Retirement & Financial Planning Report

When you receive Social Security benefits, are they subject to income tax? Maybe, or maybe not, or maybe just in part. The issue is very complicated but some seniors can enjoy tax savings by trimming their other reported income. Generally, the best candidates for tax savings are retirees with income roughly in the $30,000-$60,000 range.

Retirees with very low income won’t owe tax on their Social Security benefits. At the other end of the spectrum, upper-income retirees will owe tax on 85% of their benefits. Say that Joan Martin receives $20,000 a year from Social Security. If Joan’s total income is $100,000 a year, then $17,000 of her Social Security benefits (85% of $20,000) will be added to her taxable income.

Within that $30,000 to $60,000 range, more of your benefits will be taxed as your income increases up to the 85% maximum. Conversely, holding down your income, within that range, will result in less tax on your Social Security benefits. You might want to convert your traditional IRA to a Roth IRA and take capital gains before you start taking Social Security benefits; subsequently, you’ll have less income to report and you may reduce the tax on your benefits.