What's the Social Security "Tax Torpedo" or "Tax Trap"???

[@FlaschDJ]

Very simply. Andy Panko is a superb teacher. I watch a LOT of tax/retirement videos and many of the others are lousy… Why to many others fall short? - Andy obviously loves his subject matter. You can’t manufacture enthusiasm - the other bark at you - they’re not smooth. They don’t know how to present in a nourishing way. Thank you, Andy. You’re a credit to education. Thank you.

[@RetirementPlanningEducation]

Thank you!

[@melblacke5726]

this is the best explanation of the tax torpedo that i have found❤

[@RetirementPlanningEducation]

Thank you!

[@davidfolts5893]

This is an excellent explanation of a tax issue that many people face in retirement. Knowledge empowers one to make better decisions.

[@benjaminfalzon4622]

The simple explanation is this". We are coming after your money, signed, by Anthony Albanese.😝

[@NickDanger87]

Thank you for the clear and rational tax explanation.

[@tomm.8892]

Thank you for your explanation and chart. Your video is much easier to understand and clearer than any I've found so far. What you explained is how I thought taxing SS would work and aligns with my planning. Watching other videos, they almost had me convinced I would owe much more in taxes with their explanation that $1,000 additional income (from IRA, etc.) would trigger $1,850 in taxable income -- while it is true, it also vastly confuses the issue of what taxes, net, that will be owed. Yours provides a much clearer explanation.

[@RetirementPlanningEducation]

Thank you!

[@kathyressler4764]

Again great explanation. It is crazy the insane "formula" that the IRS has.

[@RetirementPlanningEducation]

Yeah, it’s like quantum physics!

[@bluesdirt6555]

They want you poor in retirement.

[@johncrock1489]

I started looking into ssa taxes today. Thanks for the kind explanation, I will be much more thoughtful when taking ira distributions. Your video i Will share with my wife because it makes clear sense. Great job! 😊

[@rickm8456]

Thanks Andy! Great video. With the pension, I’m not gonna be able to avoid it, however, it’s not a torpedo. It’s just the way it is thanks for breaking it down.

[@sactojlm]

I waited until age 70 to start SS benefits and did Roth conversions each year since retiring at age 66. My SS benefits begin in January 2023 (around $4,200 gross per month). I still plan to Roth convert $50,000 from my IRA knowing I'll take that torpedo hot on 85% of my SS. But the way I see it, my one time tax hit this year will be offset by Roth earnings on the $50k that will continue year after year. Also, with the decline in IRA value, I will have less RMD when I turn 72.

[@jessefletcher9116]

Based on this presentation it appears that for those of us retiring in our 50s that it would be preferable to draw down our traditional 401k and IRA prior to filing for social security, thus saving the Roth for later years because the Roth keeps the provisional income down and the taxes on social security to a minimum.

[@kevinmccumber7489]

Andy, thanks for a sensible explanation.

[@vanguardvaluist2614]

Great video. I’m continuing to build Roth assets currently and I’m over 50. Probably end up around 20% of total portfolio value. This is worth it to me to take the tax hit now while I’m working because of the tax torpedo issue. Planning on using the Roth assets last but it’s great to know if I get that with a 20k roof or some other large expense I can access funds and mitigate the tax spanking. Roth also allows access to funds to help control ACA income requirements if that’s part of your plan as well.

[@melblacke5726]

thats my plan too.....i look upon a roth as a tool to give me a little flexibility

[@cceerr11]

"Marginal Tax Rate" can be a confusing concept. It is the tax rate multiplied by your taxable income, generally referenced to the next dollar of income. An additional $1 of income may add up to $1.85 in taxable income. In this case your tax rate does not change, you are just taxed on a larger portion of your total income.

[@gizmobowen]

That's much less scary. Now it's just annoying. Thanks for the clear and non-sensational explaination. I wish I had heard this eplanation first.

[@TheTexasTodd]

This is the best explanation that boils it down… and definitely easier to understand the impact. I will sleep easier (o:

[@mikemraz902]

Andy - How do ROTH distribution dollars figure into Provisional Income? I understand that ROTH money, as well as other non-taxable income, is NOT considered when one calculates Provisional Income.

[@exnihilo415]

So... What you're saying is damn the tax torpedoes and full speed ahead? Ok, Ok. I'll see myself to the Dad Joke penalty box.

[@RetirementPlanningEducation]

I see what you did there, and I like it!

[@philip5899]

So the more income you have, the more tax you pay! I never knew that 😂

[@charleschen4766]

We pay social security tax all the way to retirement. When we receive the social security during the retirement, literally from our own money, we may have to pay social security tax again?

[@RetirementPlanningEducation]

That’s largely correct. Except the money we pay isn’t earmarked or otherwise considered “ours.” It’s a pay as you go social welfare system where the money paid in by workers today is turned around and sent out to retirees currently collecting benefits. And, on average, people get more out of Social Security than they pay in (which is why the system is strained). But yes, many people pay tax on Social Security benefits they receive, even though they previously paid money into the system.

[@lkapner]

This started in the Reagan presidency.

[@RetirementPlanningEducation]

@@lkapner correct: as a result of the Greenspan Commission of the early-80s, one of the patches put in place at the time to help bolster the strained system was to start taxing Social Security benefits. And then in the early-90s, more of it started to get taxed.

