Category: Social Security
Planning for taxes on Social Security
Recently, we've been hearing from people who have been enrolled in Social Security, seeing their taxes go up, and not understanding why. There are ways to keep more of your retirement income, but first, let’s look at how it can be taxed. We know that Social Security benefits aren’t tax-free. In fact, up to 85% of the benefits you receive each year could be subject to tax, depending on your household income. Moreover, 100% of your withdrawals from traditional IRAs and traditional 401(k)s will likely be considered taxable income. When making these withdrawals, we work closely with our clients to ensure they’re taking what they need but not enough to push them into the next tax bracket. We’ve recently encountered individuals who took advantage of high interest rates by putting their money in CDs or money market accounts. The interest on these is taxed at the same federal income tax rate as the money you receive from paid work, which is why people are seeing their income tax rates jump into the next bracket. That's why it's crucial to collaborate with a tax professional to develop a strategy to mitigate that sudden increase, just like we would with IRAs or 401(k)s. Furthermore, the Tax Cuts and Jobs Act of 2017 is set to sunset on Jan 1, 2026, which could exacerbate the problem further. When the Tax Cuts and Jobs Act of 2017 ends, this means tax rates will revert to their previous higher levels. The act doubled the standard deduction and
Savvy Social Security Planning
Savvy Social Security Planning: What Baby Boomers Need to Know to Maximize Retirement Income What you need to know before you apply for Social Security benefits. When should someone start collecting Social Security benefits? The answer is that there is no one "best age" for everyone and, ultimately, it is your choice. You should make an informed decision about when to apply for benefits based on your individual and family circumstances. We don’t know what the future holds, but Social Security is likely to continue as a source of some retirement income for baby boomers. From a planning perspective, any assumptions made about the impact of Social Security on retirement should be conservative. An individual’s full retirement age (FRA) is the age when he or she qualifies to receive the entire or "full" Social Security retirement benefit based on his or her earnings history. This age varies based on when he or she was born Everyone who is qualified to receive Social Security retirement benefits can begin taking them as early as age 62 or delay up to age 70. Your monthly benefit amount can differ substantially based on the age when you start receiving benefits. If you decide to start benefits before your full retirement age, your benefit will be smaller but you will receive it for a longer period of time. At age 62, your monthly benefit is 25% lower than the benefit at full retirement age. (FRA) If you decide to wait until your full ret
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Case studies are intended to illustrate the types of financial issues faced by actual clients. They should not be construed as a testimonial for or endorsement of Lineweaver Wealth Advisors. They do not represent the experience of any advisory client. Each client’s situation is different, and their goals may not always be achieved. Lineweaver Wealth Advisors, LLC, is not engaged in the practice of law or accounting. Tax information provided is general in nature and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation. Tax rules and regulations are subject to change at any time.
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