How to Avoid Paying Tax on Social Security

oftentimes new clients come in and ask us is social security actually taxed and the bad answer the sad answer is yeah unfortunately it can be so then we help them figure out a strategy to not pay tax on their social security i'm going to share some details coming up [Music] my name is mike bernard i am the host of the wise money show i'm also one of the certified financial planners and owners right here at core horn financial group make sure you hit that subscribe button turn on notifications and smash that thumbs up button okay social security is one of the most important financial resources that you have available for your retirement and i know i know the speculators are going to say yeah if it's even around and we've got insolvency and blah blah blah i know yeah i mean social security is at risk the system was set up decades and decades and decades ago the world looked very different the human life the human experience looked very different and it just has not changed to keep up with the changing demographics however that doesn't that doesn't negate the fact that it is one of the most important financial resources available to your retirement so you've got to make a great decision one of those decisions is how do i make sure that i am as tax sensitive as possible with my social security wait a second social security is taxable yes it actually can be and if i can just go on a quick rabbit trail and i could actually get on my soapbox and preach to you about this your what you pay into social security is through fica it's that four letter f word and that's what goes to fund the social security system in fica unless you're a pastor um or unless you're self-employed half of it um you're it's not a deduction you actually have to pay tax on the fica that you send in to the government and then that fica money goes to fund the social security system and then when they start paying it back to you and social security that's right they could tax it again that's double taxation folks move to canada i'm just kidding i have no idea if it's any better up there but i mean it it just gets me going i'd go crazy over how the whole system is set up so really you're already double taxed how can we make it single tax how can we how can you set up your social security so that when you're drawing it out in retirement you're not paying any tax that's the big idea you've got to work with your certified financial planner on because everyone's situation is a little bit different but if this strategy works for you and we've seen it work for lots of people let me show you how you can make sure your social security is not taxed first whether or not it is taxable you've got to look at whether you're you're married filing jointly or single but there's a calculation where you look at all of your other income they call it a modified adjusted gross income but you look at all of your other income so interest and dividends and capital gains and your pension and your ira withdrawals and you you add up all of your other income plus half of your social security that you took that year so all of your other income added up plus half of your social security that you took that year and if that number is over for let's say a married couple if it's over say 33 34 000 then some of your social security starts becoming taxable and it's not much higher where it goes from some of your social security's being taxable to 50 taxable to most is taxable to the maximum is 85 of your social security is taxable if that calculation of all of your other income plus half of your social security is over around forty four thousand dollars for a married couple now i i just said that from thirty two thirty three thirty four thousand to forty four thousand in that range that's not a big range so you can go we easily see people in retirement go from not paying any tax on their social security to all of a sudden paying tax on almost all of it 85 percent of it and so you've got to have some careful tax planning and a lot of that that tax planning for you can start today so what is this strategy i talk about how can you avoid paying tax on your social security well as you are entering these final years of your working career if you're working with your certified financial planner and this all makes sense you may you may want to consider stuffing some dollars away saving some dollars in a in a manner that you can live off of those dollars for the first few years of retirement using a non-ira or a joint type of account or maybe you've got some cash in the bank that you've been building up and if you structure it properly when you retire and kiss that paycheck goodbye you can replace that paycheck fully with some resources out of cash or out of a non-ira an account where you're not paying a lot of tax to to get access to the money and replace your paycheck all right so then do you just enjoy paying no tax for a while no you delay your social security so effectively your tax your tax your taxable income is zero and you start shifting your pre-tax dollars your ira dollars your pre-tax dollars that have never been taxed before you start converting those to a roth ira and you start shifting dollars from where you pull them out taxable to accounts where they'll grow tax-free and you'll pull them out tax-free and you do that while you're delaying your social security letting that grow for eight percent per year approximately okay and then you're using and yes depleting that cash depleting that joint account over the next usually people are doing this from 64.65 for three or four years okay doing so delays their social security allowing it to grow eight percent a year until roughly 69 or 70 where it maxes out they've depleted their cash maybe not to the point where it is at bare bones but still a comfortable level and they've been able to transition somewhere close to a hundred thousand dollars a year from pre-tax ira 401k over to roth ira where it's going to grow tax-free forever then at age 69 70 you turn on your so your social security and you supplement your social security with withdrawals but only really a little bit because your social security has grown so much only a little bit from your ira and you can supplement the rest from the roth and in doing so if you're looking at that formula and being being intentional with it you'll be able to do so where you'll basically stay in the 10 12 tax bracket and not pay tax on your social security for the rest of your life now that's a that's a fairly complicated strategy it very very much depends on your overall financial situation but that's why i communicate in every video you've got to work with your certified financial planner because your cfp is the one that's going to be able to look at your overall financial situation and see if a strategy even closely remotely similar to that makes sense if it does if it does they'll help you figure out a way to thread the needle maximize your social security and minimize the tax that you have to pay on it over your lifetime i've seen several individuals come in to see me and see our advisory team at cohort financial group where they have the financial makeup for this so an individual that i'm meeting with tomorrow um actually has it's about 250 000 in cash another 50 000 in join accounts and the rest of their million dollars or 1.5 million it's all in pre-tax accounts so they're 64 and 65 right now figuring out a way for them to delay social security if that makes sense for them live off of that cash for the next few years been in doing so they'd be paying no tax it might feel great until wham they start drawing their social security start drawing money out of their ira and they're paying a bunch of tax they're in the 22 tax bracket paying tax on 85 of their social security there's a different way to do it live off of that cash start converting dollars about a hundred thousand a year you can do and still stay within the 12 tax bracket or maybe you want to go into the 22 tax bracket convert a whole bunch of that ira that lets your social security grow then you can supplement it with a little ira withdrawal maybe a little roth withdrawal and you'll never have to pay tax again contact your certified financial planner see if that's a plan that works for you or if you still have a few years before retirement see if you can start leveraging that plan taking some steps today so that you can avoid paying tax on your social security in the future reach out to your cfp for help if you need one or a second opinion you can reach out to my team of cfps here at corehorn financial group online corehorn.com that's corehorn with k wisemoneyshow.com you'll find us there as well or send us an email info corehorn.com all right there you have it go out and take your next wise step in your financial life you

Channel: Wise Money Show

Views: 126,609

Keywords: social security benefits, social security taxable, social security, paying taxes on social security, taxes on social security benefits, social security taxable income, retirement planning 2020, social security tax deferral, do you pay taxes on social security, how to avoid paying tax on social security, How to not pay tax on social security, avoiding taxation of social security, do i pay taxes on social security, tax on social security benefits, social security tax

Id: 7d3sqdpkgZU

Length: 9min 27sec (567 seconds)

Published: Wed Sep 23 2020