Depending on income, up to 85% of benefits may be taxable. Here are a few ways to reduce that tax bite, by planning ahead.
●Your adjusted gross income, which includes your earnings, investment income, retirement plan withdrawals and other taxable income.●One half of your Social Security benefits.
Many middle-income households can face marginal tax rates that are 50% to 85% higher than their regular tax bracket because of this tax torpedo, Reichenstein said. You can't contribute to a retirement account if you don't have earned income, so people should diversify their retirement accounts long before they stop working, he said. Putting all your money in a pretax option could mean facing a whopping tax bill later.
Tapping your retirement funds before you're forced to do so could make sense, as could a Roth conversion, Sarenski said. With a conversion, money is transferred to a Roth IRA from a pretax retirement account such as an IRA or 401. Conversions typically incur taxes but withdrawals in retirement are tax-free.
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