How to Hold Down Social Security Taxes

Some careful planning may reduce or even eliminate the taxes on your Social Security benefits.

* Invest through deferred annuities or permanent life insurance. Either way, your earnings can build up without swelling your adjusted gross income, which is the basis on which the tax is assessed. (Try to minimize sales commissions and avoid surrender fees, though.)

* Borrow for retirement income. Possibilities include a home equity line of credit, a margin account, a reverse mortgage, a life insurance policy loan, or investment property that you refinance. No matter how you borrow, you’ll receive cash flow but you won’t boost your taxable income.

* Sell some stocks. Take losses on depreciated stocks and stock funds to raise cash. Not only will you avoid boosting your taxable income, you’ll also harvest tax deductions that you can use, now or in the future.

* Alternate high-income years. If you’re withdrawing from your IRA or liquidating appreciated investments for retirement income, take twice as much as you’ll need, every other year. You might, for example, increase your withdrawals and sales this year, boosting your tax bill for that year. Next year, though, you can use this pool of cash for income while avoiding further withdrawals and sales, thus keeping your income to low levels and minimizing the tax on your Social Security benefits.