Waiting to Take Social Security from a Tax Standpoint

I’d like share with you this idea about maybe waiting to take Social Security from a tax perspective. So again, it may or may not make sense for you. So take that into consideration. But when you’re looking at it, you’re looking at what are the tax implications of drawing your Social Security. So one thing you may or may not be aware of is you’re taking this calculation of roughly half of your Social Security, plus all other income and then this creates this MAGI or modified adjusted gross income. And that number then factors in to whether you fit different thresholds. So if you’re a married couple, that’s $32K of MAGI or modified adjusted gross income where up to 50% of your Social Security could be considered taxable. Meanwhile if you’re at $44K then it could be upwards of 85% of your Social Security would be taxable. And these are for 2022. And for single tax payers, that’s $25K of MAGI for up to 50% of Social Security is taxable. And then at $34K upwards of 85%. So looking back, taxation on Social Security started back in 1984. And a little side fact here, if you really want some exciting reading you can go to http://ssa.gov, look at history and then taxation on benefits. And you’ll see some amendments occurred back in 1993 that had these different thresholds that I just mentioned, but they haven’t changed since. So we’ve been going off of these now for approximately 30 years, had these same thresholds, yet obviously we’ve had a rise in income over that same timeframe. So where you need to be aware is when you’re going to be drawing from your IRAs. Because all of your IRA, 401K income is going to be taxable to you. And so that’s going to have a major impact on your Social Security taxation. So one potential idea may be drawing from your IRA and delaying your Social Security. So then that way your Social Security grows by approximately 5% between age 62 and your full retirement age and then upwards of 8% from your full retirement age to age 70. But good news is now you’ve grown your Social Security if you’ve pushed it out to age 70. But the bad news of that scenario is maybe you’ve drawn down from your 401K, IRA savings. But you may have set yourself up then for a lower tax liability down the road. So if you’re hearing all this information and not quite sure what direction to go, we encourage to give us a call. We’re happy to sit down with you and discuss your retirement income plan.