Episode #27: Social Security Is Taxable? Oops…

Today’s Prep:

Have you learned the hard way your Social Security benefit could be taxed? A listener question sparked this discussion on Social Security taxation.  Discover how Security taxation could affect you in retirement.

(Click the featured times below to jump forward in the episode)

Equipping Points:

[1:16] – Paying Taxes On Social Security Benefits

  • Paul in Overland Park says he was under the impression that he would not have to pay taxes on Social Security benefits. Why do some people pay more than others?
  • Some people do not pay any taxes on their Social Security income while others pay taxes on up to 85 percent of the Social Security income they receive.
  • Once you’re fully retired, is your Social Security taxable? Maybe.
  • David shares some of the history on Social Security and how it started getting taxed.

[3:53] – What Qualifies As Provisional Income?

  • It includes every dollar of interest and dividends you earn on your investments.
  • It also includes tax-free interest earned on municipal bonds.
  • If you’re still working, then your wages are included.
  • Pensions are counted toward provisional income as well as money taken out of your 401(k), 403(b), and IRA.
  • One half of your Social Security income is also added to the provisional income.
  • If all of that equals more than $32,000 and you’re married filing jointly, then your Social Security starts to become taxable.

[5:24] – What Triggers Social Security To Be Taxed?

  • There are two main contributors to Social Security taxation. They include monthly pensions and large tax-deferred accounts.
  • Most companies give you the option of taking your pension in a lump sum. Doing what’s called a lump sum rollover can help you avoid placing a tax burden on your Social Security.
  • If you’ve invested heavily in your IRAs, 401(k)s, or other tax-deferred accounts, then once you turn 70 and 1/2, your required minimum distributions will cause the government to tax your Social Security benefit.
  • You can make a choice between contributing to IRAs (tax-deferred) or Roth IRAs (tax free).
  • If you’re in your 50s and early 60s, take a look at this now with an advisor.

Today’s Takeaway:


More From David:

The host: David Dickens

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