Maximizing After-Tax Social Security

​Social Security is subject to a unique tax treatment. Part of your benefit is taxed currently, and part is tax-free. But the portions of what is taxed and what is tax-free are rather fluid, and will depend in large part on the amount and most importantly, the sources of your income.

To determine the taxable portion of your Social Security, the IRS takes all of your income and, figuratively speaking, puts it in a bucket to determine the total. The more that ends up in this bucket, the greater the percentage of your Social Security benefit that is taxable.
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But there is one very important thing to understand about these tax calculations: not all of your income necessarily goes into this bucket. If and how much of your income goes into the bucket is in large part based on the source of that income.

​For example, 100 percent of the income you receive from your 401(K0, IRA or other tax-postponed retirement plan goes into the bucket, but only 50 percent of the income your receive from your Social Security goes into the bucket.

Now think about that for a minute. If only 50 percent of the Social Security benefit you receive is included, doesn’t it stand to reason that your taxable income might reduce if a larger portion of your total income came from Social Security?
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To make this important point clearer, assume that we have two individuals. They both have the same total income.

One person receives one quarter of her total income from Social Security, and the other three quarters comes from her IRA.

For the purpose of calculating the taxable portion of the first person’s Social Security benefit, only 50 percent of that benefit is included in the calculations, whereas 100 percent of her IRA income is counted. 
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While the other person has the same total income as the first, she receives a much larger portion of that total from Social Security, and much less from her IRA. Three-quarters of her income comes from Social. 

Again, for the purpose of calculating the taxable portion of her Social Security, only 50 percent of the benefit is included in the calculations.

Her Social Security represents a much larger amount of her total income, but proportionally less of it goes in the calculations for determine that taxable portion.
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While 100 percent of her IRA goes into the calculation, since it represents a much smaller portion of her total income, less is included from the IRA in those tax calculations.

Few things will be more important than your future retirement. And the way time flies, it will happen before you know it.  We can help you plan for the inevitable. ​