Ken Moraif 

Ken, tax free social security. Are you kidding me, maybe, but only until 2029 here’s what you need to know.

Hello everyone, and welcome to the retirement planners of America podcast. I am Ken Moray. I’m the founder and CEO of retirement planners of America, and in this podcast, we’re going to talk about tax free social security. Whoa, so we’re going to get into that. But before we do, I just want to tell you that we work with people who are over 50, who are retired or retiring soon. So that’s you. This podcast is designed for you, and we try to have more fun than a human being should be allowed when talking about all this boring financial stuff. So you’ve come to the right place. Let me bring into the conversation, Jordan Roach, our Chief Investment Officer extraordinaire, Jordan, good to see you. Good to be here today, man, we have an exciting topic, right? Tax Free Social Security, sounds pretty good, right? That’s that’s really cool, good. So first of all, let’s set the stage, because before we even can tell whether our Social Security is gonna be tax free or not, we need to know how they go about taxing it. Sure. And there’s this thing called your provisional income that determines whether or not you’re gonna pay tax on Social Security. So tell us what that means. Yeah, us

Jordan Roach 

what that means. We want to make this as complicated as possible, usually with IRS, you know, we have modified adjusted income. We are adjusted gross income. We provisional income. Provisional income, that is, applies to Social Security. And so it actually is a fairly simple way to figure out what it is. So Social Security uses a provisional income determine how much of your Social Security benefits will be added to the rest of your income to find your total taxable income. And how we do that is fairly straightforward. We take your adjusted gross income, which is kind of your total income. It’s

Ken Moraif 

the number at the bottom of the front page of your tax return, before

Jordan Roach 

deductions come in there. So take that number, add in your tax free interest. So for instance, take like it, let’s say municipal bonds paying interest. Add that back in. It’s no longer free anymore. Add it back in. So

Ken Moraif 

they figured out how to tax your tax rate income, okay, that’s right, that’s

Jordan Roach 

right. And then add in half of your Social Security benefit. So you add those three, you know, those three things together, and you’re gonna get your provisional income. And then what you’re looking at is, if you’re you know, if that those numbers add up to 25,000 or less for single or 32,000 less for a married couple, then none of your Social Security benefit would would be taxable to you. So

Ken Moraif 

that’s the goal. That’s the goal is to make your provisional income less than 32,000 but if it’s between 32 and 44,000 it’s 50% right. For a married couple, that’s right. And if it gets over 44,000 for a married couple now, they tax 85% up to 85 that’s exactly right, they can get pretty draconian, that’s right. So

Jordan Roach 

all that for that’s a fairly small amount, you can have a lot of it added back to your income, have a tax bill.

Ken Moraif 

And you know, you just said, you know, we’re gonna get into complexity. I think that social security, you know, they had an Olympics for the most complicated, the most complexity, right, of any organization in the government. I think social security would, would? I think they’d beat out the IRS. I think the IRS would get the silver Social Security would? They would get many iterations, every permutations, amendments. They have won it like for the last 100 years they have Social Security is wanted every time? Yes, all right, so you’ve explained the provisional income. That’s how they go about figuring out how much your social security is going to get taxed. Okay, now the next thing is, we just had the big, beautiful bill right in the past. Yes, and does that change that provisional income calculation?

Jordan Roach 

No change there. So you’re still gonna do the standard calculation to determine your provisional income, to figure out again, how much of your Social Security benefit can be taxable right now, the big change though, how they how they that doesn’t change. What is changing is they’re adding an additional deduction, 6000 bucks, $6,000 per person, that can be used to offset some of the your taxable income numbers.

Ken Moraif 

So the number that goes into the provisional income gets reduced by that $6,000

Jordan Roach 

that’s exactly right. So again, you look at your you look at your thresholds, and you know your add up your provisional income, which determines how much social security benefit is taxable. Add your other income sources, and you have a total number your that’s now your new gross income. Well, now what you get to start doing is government’s gonna give you deductions. So you always had a standard deduction, but now you’ve up to $12,000 more deduct from that number to figure out how much actual tax you’re

Ken Moraif 

paying, you just confused the heck out of me. I don’t even think Social Security. Social Security. What do you want? I think you win the gold medal now, yeah, with Social Security. Okay, so, so basically, if you kind of do all the math and everything, then up to you could have income up to $45,000 from various sources, if you all massage it all together and still have no tax on your social

Jordan Roach 

security. So take all that nonsense, I said, provisional income, plus your other income, and if it’s around $44,000 you’ll have enough. Enough deductions because of this $12,000 bonus pool to make your taxable income effectively zero. Wow, that’s pretty cool. That’s a good deal.

