6. Limit taxes on Social Security benefits.
Manage the taxation of Social Security benefits with deferral and timing strategies. Social Security is becoming a bigger part of every adviser’s retirement income planning strategy. But there’s more to taking the income stream than merely looking at the best time to claim. What do you claim, and what do your other income sources look like?
Advisers need to think about where clients will stand from a “combined income” point of view before they take Social Security.
Single tax return filers may pay income taxes on up to 50% of their benefits if their combined income — that’s AGI, nontaxable interest and half of Social Security benefits — falls between $25,000 and $34,000. If the income exceeds $34,000, then up to 85% of those benefits are taxable.
If your clients are married and filing jointly, then they may have to pay taxes on up to 50% of their Social Security benefits if their combined income falls between $32,000 and $44,000. If their combined income exceeds $44,000, then up to 85% of their benefits are subject to federal income tax.
“This is a matter of always knowing where you end up income-wise and staying below the thresholds,” said Mr. Keebler. “Smart advisers will work with [clients] each year to make sure they don’t get burned on that. This is a matter of timing your benefits.”