Understanding Social Security Taxes and IRA Distributions: Expert Guidance for Your Retirement Plan
But never more than 85% of your benefits. Depending on your income you might not pay income tax.
IRA distributions count as regular income on your tax return and CAN push you into the income zone where more of your Social Security is taxed. This is just ONE of the reasons I talk with ALL my clients about building up ROTH IRA money for retirement. My goal for most families is to have about one-half of their retirement savings in ROTH IRAs. This money is never taxed, regardless of how much you take or when you take it. And, if it’s inherited the beneficiaries owe NO income tax.
To figure out how much of your social security will be subject to tax, consult IRS Publication 915. Or give me a call I routinely help families with tax savvy investment strategies including managing the tax on Social Security income.
But, generally, here’s how much tax you can expect.
Income Single | Income Joint | Tax Status |
Up to $25,000 | Up to $32,000 | NO TAX |
Between $25,000 and $34,000 | Between $32,000 and $44,000 | Up to 50% of Social Security is taxable. |
Above $34,000 | Above $44,000 | Up to 85% of Social Security is taxable |
Don’t Forget IRMAA
IRA distributions can also push you into a higher Medicare Income-Related Monthly Adjustment Amount (IRMAA), which means your Medicare premiums are increased. Medicare premiums are deducted from Social Security.
You may not need to make IRA distributions when you first quit the big job, but don’t forget the Required Minimum Distributions (RMD). IRS rules require that you begin removing IRA money in the year you turn 73. You don’t have to spend the money, but you do have to pay income tax on it.
Consult the IRS to determine exactly how your RMD will be calculated. Generally, for most people turning 73, you take the value of all your IRAs and tax-deferred retirement accounts and divide that number by the distribution period shown in the IRS Table III Uniform Lifetime chart. For a 73-year-old in 2024, this number is 26.5. So, you will need to remove about 3.77% from your retirement accounts in that first year. Each year, the distribution percentage increases slightly in an effort to remove all the IRA money over your remaining life.
If you wonder how big a deal tax on your Social Security will be for you, whether you should worry about IRMAA, and how to plan for the tax on RMDs, you might benefit from a visit with an experienced, highly-trained CERTIFIED FINANCIAL PLANNER™ professional and Behavioral Financial Advisor in West Saint Paul, Minnesota to help better understand your options. I love to meet new people. So, follow this LINK to find a time for us to have a get-acquainted visit.
I am a financial planner who is an advocate for my clients all the time—a fiduciary financial planner. I provide guidance based on clients’ best interests, not commissions or sales quotas. I think it’s the best way to serve clients, and I am thrilled to work this way all the time. And yes, I’m still taking on a few great families to be part of my financial planning practice in West Saint Paul, Minnesota, and, thanks to Zoom, across the country.
Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.