It All Adds Up

Greetings! I trust that this finds you well and enjoying life.

A common strategy to save for retirement is to allocate funds for a tax-deferred retirement account, such as traditional IRA, employer-sponsored 401 (k) or 403 (b) plan. However, one drawback to saving via these plans is that when you take distributions in retirement, they are taxed at your ordinary-income tax rate. This strategy assumes that you’ll be in a lower income tax bracket during retirement, but if you save diligently throughout your career and enjoy strong investment performance, that may not always be the case. The more retirement income you receive from tax-deferred plans, the higher your taxable income will be during retirement. And the higher your combined income, the more likely your Social Security benefits will be taxed.

Social Security benefits are taxable based on your total income and marital status. For retirees whose only source of income is their Social Security benefits, their income is not taxable. In fact, they may not have to file for a federal income tax return. However, if your combined income from a variety of sources exceeds the base amount allowed for your filing status, at least a portion of your income may be subjected to income taxes.

In 2019, if your modified adjusted gross income is more than $32,000 a year for married couples filing jointly or $25,000 for taxpayers who are single, head of household, a qualifying widow/widower with a dependent child, or married individuals filing separately and who did not live with their spouses at any time during the year, then you will likely have to pay federal income taxes. To make this determination, add one-half of your total Social Security benefits to all your other income. If the total exceeds your allowable base amount for your filing status, some of your benefits may be taxable.

So now the big question is, is your Social Security being taxed? If so, we may be able to provide a strategy to reduce or eliminate the tax. Call us and let’s examine your situation and try to recapture money falling through the cracks from unnecessary tax on your Social Security.

Best regards,

Jeff Christian CFP, CRPC


If you want to increase your success rate, double your failure rate.

Tom Watson

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