Is Social Security Taxable? Yes, Especially For Widows!
Required Minimum Distributions (RMDs) are a TAX BOMB that many soon-to-be retirees are ignorant of.
You can’t afford to be.
Your RMDs can be absolutely BRUTAL when it comes to your taxes.
RMDs can certainly put you into a higher tax bracket, thus you pay more to the IRS.
However, RMDs can also increase your Social Security taxation too.
And, yes AND, RMDs can increase your Medicare Part B and D premiums as well!
Oh, we’re not talking small increases in premiums either. Doesn’t take much income to have your Medicare premiums double..and more.
In this video, we bring back Bob and Jane, our favorite pre-retiree couple.
But now they are only 55 years old. Bob doesn’t work. Jane has $400k in her 401k that she is going to stop contributing to.
She expects to get 6% annual rate of return. And will not take anything out of it until she is 70 years old.
Just watch what happens next.
You’ll be shocked.
I need to recognize Don Pistulka for the spreadsheets he has created and made readily available for the whole world to use. Just a wonderful resource indeed. His website is here… http://pistulka.com/
Other important links: https://www.ssa.gov/pubs/EN-05-10536.pdf https://www.irs.gov/taxtopics/tc751
Social Security taxation is one of my all-time pet peeves. Primarily this annoys me because by the time the taxes are felt, it’s too late for the taxpayer to do anything about it.
At that point, it’s just a matter of hoping they have enough resources to pay the tax-man and live comfortably.
Tax-Exempt Interest Affects Social Security Taxation
In the video below, I show you an article from Money magazine where in passing a tax pro mentioned how tax-exempt benefits are taxed when it comes to your Social Security.
Unfortunately, this mention was made in passing and I imagine most people would overlook it.
He said that tax-exempt interest is counted in your combined income to determine the amount of taxes you pay on Social Security.
Don’t Overlook This!
But the writer of the article completely failed to discuss in any further detail, as is typical with business writers. They seem to over-look what should be obvious and thus fail to ask the fundamental question “You mean to tell me my tax-exempt interest can make my Social Security subject to taxation?”
Doesn’t that seem odd? That tax-exempt interest is part of the calculation for determining taxes on Social Security?
When Tax-Exempt Is NOT Tax-Exempt
Of course it does! Tax-exempt is “Tax Exempt”, after all. But it’s not!
Why the financial media and other financial professionals don’t understand this boggles my mind.
But it gets worse!
Married or Single Is a BIG DEAL
How Social Security is taxed is also contingent on if you’re married or single.
A single person with $34k of Social Security benefits and $20k of other income, pays $1616 in Federal Income tax.
A married couple with $40k of Social Security and $20k of other income pays NOTHING in Federal Income tax. Yes, you heard that correct – NOTHING!
How Single Taxpayer Pays More in Tax on LESS Income
The single person had gross income of $54k and paid nearly $2k in taxes.
The married couple had gross income of $60 and paid nothing.
In fact for the married couple to pay the same amount of tax as that single person they’d need a whole lot more gross income.