Blog, Financial Planning, Tax Management

The Impact of Social Security on Your Retirement Taxes


Navigating the complexities of retirement taxes can be challenging, especially considering the tax implications of Social Security benefits.

Here is some practical advice for managing your retirement income.

What Are Social Security Benefits?

Social Security benefits are a vital source of income for many retirees, funded by payroll taxes under the Federal Insurance Contributions Act (FICA). These benefits provide financial support to individuals who have contributed to the Social Security system during their working years.

The taxability of these benefits depends on your “provisional income” and filing status.

What is Provisional Income?

Provisional income is used to determine the tax treatment of Social Security benefits. It is calculated by taking your adjusted gross income, adding tax-exempt interest, and adding 50% of your Social Security benefits. The total is your provisional income.

What is Adjusted Gross Income (AGI)?

AGI is defined as total income minus deductions or “adjustments” to income that you are eligible to take.

Gross income” includes wages, dividends, capital gains, business and retirement income, and all other forms of income, like tips, rental income, interest and stock dividends.

Adjustments” to income are deductions that reduce total income to arrive at AGI.

Examples of adjustments include half of the self-employment taxes you pay, self-employed health insurance premiums, contributions to certain retirement accounts (such as a traditional IRA), student loan interest paid, and education expenses.

Here’s an example of how to calculate AGI from the website of the IRS:


  1. $50,000 salary/wages
  2. $12,000 in rental income
  3. $8,500 wages earned as a part-time Uber driver
  4. $500 from interest on bonds

Gross Income=$71,000

Adjustments from gross income:

  1. $250 in education expenses
  2. $2,500 in student loan interest


Subtracting the Adjustments ($2750) from the Total Income ($71,000), AGI is $68,250.

When Are Social Security Benefits Taxable?

About 40% of those who receive Social Security benefits pay taxes on them, and up to 85% of your benefits may be taxable.

You won’t have to pay if your provisional income is under $25,000.

If you file as an individual and your combined income in 2024 is between $25,000 and $34,000, your maximum tax liability will be 50% of your benefits.

If your combined income exceeds $34,000, your maximum tax will be 85% of your benefits.

If you file jointly, and have a combined income of $32,000-$44,000, you will pay taxes on up to 50% of your Social Security income. That percentage increases to a maximum of 85% if your combined income exceeds $44,000.

You can find a Social Security taxable benefit calculator here.

Minimize Social Security Tax Liability

Effective tax planning can help minimize the taxes on your Social Security benefits.

Here are some strategies to consider:

  • Manage Your Other Income Sources: By carefully managing withdrawals from retirement accounts, capital gains, and other income sources, you can keep your combined income below the taxable thresholds.
  • Roth IRA Conversions: Converting traditional IRA or 401(k) funds to a Roth IRA can reduce future taxable income since Roth distributions are generally tax-free.
  • Delay Social Security Benefits: Delaying your benefits until age 70 can increase your monthly payments and reduce the years you pay taxes on these benefits.
  • Charitable Contributions: Qualified charitable distributions (QCDs), also known as IRA charitable rollovers, are direct transfers of funds from your retirement account (IRA) to an eligible charity. These distributions can be counted toward satisfying your required minimum distribution (RMD) for the year and are excluded from your taxable income, offering potential tax benefits.

To qualify, you must be at least 70½ years old, and the distribution must go directly from a taxable IRA to the charity (up to $105,000 in total).

Making qualified charitable distributions (QCDs) from your IRA can lower your taxable income, thereby reducing the taxability of your Social Security benefits.

Impact of State Taxes on Social Security Benefits

In addition to federal taxes, some states also tax Social Security benefits. Currently, nine states impose taxes on Social Security benefits, either partially or fully. These states include:

  • Colorado
  • Connecticut
  • Kansas
  • Minnesota
  • Montana
  • New Mexico
  • North Dakota
  • Rhode Island
  • Utah
  • Vermont
  • West Virginia

Understanding your state’s tax laws and planning accordingly to minimize your overall tax liability is essential.

Planning for Required Minimum Distributions (RMDs)

RMDs are Required Minimum Distributions. It is the minimum amount that retirement account owners must withdraw from their retirement accounts each year after they reach a certain age.

According to the IRS, you generally must start taking withdrawals from your traditional IRA, SEP IRA, SIMPLE IRA, and retirement plan accounts when you reach age 72 (73 if you reach age 72 after Dec. 31, 2022).

The purpose of RMDs is to ensure that retirement account owners withdraw a minimum amount from their retirement savings each year and pay taxes on those withdrawals.

You may be subject to a substantial penalty if you fail to withdraw the correct RMD amount.

Consulting a Financial Advisor

Given the complexities of retirement taxes, consulting a financial advisor is advisable. A qualified advisor can help you develop a comprehensive retirement plan that considers the tax implications of your Social Security benefits and other income sources. They can also provide personalized strategies to manage your tax situation and pursue a confident retirement.

Financial advisors who are also Certified Public Accountants are especially well-qualified to provide advice on tax-related issues.

Final Thoughts

Understanding the impact of Social Security on your retirement taxes is essential for effective financial planning. By staying informed about the tax rules and implementing proactive strategies, you can minimize the taxability of your benefits and work towards a more confident retirement.

Consulting with a financial advisor can provide personalized guidance and help you navigate the complexities of retirement taxes.

Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual. All investing involves risk, including loss of principal. No strategy ensures success or protects against loss.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA. (22-LPL)

LPL Financial does not offer tax advice.