How Can I Reduce Taxes on Social Security Benefits?

Many retirees are surprised to learn that Social Security benefits can be taxable, depending on their total income. However, with careful planning, you can reduce or eliminate the taxes owed on your benefits. Here’s how:

1. Understand How Social Security Is Taxed

The IRS uses provisional income to determine whether your benefits are taxable. Provisional income includes:

• Adjusted Gross Income (AGI)

• Nontaxable interest (such as municipal bond interest)

• 50% of Social Security benefits

If your provisional income exceeds certain thresholds, a portion of your benefits will be taxed:

• Single filers: Benefits are taxable if provisional income is above $25,000.

• Married filing jointly: Benefits are taxable if provisional income is above $32,000.

2. Withdraw from Tax-Advantaged Accounts

To keep your taxable income lower, consider withdrawing from Roth IRAs, since Roth distributions do not count toward provisional income. Traditional IRA and 401(k) withdrawals, however, do count and could push you into a taxable range.

3. Delay Social Security Benefits

If you can afford to wait, delaying Social Security past full retirement age (FRA) can reduce the percentage of benefits subject to taxation. Plus, delaying benefits increases your monthly payment in retirement.

4. Manage Investment Income

Avoid realizing large amounts of capital gains or interest income in the same year as receiving Social Security benefits. Investing in tax-free municipal bonds or using tax-loss harvesting strategies can help control taxable income.

5. Consider Qualified Charitable Distributions (QCDs)

If you are 70½ or older, you can donate directly from an IRA to a charity. This reduces taxable income without increasing provisional income, thereby lowering or eliminating Social Security taxation.

Final Thoughts: With smart planning, you can minimize taxes on Social Security benefits and maximize your retirement income. Need personalized strategies? Our tax professionals can help you develop a plan to reduce your overall tax burden in retirement.

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