Showing posts with label social security income. Show all posts
Showing posts with label social security income. Show all posts

Monday, February 23, 2015

How to Not Pay Taxes on Social Security Income - Legally

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.