How To Reduce Or Eliminate The Taxes You Pay On Your Social Security Benefits

Many retirees today are paying taxes on their Social Security Benefits!

Because most retirees live on fixed incomes, this expense has a really negative impact on the quality of lifestyle!

In 1984, the IRS passed legislation that made up to 50% of Social Security Benefits taxable. Single tax return filers that have income between $25,000 – $34,000 and joint tax return filers that have income between $32,000 – $44,000 are included.

In 1993, the IRS passed additional legislation making up to 85% of Social Security Benefits taxable. This legislation affects single tax return filers that have income exceeding $34,000 and joint tax return filers that have income exceeding $44,000.

To calculate the taxable amount of Social Security Benefits, three categories of income are included:

  1. All income from pensions, wages, interest, dividends, capital gains, rents, royalties, etc.
  2. All interest from tax-free investments.
  3. 50% of the actual Social Security Benefits.When the three categories added together exceed the thresholds, Social Security Benefits become taxable.

For example, assume a single tax return filer has the following assets and annual income:                                                               Assets                                       Income

Bank Savings

$300,000 @ 2.00%

$6,000

Tax-free Savings

$100,000 @ 2.50%

$2,500

Mutual Fund Savings

$180,000 @ 2.80%

$5,040

Pension

__________

$14,760

½ Social Security Benefits

 __________

$5,100

Total

$580,000

$33,400

The total income adds up to $33,400 which exceeds the $25,000 threshold. Using the IRS Formula, $4,200 of the Social Security Benefits are taxable.

However, the good news is that there are strategies where retirees can reposition some of their savings from taxable and tax-free investments into tax-deferred savings and pay little or no tax on their Social Security Benefits.

For example, if $365,000 was repositioned into tax-deferred savings at 3%, the taxes on Social Security Benefits would be eliminated, but still earn interest of $10,950!

If you are paying taxes on your Social Security Benefits, review your sources of income. Frequently, the earnings from bank, investment and tax-free savings are the reason and a simple reposition of assets into tax deferred savings can fix your tax problem!

Rick Kelly is a Certified Senior Advisor with Futurity First-Summit Financial Group in CO. He helps retirees to secure and defend their retirements. To request A FREE “Social Security Worksheet” call his toll-free 24-hour resource line right now at 877-596-8233 or email him at rickkelly@ffig.com.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which products/investment(s) may be appropriate for you, consult with your attorney, accountant, financial advisor or tax advisor prior to investing.

Please note: I reserve the right to delete comments that are offensive or off-topic.

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