes.
IRS May Tax Your Social Security Benefits
According to The Motley Fool, many seniors depend on Social Security, averaging $1,918 a month, but if it’s not their only income, the IRS may tax some benefits. For single filers, combined incomes between $25,000 and $34,000 may result in up to 50% of benefits being taxed, and over $34,000, up to 85% may be taxed. For married couples filing jointly, taxes start at a combined income of $32,000.
For example, if you’re single and get $1,918 per month from Social Security, half of that yearly amount ($11,500) won’t trigger taxes alone. But if you also get $14,000 from other income sources, like investments or retirement withdrawals, your combined income would be $25,500. This means a portion of your Social Security benefits could be taxed. These low thresholds mean many retirees might have to pay taxes on part of their Social Security income.
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8.5% of Retirees May Pay Taxes on Their Social Security Benefits: Understanding the Impact and Strategies to Minimize Tax Liability (PHOTO: Tencap Wealth Coaching)
Strategies to Minimize Tax Liability on Social Security
To keep your Social Security benefits tax-free, think about using Roth retirement accounts. Unlike other savings, withdrawals from Roth IRAs don’t count as income for tax purposes. For example, if you receive $11,500 from Social Security and have $3,500 in other income, pulling $10,500 from a Roth IRA keeps your total income below the tax threshold. If you’re currently using traditional IRAs or 401(k)s, moving to a Roth could be a smart move for tax-free retirement withdrawals.
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