How can you avoid the tax torpedo? (2024)

How can you avoid the tax torpedo?

Taxes on Social Security income can't apply until you receive your benefits. Therefore, delaying Social Security can help you avoid additional taxation through your 60s. If you can work or survive on other income until age 70, you'll reap two benefits: first, you'll maximize your Social Security payment amount.

How retirees can avoid the tax torpedo Morningstar?

The idea is to use dollars in 401(k) or IRA accounts to meet living expenses—or convert a portion of these assets to Roth IRA accounts—before claiming Social Security in years when your marginal tax rate is lower than it will be after you start to receive benefits.

How does the tax torpedo work?

The tax torpedo occurs when your provisional income moves you into a higher Social Security tax bracket. After that, every additional dollar of income can have a double impact — first through taxes on additional dollars, and then on taxes to another portion of your Social Security benefit.

Will Social Security be taxed in 2024?

Starting in 2024, tax Social Security benefits in a manner similar to private pension income. Phase out the lower-income thresholds during 2024-2043.

How can I avoid paying taxes when retiring?

At what age is Social Security no longer taxed?

Social Security income can be taxable no matter how old you are. It all depends on whether your total combined income exceeds a certain level set for your filing status. You may have heard that Social Security income is not taxed after age 70; this is false.

What is the tax torpedo on Social Security?

The phenomenon called the “tax torpedo” occurs when your provisional income bumps you into a higher Social Security tax bracket. This means that every additional dollar of income can have a double impact—taxation of the additional dollar and taxation of another portion of your Social Security benefit.

Is Social Security taxable at 70?

Bottom Line. Yes, Social Security is taxed federally after the age of 70. If you get a Social Security check, it will always be part of your taxable income, regardless of your age. There is some variation at the state level, though, so make sure to check the laws for the state where you live.

Are tax loopholes real?

Tax loopholes are simply legal ways to use the tax code to save yourself money. Different loopholes exist for different levels of income. Whether your income level is low, high or in the middle, this guide to the best tax loopholes can help you save money.

How do I get the $16728 Social Security bonus?

There's really no “bonus” that retirees can collect. The Social Security Administration (SSA) uses a specific formula based on your lifetime earnings to determine your benefit amount.

How much money can a 72 year old make without paying taxes?

Taxes aren't determined by age, so you will never age out of paying taxes. Basically, if you're 65 or older, you have to file a return for tax year 2023 (which is due in 2024) if your gross income is $15,700 or higher.

How much money can a 70 year old make without paying taxes?

For retirees 65 and older, here's when you can stop filing taxes: Single retirees who earn less than $14,250. Married retirees filing jointly, who earn less than $26,450 if one spouse is 65 or older or who earn less than $27,800 if both spouses are age 65 or older. Married retirees filing separately who earn less than ...

Can I get a tax refund if my only income is Social Security?

You would not be required to file a tax return. But you might want to file a return, because even though you are not required to pay taxes on your Social Security, you may be able to get a refund of any money withheld from your paycheck for taxes.

What is the most tax friendly state?

According to the updated MoneyGeek analysis, the most “tax friendly” state overall was Nevada, where the median family owes about 3% of its income in taxes. Meanwhile, 13 states earned either a D or F grade for tax burdens. For some of those states, like Oregon, high personal income tax rates are to blame.

Will Social Security run out of money before I retire?

As long as workers and their employers are paying FICA taxes, there will always be a source of money to pay benefits for retirees and beneficiaries. That's the reason Social Security will never completely run out of money and will never be bankrupt.

When a husband dies does his wife get his Social Security?

Social Security survivors benefits are paid to widows, widowers, and dependents of eligible workers. This benefit is particularly important for young families with children.

How much can seniors make and not file taxes?

What is the highest tax on Social Security?

If your Social Security income is taxable, the amount you pay will depend on your total combined retirement income. However, you will never pay taxes on more than 85% of your Social Security income, though the income brackets will vary by filing status.

What is the Social Security donut hole tax?

The donut hole terminology is an informal way of referring to the wage levels that would not be subject to additional Social Security FICA taxes under dueling proposals put forward by Biden and key Democratic lawmakers including Rep. John Larson, D-Conn., and Sen. Bernie Sanders, I-Vt.

What tax rate do you pay on Social Security benefits?

NOTE: The 7.65% tax rate is the combined rate for Social Security and Medicare. The Social Security portion (OASDI) is 6.20% on earnings up to the applicable taxable maximum amount (see below).

Why is Social Security taxed twice?

However, the double-taxation of Social Security benefits can occur at the state level. A grand total of 38 states don't tax Social Security benefits. But if you live in one of the 12 states that do tax Social Security benefits, and earn above the preset income thresholds in those states, double taxation can occur.

Do 401k withdrawals count as income against Social Security?

"A Roth IRA or Roth 401(k) can help you save on taxes in retirement. Not only are withdrawals potentially tax-free,² they won't impact the taxation of your Social Security benefit.

Does Social Security count as income?

You must pay taxes on up to 85% of your Social Security benefits if you file a: Federal tax return as an “individual” and your “combined income” exceeds $25,000. Joint return, and you and your spouse have “combined income” of more than $32,000.

What is the secret IRS loophole?

Variable life insurance tax benefits are essentially an IRS loophole of section 7702 of the tax code. This allows you to put cash (after-tax money) into a policy that is invested in the stock market or bonds and grows tax-deferred.

What loopholes do the rich use to not pay taxes?

Others will object to taxing the wealthy unless they actually use their gains, but many of the wealthiest actually do use their gains through the borrowing loophole: They get rich, borrow against those gains, consume the borrowing, and do not pay any tax.