How much of your Social Security will be taxed?

how much will you be paying in taxes on your Social Security benefits in retirement that is the subject of this video [Music] welcome to the financial Fastlane my name is Lane Martinson now we get a lot of questions around how are your Social Security benefits going to be taxed in retirement and so I've got several examples I'm going to go through here just to give you a feel of what it might look like for you okay now I'm going to start here with a person that is single living in the state of Georgia okay they claim their social security benefits early their social security benefits one thousand nine hundred eighty three dollars this this person has no other savings no retirement accounts no pension so their total annual gross income from Social Security 23 400. their provisional income now that's the that's the IRS formula for determining how your Social Security benefits will be taxed in this case would be eleven thousand eight hundred ninety eight that falls well below the thresholds so there is no tax on that benefit right and so if if your only income is going to be social security income then you won't have taxes right total tax is due zero now here's a married couple in the state of Georgia ages 69 and 70. one spouse has a social security benefit of 3124 the other two thousand eight hundred eighty seven they both worked so they have strong benefits there but they didn't save there's no retirement accounts there's no pension so their total annual social security income 72 132. their provisional income is thirty six thousand sixty six dollars which is over the threshold barely so what that means is three percent of their social security benefits are subject to tax in this case that'd be two thousand thirty three dollars but because of standard deduction that's offset and they would have no tax okay here's the example number three a married couple in the state of Illinois age 66 and 67. Social Security benefits 2 312 and 1258. they also have it at 401K an IRA where they're withdrawing 6 000 or planning to withdraw six thousand dollars per month they don't have any pension income so their total gross annual income 136 944 dollars their provisional income 93 420 which is way above the threshold so now 85 percent of their social security benefits will be taxed as ordinary income at whatever the current tax rates happen to be okay and in this example based on our current tax rates today they would be paying 12 000 209 in taxes each and every year now that taxes that tax rate tax rates are going to be going up um January 1st 2026 and so this is about as low as it would be in this scenario okay example number four couple living in the state of Arkansas Social Security benefits of 1950 the spouse in this case is still working they don't have any savings or retirement or at least they're not taking withdrawals at this point but we have one spouse working and the other claiming their social security benefits that is going to result in a gross annual income of ninety three thousand four hundred the provisional income on that is 81 700 and that means that 85 percent of the social security benefit that they're receiving will be taxed as ordinary income in this case nineteen thousand eight hundred ninety dollars total tax is due 10 239 example number five this is a married couple age 64 or 65 living in the state of Kansas social security benefit 2587 the spouse has a benefit of 1258 no savings but they do have a pension two thousand four hundred sixteen dollars per month so that gives them a gross annual retirement income seventy one thousand four hundred dollars to provisional income 52 062 this is going to result in 28 percent of their social security benefits being taxed or twelve thousand eight hundred fifty three dollars that is subject to regular income tax total tax is due in this scenario would be two thousand twelve dollars in example six we have a single person a 64 living in the state of Arizona social security benefit 2945 there's no spouse so there's no other social security income they are withdrawing or planning to withdraw 35 hundred dollars per month for retirement accounts there's no pension so annual total gross income seventy seven thousand three hundred forty dollars the provisional income fifty nine thousand six hundred seventy which means 85 percent of his social security benefits are going to be taxed and the result is five thousand fifty two dollars of taxes per year okay example number seven this is a married couple ages 67 and 70 living in the state of Idaho social security benefit 3210 the spouse getting 2454 so both of these deferred or delayed the claiming of the Social Security benefits so their social security benefits are larger right and they did a good job of saving a good amount in their retirement accounts so they're planning to withdraw seven thousand dollars per month they also have a pension of two thousand a month so an annual gross income of 175 968 dollars their provisional income number is 141 thousand of course 85 percent of their social security benefits will be taxed as ordinary income and the end result is 25 968 dollars in taxes okay and again taxes will be subject to increase in the future and they they are set to increase already now what if this couple this that we just showed you here in example number seven with a where they've they've got additional income to their social security and they're paying a significant amount of taxes on Social Security benefits we talk about a tax-free retirement or tax-free retirement planning and this couple could get to the zero percent tax bracket in retirement with some good planning and with some time and so uh here's the end result of what that might look like so we have the same married couple living in Idaho age 67 and 70. they have the same Social Security benefits but because we have implemented a Roth rollout strategy and in some conversions over time we have changed that tax allocation of their Holdings so now we have just fifteen hundred dollars per month coming out of tax deferred accounts we have the majority of their income coming out of Roth IRA accounts and so their total gross income is the same 175 968 but their provisional income calculation is much less now right 51 984 which means that they're still subject to taxes they have 19 percent of their social security benefits they're still subject to tax in this scenario but because it's under the thresholds there is no tax so this is an example of achieving the zero percent tax bracket in retirement and as a reminder here are the thresholds so it's different right if you're married or single and it has this is the calculation used to determine the provisional income number which is used to determine how much of your Social Security benefits will be taxed or not and just to review how this this works okay so all of your Investments regardless of where your money is from a tax standpoint everything is going to fit generally speaking into one of three tax buckets or tax environments okay we have the taxable this is going to be non-qualified money it's going to be anything any realized gains from any Investments capital gains any earned income if you have rental income anything that is subject to tax each year is included in the provisional income calculation and then any distributions coming out of your qualified retirement accounts 40ks I raise whatever you have when the money comes out it is called and or identified as ordinary income so it will be taxed at whatever the tax rates happen to be in the years when you make a distribution so you take any distributions and then you take 50 percent of your annual social security benefit and that is what determines the Social Security provisional income number okay now if we have money in the tax-free bucket so we're talking Roth IRAs Roth 401ks Roth conversions and cash value life insurance is is really the only other thing where we can get money towards truly tax-free and so if we've got money in the tax-free bucket um that money and that income does not count towards the provisional income number and so what so if you are able to reposition your assets in with a really good comprehensive plan it can save you a tremendous amount in future taxes and help your retirement income last much longer so I hope you found this beneficial if you would like to learn more I would encourage you to get a copy of my book if you haven't read it it's available on Amazon hope you'll like and share this video with others and I look forward to seeing you in the next episode of the financial fast lane foreign [Music]

Channel: Financial Fast Lane

Views: 22,331

Keywords: taxes on social security, social security taxes, taxes on social security benefits, taxes on social security in retirement, social security tax explained, social security taxation, social security taxable, retirement planning, social security, social security benefits

Id: Vf8vU7f3QfI

Length: 11min 32sec (692 seconds)

Published: Sun Apr 09 2023