Taxes on Social Security

[waynezo]

My Girlfriend may want to retire at 65 in about a year from now. Her Social Security will be $18,000 and Pension will be $12,000. No other income. I am guessing half of SS $9000 plus pension $12000 equals $21,000. This is less than the taxable threshold of $25,000. So she will pay $0 income tax. We live in Fla so no state tax. Are my calculations correct?

Any advice or opinions will be appreciated.

 

[RunningBum]

Correct. If she has any investment income that counts like the pension income does.

 

[pb4uski]

Does she have tax-deferred retirement accounts like a traditional IRA or a 401k? If so, withdrawals would be result in income as well.

 

[waynezo]

Does she have tax-deferred retirement accounts like a traditional IRA or a 401k? If so, withdrawals would be result in income as well.

Good point, Yes a 403b. She probably wont need to take from it.

 

[38Chevy454]

Good point, Yes a 403b. She probably wont need to take from it.

Or can take a little withdrawal up to the no-tax limit, if some extra cash is wanted.

 

[Gumby]

My Girlfriend may want to retire at 65 in about a year from now. Her Social Security will be $18,000 and Pension will be $12,000. No other income. I am guessing half of SS $9000 plus pension $12000 equals $21,000. This is less than the taxable threshold of $25,000. So she will pay $0 income tax. We live in Fla so no state tax. Are my calculations correct?

Any advice or opinions will be appreciated.

Here is the IRS worksheet for figuring out how much of your social security is taxable. You may find it helpful to run the numbers through it.

https://www.irs.gov/pub/irs-pdf/p915.pdf#page=16

 

[pb4uski]

Good point, Yes a 403b. She probably wont need to take from it.

But she will be required to take from it once she is 72.

Check out https://www.irscalculators.com/tax-calculator

If she has $12k pension and $18k SS then her tax would be nil. If she wants to she could do annual Roth conversions from her 403b and end up paying little tax. It would be a no brainer to do at least a $950 Roth conversion since her tax would still be $0. If she did an additional $5,000 or $5,950 in total then her tx would only be $598.... 12% of the additional $5,000.

 

[qwerty3656]

Don't want to hijack the thread, but are people drawing down Roths rather than regular IRAs to minimize taxes on Social Security? I was thinking I only had the 12% tax bracket to worry about, but maybe I need to keep my income much lower? Any thoughts on best way to optimize this?

 

[pb4uski]

I've heard of people using Roth money for spending to keep thier income low for ACA subsidies, but not to minimize taxes on SS. Possible I guess but not sure if it would be worth the effort.

 

[RunningBum]

Don't want to hijack the thread, but are people drawing down Roths rather than regular IRAs to minimize taxes on Social Security? I was thinking I only had the 12% tax bracket to worry about, but maybe I need to keep my income much lower? Any thoughts on best way to optimize this?

If you're in the SS torpedo range, where additional income pushes additional SS benefits into being taxed until all SS is taxed, it might be worth trying to avoid while you can. Once you are collecting SS and have RMDs at age 72, you might be beyond that range. Before that taking either is a good time to do Roth conversions to limit your RMDs later. Once on SS before RMDs, you might want to avoid tIRA withdrawals. It's going to be very specific for your situation to see if you are in the SS torpedo and if there are actions to avoid the marginal rate as high as 49.95% somehow.

 

[Sunset]

Don't want to hijack the thread, but are people drawing down Roths rather than regular IRAs to minimize taxes on Social Security? I was thinking I only had the 12% tax bracket to worry about, but maybe I need to keep my income much lower? Any thoughts on best way to optimize this?

I value the Roth account too much to use it up simply to lower taxes. As the taxes are going to be paid on IRA withdrawals anyway.


Much better to pull some out of IRA's before age 72 as it will have to be done then so spread it out.



Could even play with the numbers, of SS + large IRA withdrawal, then next year no IRA withdrawal , as a combination of that might be less tax overall due to SS not being taxed in some years depending upon levels.