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How Taxes Affect Social Security


When you plan for retirement, it’s important to consider how Social Security is taxed to know how much retirement income you’ll actually have.

June 19, 2017

When you plan for retirement, it’s important to consider how various income sources are taxed as it can affect how much money you’ll actually have for retirement expenses. At most, 85% of your Social Security benefit will be taxed, making it one of the more tax-efficient sources of income for retirees.

Retirement income taxability

The portion of Social Security income that is taxable varies with each individual, and is dependent on your adjusted gross income and the amount of Social Security benefits you receive. Filing early for Social Security forces you to be more dependent on assets that could be fully taxed. On the other hand, when Social Security is a larger part of your retirement income plan, you can potentially reduce your taxable income and increase the amount of money you are able to keep.

How delaying benefits can lower taxes

Taxes are important to consider when planning your retirement income, but understanding how Social Security is taxed may be confusing. The good news is that you don’t have to figure it out on your own. A financial advisor can provide valuable guidance as you prepare for retirement.

9 Both filed early at 62.
10 Couple maximized Social Security benefits by Steven delaying until age 70 and Marie delaying until 69.
11 Assumes a 62-year-old married couple. Average life expectancy of 86 for the husband; 89 for the wife. Primary Insurance amounts of $2,400 and $1,300. Individual calculations may vary.
12 Provisional income includes 50% of Social Security benefits, ordinary income, dividends and capital gains and nontaxable interest income.
13 Refer to IRS publication 915 for the definition of other income.

Note that Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted.

This content was created and distributed by Nationwide. Raymond James is not affiliated with Nationwide. Please note that Nationwide and Raymond James do not provide legal, tax or accounting advice. You should consult with your accounting or tax professional for guidance regarding your specific financial situation.

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