Once upon a time, social security income was always tax
free. Then, for a long time, it was thought of as something that only the rich
had to pay. Nowadays, however, more and more people of average income are
finding themselves stuck paying social security income, and the unfortunate
thing is that they really don’t have to. There are many legal ways to avoid
paying social security income; you just have to know a few “tricks of the
trade.”
Be Careful About Conversions
One of the most common reasons that people find themselves
suddenly forced to pay taxes on their social security income is because they’re
not cautious enough about IRA conversions. Simply put, when you choose to
convert a traditional IRA to a Roth IRA- which can be a smart move if it’s done
correctly- you can inadvertently go over your funding limit. When that
happens, you can find yourself past the income threshold and thus forced to pay
social security taxes. To keep this from happening to you, always speak with a
financial advisor before you make any kind of conversion and keep a close eye
on your funding limits to avoid going over.
Keep Retirement Income Diverse
As long as you’re staying within the income threshold for
your status, you should avoid paying social security taxes altogether. If you
do happen to exceed those limits however, do yourself a favor by finding ways
to at least reduce the amount of tax you’ll have to pay. An easy way to do
that, if you find yourself in this position, is to diversify your retirement
income. Withdraw from different types of accounts, like your Roth IRA, your
savings, and/or your CDs, staying within the approved limits on each, so that
you get more while still paying less.
Plan Ahead
Another important thing you can do to reduce or even
eliminate social security income taxes is to plan ahead! When you work with a
financial advisor, you can do smart things like stagger IRA withdrawals and pay
taxes every few years instead of every year. A good advisor and proper planning
and forethought on your part will really make all the difference.
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