Too often, individuals planning for their golden years forget to consider the federal taxes they will need to pay on their Social Security benefits. Unfortunately, these oversights can take a considerable bite out of one’s expected income in retirement.
Generally, if the income you rely on in retirement comes from sources other than Social Security, including wages, investments, interest and dividends, you should plan to pay taxes on your Social Security benefits. The portion of those benefits that are subject to federal income tax depends on your income and tax return filing status. Moreover, if you live in one of 13 states, you may also be exposed to state-level income tax on your Social Security benefits.
To determine if your benefits are taxable, the IRS advises you first add one-half of the amount of your annual Social Security payment to your other sources of income, including savings in 401(k)s, IRAs and other retirement accounts. If that amount exceeds $25,000 and you are single, part of your Social Security benefits will be subject to federal income tax. If you are married filing a joint tax return, add together half of your Social Security and half of your spouse’s Social Security to your other combined income. If that total is more than $32,000, part of your Social Security may be taxable. The IRS breaks this down further to help you understand how much of your Social Security benefits will be taxed.
Fifty percent of a taxpayer’s benefits may be taxable if they are:
Up to 85% of a taxpayer’s benefits may be taxable if they are:
When it comes to paying taxes on Social Security benefits, you may request the Social Security Administration withhold taxes from the amount they send to you each year, or you may make quarterly estimated tax payments directly to the IRS. A professional financial advisor can help you determine not only your projected tax liabilities but also the best strategy for meeting those responsibilities during your retirement years. The earlier you meet with an advisor, the more prepared you will be to enjoy a comfortable retirement in the most tax-efficient manner.
About the Author: Lee F. Hediger is a co-founding director with Provenance Wealth Advisors (PWA), an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs, and a registered representative with Raymond James Financial Services. For more information, call (954) 712-8888 or email info@provwealth.com.
Provenance Wealth Advisors, 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.
Lee F. Hediger is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC.
Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors + CPAs. PWA is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of the advisors of PWA and not necessarily those of Raymond James. All information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. RJFS does not provide tax advice. You should discuss any tax or legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
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Posted on August 1, 2023