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3 Ways to Reduce Taxes on Social Security
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[QUOTE="Yusra3, post: 331049, member: 31907"] Social Security benefits provide the majority of income for most retirees but a portion is taxable. Approximately 40% of retirees pay taxes on some of their benefits. Here are 3 strategies for minimizing tax owed: [B]Reduce Income[/B] How much of Social Security is taxable depends on “combined income” - your adjusted gross income plus any tax-exempt interest plus half of annual Social Security benefits. Staying under the thresholds for your filing status lowers Social Security taxes: [B]- Single:[/B] Combined income of $25,000 - $34,000 taxes up to 50% [B]- Married filing jointly:[/B] Combined income $32,000-$44,000 taxes up to 50% Lower traditional pretax IRA withdrawals and defer claiming Social Security as long as possible to keep combined income down. [B] Invest Tax-Free[/B] Municipal bonds and other tax-free investments avoid increasing adjusted gross income used in the combined income formula. These allow other income like Social Security to escape taxation. [B] Fill Lower Tax Brackets First [/B] withdrawn from traditional IRAs and 401(k)s counts as taxable income for calculating combined income. Withdraw just enough to fill each lower tax bracket then use tax-free funds to avoid jumping to the next bracket. Makes room for more Social Security to be tax-free. [B]For Example:[/B] [LIST] [*]Single filer standard deduction: $12,950 [*]10% bracket: $10,275 [*]Withdraw $23,225 from retirement accounts then use municipal bonds and Roth funds to avoid 12% bracket [/LIST] Makes more Social Security fall under excluded amounts. Coordination of income sources and careful tax planning creates levers to minimize retirement income taxes. Consult a tax professional to employ strategies personalized for your situation. [/QUOTE]
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3 Ways to Reduce Taxes on Social Security
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