These 12 States’ retirees risk losing some of their Social Security benefits.

Although it’s not always easy to predict how much you’ll receive from Social Security, benefits can go a long way toward helping you have a more comfortable retirement. The age at which you make your claim and your employment history are just two variables that affect the number of benefits you receive. However, taxes could also reduce your monthly payouts, mainly if you reside in one of the 12 states that tax Social Security.

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What you need to know about taxes and your benefits, as well as how you might be able to avoid them, is provided below.

State Social Security taxes

Both federal and state income taxes may apply to your benefits. Your state taxes may vary depending on where you reside, and 12 states offer tax advantages:

You are excused from paying Social Security taxes if you reside in one of the 38 states that do not. Regulations vary a little from state to state, even within the 12 that offer tax incentives.

Social Security is taxable in some jurisdictions, but you are exempt if your income is below a specific threshold. For instance, if your taxable income in Missouri is less than $85,000 per year (or $100,000 for married couples filing jointly), you won’t be required to pay state taxes on your benefits.

Additionally, these rules are subject to change at any time. Checking the Social Security rules of your particular state is the best approach to determine whether taxes will be levied on your payments.

The impact of federal taxes on your benefits

State taxes on Social Security are only one component of the picture; federal taxes on your payments may also be due. Your provisional income, equal to half of your yearly Social Security payment, your adjusted gross income, and any non-taxable interest will determine your federal taxes.

Say, for example, that you receive $20,000 from Social Security each year and take $40,000 out of your 401(k) each year. Your annual provisional income would be $50,000, and you would be responsible for paying federal taxes on up to 85% of your benefit amount.

Ways to lower your taxes

You may not always be able to lower your Social Security taxes, mainly if you reside in a state with onerous tax laws. However, there is a little-known method to cut federal taxes down to almost nothing: Put money into a Roth account.

You must pay taxes upfront on your contributions to a Roth IRA or Roth 401(k). However, your withdrawals are tax-free and do not contribute to your provisional income.

Consider a scenario in which you continue to receive $20,000 in benefits each year but choose to withdraw $40,000 from a Roth IRA rather than a 401(k) each year. In such a scenario, you would have a provisional income of just $10,000 and would not be required to pay any federal taxes on your benefits.

When your savings are concentrated in a regular IRA or 401(k), it may not always be viable to make contributions to a Roth IRA (k). To transfer your funds to a Roth account, you can use a Roth conversion, but remember that you’ll have to pay taxes on the amount you convert.

Taxes can be complicated, particularly when including Social Security. But having at least a basic understanding of them will pay dividends, and it can assist you in being as prepared as possible for retirement.

Contact Information:
Email: [email protected]
Phone: 7705402211

Bio:
Mack Hales has spent the past 4 decades helping clients prepare for retirement and manage their finances successfully. He also works with strategies that help clients put away much more money for their retirement than they could in an IRA or even a 401k. We involve the client’s CPA and/or their tax attorney to be sure the programs meet the proper tax codes.

Mack works with Federal Employees to help them establish the right path before and after retirement. The goal is to help the client retire worry-free with as much tax-free income as possible and no worries about money at risk of market loss during retirement.
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Mack has resided in Gainesville, GA since 1983, so this is considered home. Mack is married to his wife of 51 years, has two boys and five grandchildren.

Disclosure:
Investment advisory services are offered through BWM Advisory, LLC (BWM). BWM is registered as an Investment Advisor located in Scottsdale, Arizona, and only conducts business in states where it is properly licensed, notice has been filed, or is excluded from notice filing requirements. This information is not a complete analysis of the topic(s) discussed, is general in nature, and is not personalized investment advice. Nothing in this article is intended to be investment advice. There are risks involved with investing which may include (but are not limited to) market fluctuations and possible loss of principal value. Carefully consider the risks and possible consequences involved prior to making any investment decision. You should consult a professional tax or investment advisor regarding tax and investment implications before taking any investment actions or implementing any investment strategies.