Millions of Americans receive Social Security benefits, counting on them to help them make ends meet in retirement. But many don't realize that in some cases, Social Security can be taxable, adding to your tax bill at a time when you can least afford it.
In the following video from The Motley Fool's series on retirement investing, sponsored by TD Ameritrade, Fool consumer finance expert Dayana Yochim talks to Dan Caplinger, the Fool's director of investment planning, about the rules for Social Security taxation. Dan notes depending on your other income, as much as 85% of your Social Security benefits can end up subject to taxation. Although you won't pay an 85% tax rate, the taxable portion of your benefits will be subject to tax at whatever your normal tax rate is. To figure what you'll have to include as taxable, you take half your Social Security benefits and add them to your other income. If the amount is above $25,000 for single filers or $32,000 for joint filers, as much as half of the amount over those thresholds can be subject to tax; above $34,000 for singles and $44,000 for joint filers, that maximum rises to 85%. Dan concludes that planning to avoid Social Security taxation is hard, but one avenue that's open is to use Roth IRA distributions -- as they're not included in the "other income" calculation.
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The article How Can Social Security Affect My Taxes? originally appeared on Fool.com.Dan Caplinger and Dayana Yochim have no position in any stocks mentioned. Nor does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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