We recently discussed how your Social Security benefits are taxed, but did you know there may be a few ways to reduce or avoid Social Security taxes altogether?
While not the only possible solutions, here are four strategies you may want to consider.
Avoid Going Over
The most straightforward way to avoid social security taxes may be to stay below the income threshold. If you are single, this means you can generate no more than $25,000 worth of annual income. If you are a couple filing jointly, then this means you can have no more than $32,000 of annual combined income.*
Use Your Roth IRA
Contributions to a Roth IRA are made with post-tax dollars, so any withdrawals you take in retirement are tax-free**. This means any qualified distributions you take from a Roth IRA do not increase the total income for your Social Security taxes. You may want to consider this as a way to supplement your retirement income without increasing your tax burden.
Tap into Traditional Accounts
If you have a conventional savings or money market account, then you can make withdrawals that may not affect your Social Security tax amount. Instead of using your pre-tax investments, your traditional accounts may be able to keep you under the income threshold.
Donate Your RMD
When you take your required minimum distributions (RMDs), you can donate up to $100,000 of it to charity without it being counted as a part of your adjusted gross income. So even though you are required to take the distributions, you have options that may be able to help you reduce Social Security taxes. Read more about donating your RMD to charity.
Again, these are not the only available solutions for reducing or eliminating the taxes from your Social Security benefits. You can get more information by reaching out to Guidant Wealth Advisors via our contact page.
*According to IRS 2015 Tax Codes for Social Security
** Withdrawal of Roth IRA earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax.
The information in this material is for general information only and is not intended to provide specific tax advice for any individual. Please consult with your tax advisor before making any decisions.