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3 Tips for Avoiding Paying Taxes on Social Security Benefits

by Alli Thomas

Mar 24, 2023

If you’re trying to determine the right time to begin collecting Social Security benefits, one major consideration should be your tax situation and what amount of your social security benefit would be taxable as a result. With careful tax planning, you could avoid some or all of the potential taxes on Social Security benefits and significantly reduce your tax burden.

How Are Social Security Benefits Taxed?

The amount of of your Social Security income you will have to pay tax on is determined by your “provisional income.”

This is the sum of half of your Social Security income for the year and your modified adjusted gross income (which includes some tax-exempt interest income, such as that paid by municipal bonds).

The Social Security tax income thresholds are listed below. If you cross the income threshold based on your federal income tax filing status, the appropriate portion of your Social Security benefits will be considered taxable income by the federal government.

Filing Status 50% Taxable Threshold 85% Taxable Threshold
Single/Head of Household/Qualifying Widow(er) $25,000 $34,000
Married Filing Jointly $32,000 $44,000

In addition, residents in these 13 states will have to pay state income taxes: West Virginia, Vermont, Utah, Rhode Island, North Dakota, New Mexico, Nebraska, Montana, Missouri, Minnesota, Kansas, Connecticut, Colorado.

How Can You Avoid Getting Taxed on Your Social Security Income?

You can reduce the amount of your social security benefits that’s subject to federal income taxes by reducing your modified adjusted gross income below the corresponding threshold. There are a number of retirement planning strategies that can be used to accomplish this — here are just three of them:

1. Move taxable retirement savings into a Roth IRA well before you retire.

While you’ll have to pay taxes when converting a tax-deferred account into a Roth IRA at the time of conversion, you won’t have have to pay taxes on your withdrawals. When you begin collecting Social Security benefits, those withdrawals won’t count as taxable income for the purposes of calculating Social Security income taxes.

Whether or not the amount you save on Social Security income taxes offsets the amount of tax you’ll pay during the Roth IRA conversion will depend on your overall financial situation, so it’s important to make this decision as part of a comprehensive tax planning process to avoid paying more in income tax instead of less.

2. Don’t begin collecting Social Security until after you’ve drawn down your pretax retirement accounts. 

Waiting to collect Social Security benefits until later in retirement and drawing down your pretax retirement savings first offers two main benefits.

First, without the increased income from the tax-deferred account withdrawals, it is easier to stay below the Social Security tax income threshold once you begin to receive benefits.

Second, delaying Social Security benefits can increase the amount that you’ll eventually start collecting. After full retirement age, Social Security benefit amounts increase up to age 70. Additionally, if you keep working and make more than you did when you were younger, those income years will increase the overall wage base your Social Security benefits are calculated from.

3. Get a qualified longevity annuity contract (or QLAC). 

This single-premium annuity that may help reduce your tax burden on your Social Security benefits. You fund a QLAC from pretax money (such as that from a traditional IRA or 401(k) plan). The insurance company invests your premium during the QLAC’s deferral period, and you can delay receiving regular installment payments until you’re older—up until age 85.

The downside is a limit on premiums, which is $200,000 for 2023. QLACs also used to have a percent-of-benefits limit, but thanks to the Cares Act 2.0, that no longer exists. There is also a longevity risk

Protect Your Income With Comprehensive Tax Planning

These and other strategies for reducing taxes on your retirement income, whether its from Social Security benefits or investment income, as best taken advantage of as part of a comprehensive retirement plan that’s first created well in advance of retirement — and then updated regularly as your situation evolves. The more after tax dollars you have in retirement, the more you’ll have to live on.

Our network of financial advisors is experienced in creating retirement plans that help retirees reach their retirement goals and protect their savings. Click here to set up a no-cost, no-obligation appointment to discuss your financial situation and how you may benefit from

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Alli Thomas

Alli Thomas has worked in the financial services industry for nearly 20 years, with a focus on retirement-related investing. She began her career as a FINRA-licensed participant-services call-center associate at Vanguard, and then moved to Principal Financial Group, where she worked closely with employers, assisting with retirement plan set-up and design, selecting appropriate plan investment offerings, and maximizing employee participation through targeted education campaigns and enrollment meetings. Alli has also worked as a qualified 401(k) administrator and registered investment advisor for several small investment firms. She now writes about all things investment- and finance-related, leveraging her extensive experience and passion for retirement planning to help investors make well-informed financial decisions.

2 Responses

  1. Linda Piasecki says:

    I sold my portion of business to be paid out 2019-2022. Will buy -out money be considered by social security as provisional income?

  2. Mark Coble says:

    My wife and I are 62 and have accumulated the maximum years of earnings. Can my spouse draw off of her individual earnings now and switch over to draw off of me at my FRA?