Tax Strategies

5 of the Best Ways to Boost Social Security Benefits | Personal-finance

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5. Avoid Social Security taxation, when possible

The fifth and final way to put some extra pep in your pocket is to avoid Social Security taxation, if possible.

Whether you realize it or not, Social Security benefits are partially taxable at the federal level if an individual or couple earns above certain thresholds. If a single filer’s modified adjusted gross income plus one-half of benefits exceeds $25,000 ($32,000 for couples), up to half of all benefits paid above this threshold can be exposed to federal ordinary income tax. Thus, a little tax-planning, such as investing with a Roth IRA early and often — eligible Roth IRA withdrawals don’t count as earned income — and using withdrawals to fund your retirement, can help folks avoid federal taxation.

Another good way to hang onto more of your payout is to avoid the 13 states that tax Social Security benefits to some degree. Admittedly, some states are considerably friendlier than others from a tax perspective. For instance, Missouri doesn’t even begin taxing Social Security benefits until an individual crosses above $85,000 in adjusted gross income (AGI) ($100,000 in AGI for a couple). Unless you’re rolling in the dough during retirement, most folks will avoid this tax. Nevertheless, it pays to understand the retirement income taxation rules of the state you choose to call home.

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