Retirement Planning
February 7, 2022

Timing Social Security: A Tax Perspective

We’ll take a look at what assets are taxed and how a thoughtful plan can reduce them.

Minimizing taxes in retirement is just as important as it is during your working life – but since the source of your income has changed, you need to deploy different strategies. In this blog we take a look at what assets are taxed and how a thoughtful plan that incorporates timing your withdrawals and paying attention to how you rebalance your portfolio can reduce them.

Pre-retirement planning for taxes on Social Security

Up to 85% of your social security income may be subject to taxes if your provisional income exceeds either $34,000 for a single filer or $44,000 for a couple. Provisional income is calculated by adding your adjusted gross income, nontaxable interest and half of your social security benefits. By decreasing adjusted gross income, you can potentially lower provisional income enough to reduce your tax liability.

Thinking about the order in which you tap retirement income can both increase income and reduce tax liability. Waiting until age 70 to claim social security will increase your benefit to the maximum amount, which will allow you take less from 401(k) or IRA accounts.  In addition, if you still want to retire earlier, funding the years between retirement and accessing social security benefits with 401(k) or IRA withdrawals will reduce the value of those plans, so that once the required minimum distribution (RMD) kicks in at age 72, you’ll be taking the RMD from a smaller base, which will reduce income.

Another strategy is to convert 401(k) or IRA plans to a Roth, which allows for tax-free distributions. Both of these strategies require some advance planning – you want to start thinking about the income tax picture along with your pre-retirement planning so you can factor it in to your decision-making process.

If you’re already retired

There are still steps you can take to reduce your taxes. Tax-loss harvesting, in which you take distributions by liquidating some positions that have generated losses can create a tax offset to any capital gains you may have generated.

The bottom line

Setting up a solid plan for your retirement isn’t just about figuring out how much income you’ll need and what investments will create it for you. It’s also important to think through what your sources of income are, and in what order you’ll tap them, to make sure that you are maximizing income and minimizing income tax.

Written By
Daniel Mesa
Financial Advisor

The information contained in this report is not written or intended as financial, tax or legal advice and you are encouraged to consult a professional tax advisor to ensure that your personal tax circumstances are taken into account.

Share this article

Find Out More

To find out more about this topic and more, please fill in the form below to arrange a call back.

Access Full Recording

To access a full recording of the webinar, please fill in the form below. We'll email you a link to the video.

Thank you!
Your message has been received and we will arrange for a member of our team to contact you via email or phone to discuss your enquiry.
Oops! Something went wrong while submitting the form
Thank you! Enjoy the webinar.
The webinar recording is available to watch above and we will email you a link shortly, so you watch at your leisure.
Oops! Something went wrong while submitting the form

Join Our Newsletter

Stay up-to-date with financial news and insights delivered straight to your inbox. Sign up today.

You have successfully subscribed to our newsletter.
Oops! Something went wrong while submitting the form.
Please review the field format and try again.

Talk To An Adviser

You can reach us directly by calling us between the hours of 8:30am and 5pm at each of our respective offices and we will immediately assist you.

Request A Call Back

By completing this form, you are consenting to receive telephone communication from Skybound Wealth Management USA, LLC, in accordance with our Privacy Policy.
Thank you!
Your call back request has been received and we will arrange for a member of our team to call you at your desired time.
Oops! Something went wrong while submitting the form