00:00Welcome to our special report on a critical topic for every retiree and soon-to-be retiree.
00:05How taxes can impact your Social Security benefits.
00:08For many, Social Security is a cornerstone of retirement income.
00:12But what you may not realize is that a significant portion of it could be subject to federal taxes.
00:18The key to navigating this lies in understanding a simple but crucial formula.
00:23Your Combined Income
00:24Your Combined Income is what the IRS uses to determine if your Social Security benefits are taxable.
00:31It's calculated by taking your adjusted gross income, adding any non-taxable interest,
00:36and then adding exactly half of your Social Security benefits.
00:40If you're a single filer, your benefits generally won't be taxed if your combined income is below $25,000.
00:46But if it falls between $25,000 and $34,000, up to 50% of your benefits could be taxed.
00:54And if you're above that $34,000 threshold, up to 85% of your benefits could be included in your taxable income.
01:02For married couples filing jointly, the thresholds are a bit higher.
01:06You're generally safe from taxes if your combined income is below $32,000.
01:11Between $32,000 and $44,000, you could see up to 50% of your benefits taxed.
01:17And if your combined income surpasses $44,000, that number jumps to up to 85%.
01:23So, how do you avoid falling into these tax traps?
01:28The secret is to strategically manage your income in retirement.
01:32The key is to draw from income sources that aren't counted in that crucial combined income calculation.
01:37For many retirees, the most powerful tool is a Roth IRA, or Roth 401k.
01:43Unlike traditional retirement accounts where withdrawals are taxable, distributions from Roth accounts are generally tax-free.
01:52This means you can take money out of your Roth accounts to fund your retirement lifestyle without increasing your combined income,
01:58effectively shielding your Social Security benefits from taxation.
02:02Another smart move involves a Health Savings Account, or HSA.
02:06If you use your HSA to pay for qualified medical expenses, those withdrawals are tax-free, and, crucially, do not count toward your combined income.
02:16With healthcare costs a major concern in retirement, an HSA offers a dual benefit.
02:21It covers your medical bills while helping you control your taxable income.
02:25Other income sources that won't increase your combined income include inheritances, gifts, and life insurance proceeds.
02:32While these aren't regular income streams, knowing they won't affect your Social Security tax status provides valuable clarity for your overall financial picture.
02:41Even some payments from pensions and annuities have a non-taxable portion that won't be counted.
02:46And for those who are charitably inclined, a Qualified Charitable Distribution, or QCD, allows you to transfer funds directly from your IRA to a charity.
02:57This distribution isn't included in your adjusted gross income, so it also helps keep your combined income low.
03:03These strategies revolve around being mindful of where your retirement income is coming from,
03:08by prioritizing withdrawals from accounts like a Roth IRA or an HSA, and understanding what types of income are excluded.
03:16You can proactively manage your tax liability and keep more of your hard-earned Social Security benefits.
03:23Remember, every financial situation is unique.
03:26While these strategies can be powerful, it's always best to consult with a qualified financial or tax advisor.
03:32They can help you create a personalized plan to navigate these complex rules and ensure that your retirement savings go as far as possible.
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