You will certainly get money from the program as long as you have worked for at least 10 years, but if you want to get as much as you can from Social Security you need to be especially careful to keep it out of their hands. Otherwise, you might lose some of those benefits you worked so hard for. Keep the following three tips in mind if you want to avoid this.
1. Wait to apply for benefits until you retire
You can claim Social Security as early as 62, but if you do so while you’re still working, you could lose some of your Social Security earnings test benefits. Those younger than their full retirement age (FRA) – 66 or 67, depending on your year of birth – will lose $ 1 from their Social Security checks for every $ 2 they earn over $ 18,240 in 2020. Those who will reach their FRA in 2020. 2020 will lose $ 1 for every $ 3 they earn over $ 48,600 if they reach that amount before their birthday.
This money is not necessarily gone forever. When you reach your FRA, the government recalculates your checks to include the money it has withheld, and your future checks will be bigger. But you can avoid all the extra hurdles just by delaying Social Security until you’re fully retired.
You could lose some of your benefits permanently if you end up owing taxes on them. The federal government requires people with combined income over $ 25,000 and married couples with combined income over $ 32,000 to pay tax on some of their benefits. Combined income is defined as your Adjusted Gross Income (AGI) plus any tax-free interest you have available and half of your Social Security benefits.
If your income exceeds the above threshold for your tax filing status, you may owe taxes on up to 85% of your Social Security benefits, but it depends on your combined income. Here is a more detailed guide explaining Social Security benefit taxes to help you determine what you may owe.
You may be able to avoid taxes on Social Security benefits altogether if you just wait to start benefits until you are fully retired and your income is lower. Even if you aren’t completely avoiding tax, waiting until your income is lower could reduce the amount you owe in taxes.
2. Moving to a state that does not tax social security benefits
The federal government is not alone in taxing social security benefits. Thirteen state governments also do so. These are Connecticut, Delaware, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and Virginia western. Each state has its own system for determining who owes taxes on Social Security benefits and how much they will owe, but if you live in one of them there is a chance that you will lose even more of your social security benefits. social security for the benefit of the government.
Moving can be a big change in retirement, but if you’re not particularly tied to the state you currently live in, it could be a smart way to keep more of your Social Security benefits. Of course, you also need to weigh the costs of moving and whether living expenses will be higher in a new state to decide if it’s worth it for you.
3. Use your retirement savings wisely
You do not owe tax on your Roth retirement withdrawals because you have already paid taxes on your contributions. This is useful for those who are trying to avoid taxes on Social Security benefits, as you can withdraw as much as you want from these accounts, and your combined income will not increase by a single penny. This can help you minimize the amount of tax you owe on your Social Security benefits, or possibly avoid benefit taxes altogether.
If you don’t have Roth savings or only have a small amount, you may not be able to rely as much on this strategy. Instead, you’ll need to minimize your tax-deferred retirement withdrawals to keep your tax bill low in retirement. Try to limit yourself to what you need to cover your expenses. Remember that Social Security will help cover some of your costs.
Your expenses will vary slightly from year to year, and the tax brackets and tax rules for Social Security benefits may change over time. You should register at least once a year and research any changes to the tax code that might affect your retirement account or Social Security benefits so you don’t make costly mistakes you’ll regret later.