Taxation of Social Security Benefits–Can You Avoid It? - BankRate
The taxation of Social Security benefits became law way back in 1983, when the program was facing severe financial stress. At that time, up to 50% of a beneficiary’s total Social Security income could be added to their gross income for federal tax purposes if their total income–including half of their benefit–exceeded minimum levels. This changed in 1993–again in the face of financial stress– when President Clinton’s “Omnibus Budget Act” advanced the total potentially taxable portion of Social Security benefits to 85%. Modified adjusted gross income levels were set so that falling under these levels would allow Social Security benefits to escape taxation.
For many folks aging into Social Security, the fact that their benefit could be subject to federal income tax is a surprise. When taxation of benefits was enacted into law decades ago, the income limits were high enough that not too many beneficiaries were subject to taxation. These levels, however, have not been adjusted for inflation, remaining constant for nearly 30 years, with the result that now nearly half of all beneficiaries find part of their Social Security income taxed at the federal level.
So, is there any way around it? An article by Investing and Wealth Management reporter James Royal, posted today on bankrate.com, discusses strategies that could be employed to avoid paying taxes on one’s Social Security benefits, but cautions that it’s not a simple thing to accomplish. His article covers five specific ways that “careful maneuvering” can help reduce the impact of federal income taxes on one’s benefits, and includes the caveat that for many folks “ … it would require a massive overhaul of their lifestyle or is otherwise simply impossible given their income and assets.”
In any event, Royal’s article can be valuable to anyone in the midst of detailed planning for their upcoming retirement financial picture. You can access the post here…
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