Will the pension fund withdrawal affect my social security schemes? – The Motley Fool

Social Security is a government-created program designed to provide a continuous income to retirees, but what most people do not know is that if you earn more than a certain amount, the government will take some of the money back in the form of a tax. . This means that retirees need to be strategic about how much they withdraw from their retirement accounts so they don't accidentally pay money. Below I will explain how repayment of pension funds can affect your social security benefits and what you can do about it.

How Your Revenues Affect Your Social Security Schemes

If Your "Total Income" ̵[ads1]1; A Social Security Administration Figure To Explain Below – Is Over A Threshold And Up To 85% Of Your Social Security Allowances Can Be Taxed As Income. Combined revenue threshold varies by marital status. Beneficiaries with a total income of over $ 25,000 and married couples who add up to a total income of more than $ 32,000 can be taxed at up to 50% of their benefits. Individuals with a total income of over $ 34,000 and couples with a total income of over $ 44,000 can be taxed up to 85% of their benefits.

Image Source: Getty Images.

So how do you find out if you fall into one of these areas? Your total income is calculated based on three figures: your adjusted gross income, any insignificant interest you have earned and half of your social security benefits. Your adjusted gross income is the total amount of taxable income you earn for one year, less certain adjustments, such as half of any taxes for self-employed, alimony payments, or contributions to the pension account. Your AGI includes withdrawals from traditional retirement accounts – including traditional 401 (k) s and IRAs – but it does not include withdrawals from Roth accounts, because contributions to these accounts are taxed up front. You may not have taxable interest if you have a tax-exempt bond fund in your investment portfolio.

When you have this information, just add up the numbers to find out your total income. So if you withdraw $ 25,000 from your traditional retirement accounts, you have $ 2,000 in non-taxable interest and you get $ 12,000 a year from Social Security. Your total income will be $ 33,000:

$ 25,000 + $ 2000 + 1/2 ($ 12,000) = $ 33,000

Remember that if your total income exceeds one of the tax thresholds above, it does not mean that you will be taxed on the full amount. It is a special formula that determines how much tax you actually pay on your benefits. This can be complicated to find out on your own, but fortunately there are social security calculators that can do the job for you.

How to Avoid Being Taxed by Your Social Security Schemes

The easiest way to avoid social security at Fordelskatt is to be aware of how much you deduct from your retirement accounts each year. If you are near one of the tax thresholds, try to pull a little less than you planned to avoid the tax. But if you regularly find yourself up against the border, you may need to make some adjustments.

It is usually best to delay deployments from Roth IRA as long as possible so that it can continue to grow tax-free, but there are times when you may want to tap it before. If you are close to the social security tax thresholds mentioned above, consider taking more money from Roth accounts and less from traditional accounts. This can reduce your overall income enough to avoid social security taxes while providing enough income to cover your living expenses. And if you're not retired, consider investing through a Roth type account – or even rolling some existing savings from a traditional account to a Roth account – to help you manage your retirement taxes .

Although you cannot avoid paying taxes on any of your social security benefits, it still pays to understand how this works. You might be able to reduce your tax burden, and at least you won't get a nasty surprise, tax time came.