It may surprise you to know that social security income can be taxed. 40% of recipients pay taxes on their benefit. So, who are the lucky 60% enjoying tax-free social security payments, and how can you become one of them?

The Social Security Administration states that, “You must pay taxes on up to 85% of your Social Security benefits if you file a:

  • Federal tax return as an “individual” and your “combined income” exceeds $25,000.
  • Joint return, and you and your spouse have “combined income” of more than $32,000.

If you are married and file a separate return, you probably will have to pay taxes on your benefits.

To meet those thresholds, the goal is to lower your overall taxable income. 

Stocks, bonds, annuities, mutual funds, and real estate are examples of income-generating assets. The interest earned from those investments needs to be reported on your federal income tax return. But an IRA is a tax-advantaged account that can hold a variety of income-generating assets yet won’t increase annual income.

For tax planning advice, whether you’re currently retired or preparing for retirement, contact Alloy Wealth Management. 800-689-3935