[@DissoMaster]

@@lkapner Reagan taxed 50% of it for two reasons. First, the system was going under. Second, it was because 50% of the FICA contributions were employer-paid and employer deductible expenses. Thus only half was taxed going in, so half was taxed going out. Then in 1993, Clinton ran the tax up to 85%, so that is where the double-taxation started. Biden voted to increase it both times. The double-taxation, being so odious, required VP Al Gore's tie-breaking Senate vote.

[@STSpringerChannel]

Can we even count on SS however it's taxed? I read SS benefits will be reduced in 2035 unless congress acts... and some politicians are talking about cutting the program. What do you think?

[@RetirementPlanningEducation]

Nobody can say for sure because the future of all of this depends on making legislative changes to the system. And until such changes are actually made, any guesses about the future is kind of just speculation. But yes, it's true that the current projections are such that the trust funds belying the Social Security system will deplete in under 15 years. That's the worst case scenario. And even if that happens, the system will still have enough ongoing income to pay about 80% of all scheduled benefits. So, not that a 20% benefit reduction is good. But it's much better than the system going away completely. If you're interested in a recent update about the health of the system, I recently did a podcast episode on it: retirementplanningeducation.buzzsprout.com/1919219/10742546-026-highlights-of-the-2022-social-security-trustees-report

[@jordanmadden7388]

This isn’t nearly as bad as I thought. 12% Tax Rate on $90k/yr in retirement is really not that big of a deal.

[@stevenbingham3061]

Do Roth conversions as early as possible and convert as much as you can absorb in the early hit on taxes. It'll pay off later, especially regarding this Tax Torpedo issue and when RMDs kick in.

[@cceerr11]

If MFJ, are the calculations separate for each spouse? If so, how is income coming from a "joint" source handled?

[@RetirementPlanningEducation]

If MFJ, the calculation combines both spouse's income. Because from a tax perspective, when married and filing a joint return, both spouses are treated as one taxable unit.

[@charleschen4766]

Of the 50 states, only 13 states tax Social Security benefits. Those states are: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia.

[@TheDealHunter]

Starting in 2022, Colorado no longer taxes Social Security.

[@annamartino5681]

Great video! Thank you! Please add and Pin Provisional Income Video😊

[@stephenfilauri1367]

I'm understanding the concept of social security being taxed but if you are in a lower tax bracket in retirement you really wouldn't mind it. But I think where the big benefit comes into play is if you have large 401k and/or pension when the RMD kicks in you really could be screwed

[@Odseus]

I had no idea this even existed. From what this sounds like the best idea is to use up your 401k IRA or other sources of income first and delay delay delay on taking social security

[@RetirementPlanningEducation]

That’s definitely an option and is often good from a long-term tax planning perspective

[@jordanmadden7388]

Delaying Social Security is essentially taking a 100% tax rate on 100% of your Social Security income. I wouldn’t delay it just to avoid paying ~25% in taxes on 85% of Social Security.

[@murakamifinance]

Is the last column in the table the tax needed to be paid 'specifically for SS' or is it ALL income tax for the year?

[@murakamifinance]

I'm guessing it's the total

[@RetirementPlanningEducation]

@@murakamifinance Correct, it's the total tax on all of that income

[@murakamifinance]

@@RetirementPlanningEducation Thx for clarifying!

[@MrCPPG]

Are Roth withdrawals exempt from this?

[@RetirementPlanningEducation]

Yes, as long as they're "qualified." And that means you've had your first Roth IRA at least five years and you're over 59 1/2. And even if you don't yet meet the conditions for withdrawals to be "qualified," you can always take out up to the amount of your contributions without any tax or penalty, and such distributions won't be included in gross income and won't impact how much of your Social Security is taxable

[@alanraymond1545]

It seems unfair to me that I need to pay income taxes on my social security which I have already paid income taxes on so that we keep the millionaire tax bracket

[@blackmagick77]

So, social security comes from the government yet they tax it? That sounds so dumb like hey here's 50$... you owe me 20$ back

[@SandfordSmythe]

The tax goes to the SS Fund. The richer can't get as much.

[@blackmagick77]

@@SandfordSmythe But it comes from the fund as well. So they're taking it out just to put it back in again

[@SandfordSmythe]

@@blackmagick77 It saves SS money to give to others.

[@stephenfilauri1367]

Isn't social security taken out pre tax dollars so uncle Sam wants it back later

[@TheDealHunter]

Andy - I love your work, but I don't think you captured the essence of "tax torpedo". This YT video by Eric kzbin.info/www/bejne/iXa4aqh8gLSDb6M shows how the marginal tax rate jumps up as more SS is tax to where a single person rate can be as high as 40.7% for a portion of income.

[@benjaminfalzon4622]

If the government can't afford it, it shouldn't buy it". What's the point of saving up over decades to finally be a self-funded retire, then some inept government comes after our money"? Millions of families in Australia are doing though, and thousands of families are going hungry due to the high cost of living, and high gas and electricity bills. And this inept government is spending two hundred billion dollars on nuclear submarines. It isn't China that we should be worried about, but the Anthony Albanese government!

[@ConnectCommit]

So devious how the IRS uses the sliding scale of taxable social security just as you get around to converting your traditional IRAs to Roth, essentially discovering you'll have to give the governments (fed and state) in our case, around 28% of whatever the conversion is, because SS gets thrown in to the algorithm.

[@greenlantern1123]

Thanks! So what happens if your disabled and forced to take SSDI and also a disability pension?