Ken Moraif 

And so for If so, it’s not actually an elimination of the tax of Social Security on Social Security, it just because of the increased deduction, a reduction in your taxable income, it now makes it to where 88% of people out there are not going to be paying tax on Social Security.

Jordan Roach 

That’s right, it’s a workaround. It’s not directly guaranteed eliminating your Social Security taxation, but for a lot of American Majority, it is going to cause it to where they’re not going to have a tax liability for Social Security.

Ken Moraif 

Okay, so let’s talk about, how does a retiree figure out how much income they can have before paying tax on their social security. How they go about doing that?

Jordan Roach 

So again, that’s we gotta find that provisional income number, right? So we’re going to sit down and say, Okay, what is how much income do you have from all sources to take, you know, take your, you know, earnings, or supplement employment income, take distributions, get find those numbers, add them back in that tax free interest, and then you’re gonna take half of your Social Security, whatever that is. Add those three sources up and figure out, where do you sit? Are we under 25,000 Are we under 32,000 where

Ken Moraif 

do we threshold? Yeah, and I want to be clear, when I said they will tax 85% of your social security, it doesn’t mean they’re going to take away 85% of your social security. It means that 85% of your tax, of your social security is going to be added to all your other taxable income to determine your total taxable

Jordan Roach 

so. So another way say that, right? If you had $10,000 Social Security payments, 8500 now is income that you have to add to everything else determine your taxes,

Ken Moraif 

right? Okay, so any common mistakes you can think of that retirees might make,

Jordan Roach 

I think a big one for a lot of people is they expect a big tax liability on their social security so what they do is withhold way too much money from their social security payment. They might say Social Security withhold 25% out of the gate with in my taxes and for a lot of people, especially with this new provision, and there’s new deduction that’s probably going to end up being too

Ken Moraif 

much, so they might be leaving money on the table trying to make life

Jordan Roach 

easy. That’s right, that’s a big one. So they’re going to be withholding too much, which means less money coming to them every month. The other thing can happen is they think that they’re in a good spot with their Social Security, with their provisional income, and so what they start taking distributions out of their accounts because they’re at a low number, they forget that those distributions add back in as income, and now are pushing them over those thresholds, and suddenly they may be in a higher tax and now they’re in a higher tax bracket because of Roth conversions and taxable distributions all those things. All

Ken Moraif 

right, so if somebody wants to maximize their tax benefits and make sure that they’re getting all the Bennies that came from the one big, beautiful bill, completely self serving question here, what should they do, yeah,

Jordan Roach 

hopefully, hopefully sit down with a retirement planner, right, with a with a firm, and have them work through that with you. First determine, again, what is our provisional income, what’s our starting amount, and then look at kind of where your accounts are, if you need additional income, to make sure we have tax efficient withdrawals. You know what tax brackets you’re straddling? And it’s again, making sure you have another set of eyes on all this stuff that you got to work

Ken Moraif 

through. Yeah, and, you know, one of the things that we also do is to look at distributions from IRA accounts versus distributions from your non IRA accounts. Yes, because every dollar you take out of your IRA account is considered ordinary income, and the money you take out from your non IRA account could be capital gains, or if you spent down all your gains, it could be tax free to you as well. So that’s another strategy where you might have no tax on your social security, right? So absolutely, yeah, the planning opportunities abound.

Jordan Roach 

They are not they’re not small. That’s right,

Ken Moraif 

they abound. Ladies and gentlemen, we’ve got an abundance of ideas that we want to share with you. But of course, everybody’s different. Everybody’s situation is different. And so you know these blanket statements we’re making are correct, but nevertheless, how they apply to you specifically is dependent on your situation, your income, your age, all those kind of things, the disparity in age between you and your spouse. Are you single? All those things come into play, your health. So we want to make sure, when we visit with our clients, that we take all those things into consideration and we build a social security plan. And ideally, in a perfect world, we’d want to see you not pay a single dollar in taxes on your social security. So there you go. We had more fun than a human being should be allowed to have when talking about this boring financial stuff, hopefully we took some of the complexity out for you. I hope you enjoyed this. Please like and subscribe. We’ve had over a million views of our podcast. Thanks to you, so I appreciate it, and hope this found you healthy, wealthy and wise and. And we’ll talk soon.