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Up to 85% of your Social Security could be Taxable- Here’s the Formula Thumbnail

Up to 85% of your Social Security could be Taxable- Here’s the Formula

Investment Retirement Funding Insights

I have had many clients not realize their social security could be taxable.

So when you are talking to your advisor about retirement planning, make sure you consider the taxation on all your money. This is why it's so important to have different buckets of money that is taxed differently.

Here is the formula to help figure out how much of your Social Security could be taxable.

Combined Income = Your Adjusted Gross Income + Nontaxable interest + half of your social security benefits. 

For a Married couple:

From $32,000 to $44,000: You may have to pay income tax on up to 50% of your benefits.

More than $44,000: Up to 85% of your benefits may be taxable

A Simple Example:

let's say you are a couple filing jointly:

Their combined Social Security benefit: $26,000

They took distributions from their IRA: $30,000

Using the formula: 30k (IRA Income) + 13k (half of 26k- SS Income)= 43k

To get the amount taxable, you would take the difference between the income (43k) and the threshold (32K) is computed at 50%:

$43,000-$32,000= $11,000: $11,000/2= $5500 is the amount taxable

What does this mean for you? How much income will you want in retirement? If the money you are pulling out is all taxable, the more of your Social Security benefit will be taxable.

#1. If you are about to retire, make sure you are considering this and planning for it.

Talk to your CPA.

#2. If you are not near retirement, be considerate of what you are putting money today.

For Example:

Every dollar you pull out of a traditional retirement account (tax deferred) is taxed at ordinary income rates. It also is included in the formula to figure out how much of your Social Security Benefit is taxable.

If you pull money from a Roth account (tax free) then it wouldn't be included in the formula.

#3. Plan holistically with your advisor, CPA and other professionals

The professionals in your life should know what you look like financially. What your goals are. They should also work together to make sure all gaps are covered.

Now that you understand how Social Security benefits can be taxed, how do you change or modify your strategy?

Ryan Burklo is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 333 N. Indian Hill Blvd., Claremont, CA 91711. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly-owned subsidiary of Guardian. Quantified Financial Partners is not an affiliate or subsidiary of PAS or Guardian. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. This material is intended for general use. By providing this content, Park Avenue Securities LLC and your financial representative are not undertaking to provide investment advice or make a recommendation for a specific individual or situation, or to otherwise act in a fiduciary capacity. The views and opinions expressed herein may not be those of Guardian Life Insurance Company of America (Guardian) or any of its subsidiaries or affiliates. Guardian does not verify and does not guarantee the accuracy or completeness of the information or opinions presented herein. The Social Security Administration has not approved, endorsed, or authorized this material. Contact the Social Security Administration for complete details regarding eligibility for benefits. AR Insurance License #15319412CA Insurance License #0K24924 #2022-138244 Exp 05/2024