The taxability of social security benefits is often overlooked in retirement planning. By skipping this step many people overpay taxes from their retirement benefits. In this blog we’ll review:

  • How to determine if your Social Security benefits are taxable
  • How much of your benefits may be taxable
  • How to reduce the taxes owed on your benefits

*The information on this page should not be construed as all inclusive*

Combined Income

In order to determine if your Social Security benefits are taxable we’ll have to calculate your Combined Income. Your combined income is the Social Security Administration’s figure to determine if your Social Security benefits are taxable. The formula used to get your combined income is:

Adjusted Gross Income
+ Non-taxable Interest
+ 1/2 of Social Security Benefits

= Your Combined Income

Your adjusted gross income is calculated by factoring in all income from different sources including IRA Distributions, 401(k) Distributions, Earned Income and Pension Income. If you have income from any or all of these sources they will be used to determine to your Adjusted Gross Income.

Non-taxable interest is income that typically comes from municipal bonds. Regardless if the interest was taxable at the local or state level, you’ll want to include it in the calculation to determine your combined income.

Remember to use the gross figure for your Social Security Benefits. This is the total amount of benefits you receive before any deductions for Medicare Premiums or Taxes. This figure can be found on your SSA-1099 if you are currently receiving benefits or it could be the total benefits you qualify for based on your Social Security statement.

How Much of Your Benefits Are Taxable?

With a better understanding of your combined income, now we can begin to determine how much if any of your Social Security benefits are taxable. Depending on your level of combined income up to 85% of your benefits can be taxable. Your combined income is qualifying factor to determine if none, 50% or 85% of your benefits are taxable. There are different marginal brackets based on if you file your taxes as Single, Head of Household or Married Filing Jointly.

For this discussion, we’ll only focus on Married Filing Jointly. If you’re Married Filing Jointly here is how much of your Social Security Benefits may be taxed:

  • If your combined income is less than $32,000 then 0% of your benefits are taxable
  • If your combined income is greater than $32,000 but less than $44,000 then up to 50% of your benefits are taxable
  • If your combined income is greater than $44,000 then up to 85% of your benefits are taxable

If your benefits are taxable this amount will be used on your 1040 when you file your taxes. This is significant for many people as it may increase the amount of tax they owe, particularly once Required Minimum Distributions start.

Strategies to Limit Taxes owed on Social Security Benefits

In order to keep more of your benefits you can reduce your Adjusted Gross Income by  structuring where your distributions come from. Note, that for most retirees income from their 401(k), IRA or Pension will all be taxed as ordinary income. The exception to this may be if there were “Nondeductible Contributions” in your 401(k) or IRA. If so, you’ve already paid taxes to get the money into these accounts and that amount won’t be taxed again when it comes out of the account.

However, for most people the income from their retirement accounts will be taxed as ordinary income. Thus, when we add in Social Security income it could be enough to move you into the next marginal tax bracket. This could be the difference between you paying 15% or 25% tax on the last dollar of income you earn.

One strategy to consider when structuring distributions is to take money from your Roth IRA or Savings Account if distributions from an IRA or 401(K) will move you into the next tax bracket. Doing so still provides you with the same amount of money that you need to fund your lifestyle, the difference is the source (and taxability) of the income.

By taking a distribution from your Roth IRA as described, you could limit the taxes you owe, keep more of your benefits and potentially extend the longevity of your assets in tax deferred accounts. Keep in mind that in order to avoid taxes on Roth IRA distributions you must be over the age 59.5 and your Roth IRA must have been funded for at least 5 years.


It may surprise you to find out that retirement benefits that you paid for with taxes can be taxed in retirement, but that’s the way our system works. Unfortunately, there’s not much we can do to change that, however we do have control over how much of our benefits are taxable by structuring our retirement distributions to limit taxes. The strategies listed above are most helpful when used in conjunction with an income plan that focuses on the source of your distributions along with your marginal and effective tax rates. By reviewing this information before retirement you stand a greater chance to preserve your assets and pay taxes efficiently.


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