Social Security Demystified: Calculating Taxation, Provisional Income, and the Tax Torpedo

Ready For Retirement

James Conole, CFP®

Investment Planning, Bonds, Education, Stocks, Cash, Business, Dividend Investing, Retirement Planning, Retirement, Investing, Tax Planning

5 • 706 Ratings

🗓️ 16 July 2024

⏱️ 17 minutes

🔗️ Recording | iTunes | RSS

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Summary

Listener Michael asks about how Social Security is taxed, the rationale behind the 50% and 85% tax thresholds, and the implications of these taxes on Social Security and IRA withdrawals. James responds by explaining how Social Security is taxed at the federal level, highlighting the concept of provisional income and the thresholds that determine the taxability of benefits. He notes state taxation of Social Security, explaining that most states do not tax these benefits and naming the ones th...

Transcript

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0:00.0	Welcome back to another episode ready for retirement. On today's episode, we're going to discuss
0:03.7	Social Security, how it's taxed, and how you can incorporate that into your overall
0:07.8	strategic tax planning. This is another episode of Ready for Retirement. I'm your host,
0:14.5	James Cannell, and I'm here to teach you how to get the most of the life with your money.
0:18.1	And now, on to the episode. We're going to be addressing a listener
0:22.8	question on today's episode, and this question comes from Michael. Michael says the following.
0:27.7	Hello, I just turned 60 and retired in February of this year. It would be great if there was a
0:31.7	show that spoke to how Social Security is currently taxed and the status of bills relating to such
0:36.0	tax. What is the basis for the 50%
0:38.5	and 85% tax allocation for planning purposes? And what are the implications of applying an
0:43.6	expected tax rate to both Social Security and, for me, roll over IRA withdrawals? Or is it
0:49.3	allocate to one or the other? And could you address any financial planning and potential tax
0:54.0	considerations when Social Security is a few years out from my one or the other, and could you address any financial planning and potential tax considerations
0:54.5	when Social Security is a few years out from Michael?
0:58.9	Yes, Michael, we certainly can.
1:00.5	And Social Security taxation may seem simple enough at first glance, but there are certainly
1:05.9	some nuances to it that are really important to understand as you're both factoring in
1:10.1	your overall income strategy for how are you going to meet your income needs throughout retirement understand as you're both factoring in your overall income
1:11.0	strategy for how are you going to meet your income needs throughout retirement, as well as your
1:14.3	tax strategy and what that might look like. So as we jump right in, let's just start with
1:19.4	understanding how Social Security is taxed at the federal rate. When you pay taxes on Social
1:25.4	Security at the federal level, we're going to talk about state
	...

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