Lose translation of the video above for your reading pleasure!
Are Social Security Benefits taxable? (Drumroll please!)
They are and many people don’t know that. In fact it wasn’t until 1983 that people had to pay tax on Social Security. By the way, this is great information for your next trivia game. LOL!
Now what happens is the money that's collected actually goes into the Social Security trust fund so maybe Social Security will last a few more years!
For the purposes of this video, I'd like to share a little bit about how the tax on your Social Security is determined in broad terms but also to share five sources of income that sort of fly under the radar and the IRS does not use them in their calculation of provisional income - which determines how your Social Security is taxed.
So how you are taxed depends where your income is coming from. If you collect substantial sources of income from things like wages, investment income, rental properties & similar tax reporting categories, then you’ll likely owe taxes on your Social Security benefits.
Sometimes people just can’t avoid taxation and it depends entirely on your overall income bracket. Social Security benefits are treated like ordinary income so to reduce the amount of taxes you owe, one strategy is to take as much income as possible from sources that are excluded from the provisional income calculation that the IRS uses to determine the taxation of your Social Security.
According to IRS, income from the following sources may potentially be excluded from the provisional income calculation and these are all five categories.
- Roth IRA distributions (that’s the big one)
- Non-taxable pensions and annuities
- Inheritances (if you’re so fortunate)
- Distributions from properly structured life insurance policies
The big ones again being Roth distributions from Roth 401(k)s or a Roth IRAs and distributions from life insurance policies can also be very helpful
Please keep in mind the taxes are only one one part of the calculation. If you follow the SECURiMENT™ retirement success method that I created to help people have a future of Safety, Simplicity and STRENGTH, you know that it’s really three categories that are vital.
1) Protect your nest egg, 2) Create streams of income and 3) Save money on taxes. It’s not just one at the detriment of the others so let’s just keep that in mind.
If you need help on anything retirement related, feel free to reach out. I’m happy to help!