Many people are surprised to learn that their Social Security benefits can be subject to federal taxation. Whether your benefits are taxed depends on what is known as your “provisional income.” This is your adjusted gross income (not counting Social Security benefits) plus nontaxable interest and half of your Social Security benefits. 

For people filing as individuals or heads of households with provisional incomes of less than $25,000, Social Security benefits are not taxed. For couples filing joint returns, the figure is $32,000. Unfortunately, individuals with provisional income of between $25,000 and $34,000, or couples filing jointly with provisional income of between $32,000 and $44,000, up to 50% of Social Security benefits may be taxable. In the case of individual filers with provisional incomes above $34,000 or joint filers whose provisional incomes exceed $44,000, up to 85% of Social Security benefits may be subject to taxation.

The information above concerns federal taxes. 13 states levy their own taxes on Social Security income, although they do so in varying degrees. These states are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, North Dakota, Vermont, Utah, and West Virginia. (Taxation of Social Security benefits is being phased out in West Virginia. Most residents won’t be taxed on their benefits as of the 2021 tax year.)

An article on kiplinger.com offers some strategies to avoid, or at least mitigate, taxes on Social Security benefits.

Withdraw money from your tax-free Roth IRAs

Tax-free withdrawals from a Roth IRA or Roth 401(k) are not included in your adjusted gross income. Rolling over money from your traditional IRA or 401(k) to a Roth IRA years before you start receiving Social Security benefits is an excellent way to avoid taxes later in retirement. Of course, you will have to pay income taxes when you make the conversion, but you can tap the account tax-free after that.

Purchase a Qualified Longevity Annuity Contract

You can invest up to $130,000 from your IRA or 401(k) in a deferred-income annuity called a Qualified Longevity Annuity Contract (QLAC). The money in your QLAC is ignored when figuring your required minimum distribution, so you can reduce the size of your distribution, lower your income and cut your tax bill.

Give your required minimum distribution to charity

If you are 70½ or older, you can give up to $100,000 per year to charity from your IRAs tax-free.

Your gift counts as the required minimum distribution but is not included in your adjusted gross

income.

Be careful with income investments

You can structure your portfolio to minimize the income it generates. This approach makes particular sense if your portfolio’s income is being reinvested.

Save money, use financial strategies, and get help from Washington Elder Law.

Your best option is attending two helpful workshops provided by the Edmonds Elder Law team, at Washington Elder Law. The workshops are online, and they are free. Advice is offered for seniors and their families. We answer your questions about how to refrain from paying taxes on your income. Find out how you can avoid the Washington State long-term care tax. 

We tell you how to access the funds provided by the state of Washington. We prepare the documents you require to receive benefits. Then, we follow through with the documents to make sure your information is complete.