Easy Street Investing

Taxing Social Security benefits? Yes, it happens.

Nilus Mattive

Every March I try to focus a lot of attention on tax issues because they can have a profound impact on your finances. Moreover, our nation’s tax code is so convoluted that people often find themselves in tough spots after it’s too late to do anything differently.

Take Social Security. I’ve repeatedly explained how the system is in trouble, and why we should expect big changes coming in the near future. And I’ve also suggested that Washington will find more aggressive ways to claw back money that has already been promised to retirees.

But make no mistake — that is ALREADY taking place as more than 15 million Americans pay taxes on their Social Security payments.

One expert’s shocking prediction for retirees …

If you’re depending on Social Security to help you retire in comfort, you’re going to be sorely disappointed!

Lawmakers are quietly working on a whole series of changes that will reduce the benefits you’ve already been promised.

Just click here to learn what’s coming and how to protect yourself before it’s too late.

Internal Sponsorship

A lot of seniors are surprised when this happens to them, but under current law, you could owe federal taxes on as much as 85% of the Social Security benefits you receive!

It all depends on how much “provisional income” you earn during retirement.

Uncle Sam
Uncle Sam taxes millions of Social Security payments.

To figure this number out, you add up your adjusted gross income (not including S.S. payments), additional tax-exempt interest you’ll collect, plus half of your S.S. benefits.

If you file a joint return:

  • Your benefits are tax free if your provisional income is less than $32,000 …

  • No more than half your benefits can be taxed if your provisional income is between $32,000 and $44,000 …

  • And if your provisional income exceeds $44,000, it’s almost certain that 85% of your benefits will be taxed.

A couple of things to note:

First, if you file single or head of household, these thresholds go DOWN significantly — i.e. taxation begins at provisional income of $25,000.

Second, in that middle range the actual methodology and exact amounts get tricky but the end result is that you will likely owe a good amount of money back to Uncle Sam.

I’m going to tell you flat out that I don’t think this is right.

I believe it punishes people who have planned adequately for retirement, and only raises more questions about the overall fairness of our current Social Security system.

But based on the rapidly deteriorating condition of our nation’s retirement system, I think this is just the beginning of a larger trend.

Translation: Things are going to get a lot worse for wealthier retirees!     

So Is There Anything You Can Do To
Avoid Having Social Security Payments Taxed?

You may be able to shift around certain retirement distributions and use certain types of investment accounts to control how much provisional income you receive in any given year.

I would recommend working with a tax advisor or financial planner to figure out what’s right for your particular situation, but here are a couple starting points:

#1. Consider a Roth IRA over a traditional IRA since the former’s distributions are not taxable income.

#2. Take distributions from your retirement accounts in such a way that they only push you into taxable range every other year.

#3. Be careful how and when you sell stocks, real estate, or other major assets.

Also, be sure to watch my most recent video alert — The Death of Social Security.

It gives you more background on why Social Security has become so problematic, and other ideas you can use to protect yourself from other impending changes to the system.

Best wishes,

Nilus

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  • jerry france

    Nilus, If the bottom line on the IRS form #1040 is under $32,000 (not including Social Security retirement benefits) none of those benefits are subject to taxation. That retirement system is the finest legislation devised by the US Government, and with only gentle tweaking, the system will thrive for generations and beyond. However, Social Security has been saddled with another component, which gives disability payments to those unable to work, and somehow, babies and children are included in this giant giveaway, which is reported to amount to $260 Billion annually. The “welfare to work” program under Clinton, transferred welfare costs to states, who are now hiring firms dedicated to getting these welfare recipients off the state rolls by assisting them to document phony medical issues to get on SS Disability.

  • YELN 150815

    Clinton and the Democrats were the first to tax SS. Now they are talking about means testing! No matter what gets done it always comes down to the little guy having the rules changed on him halfway through the game simply because of greed and because he thoutht the process out before, now he is winning. We are not a nation of NO_faults. People should demand this kind of Shenanigans (taxing SS) be stopped. Furthermore, tax the politicans who created the shortfall in the SS program. Restitution would be proper. That means going after retired Legislators who had a hand in raiding SS for other programs. I think we deserve payback!