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Did you know that Social Security benefits are subject to federal income taxes? This fact can make you think twice about the sequence in which you withdraw from retirement accounts such as your thrift Savings Plan (TSP) and Individual Retirement Arrangements (IRAs). Let’s first look at the tax on Social Security income and then go on to how you may find it to your advantage tax-wise to delay withdrawing from Social Security.

It is possible that up to 85% of your Social Security can be subject to taxes at your rate for ordinary income.

To determine how much of your benefit is taxable you add:
• ½ of your Social Security benefit.
• All other taxable income.
• Tax-exempt interest income.

If your filing status is single:
• And the total of the above items is less than $25,000, there will be no tax on SS benefits;
• And the total is between $25,000 and $34,000, up to 50% of SS will be taxable;
• And the total is over $34,000, up to 85% of SS will be taxable.

If your filing status is joint:
• And the total of the above items is less than $32,000, there will be no tax on SS benefits;
• And the total is between $32,000 and $44,000, up to 50% of SS will be taxable;
• And the total is over $44,000, up to 85% of SS will be taxable.

The above income levels, set in 1986, are not now, nor have they ever been, indexed for inflation.

The amount of Social Security that is taxed is either 50%/85% of your benefits, or 50%/85% of the amount by which your income exceeds the “trigger points” listed above. An example follows below.

You and your spouse file a joint return and your income consists of $30,000 of AGI and $4,000 of tax free interest income. Your Social Security benefits were $5,000. Adding ½ of the Social Security benefits to the other income gives you a “provisional income” of $36,500 for the purpose of determining taxability of your Social Security. The $36,500 exceeds the trigger point for 50% of your Social Security being taxable. The amount that will be taxed is the lower of 50% of your Social Security ($2,500), or 50% of the amount that your provisional income exceeds the threshold ($2,250).

By delaying hitting your Social Security, your benefits will increase by anywhere between 5% and 8% per year – and only half of those benefits are used in determining the taxation of your SS benefits. If we assume, as many do, that tax rates will not go down anymore and, in fact, will be likely to go up, taking fully taxable withdrawals from your TSP or IRA now and allowing your partially taxable Social Security benefits to grow will be a net tax saver. Once you reach the age of Medicare eligibility, lower taxable income can also help mitigate the Medicare Part B income related monthly adjustment, saving you even more in taxes.


John Grobe, President of Federal Career Experts, is an expert in the area of federal employee retirement and benefits. This expertise comes from his 26 year federal career in which he managed the retirement program in a 3,500-employee office of a large federal agency.

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