Maximize Your Retirement: Strategic Social Security Tax Planning

Feb 29, 2024 | Taxes

Multiple income sources in retirement can mean unexpected tax bills. What if you could minimize taxes and maximize your financial future? Watch our latest Planning Playbook video to discover the importance of Strategic Social Security Tax Planning.

Hi, I’m Tony Marquez, Senior Vice President and Wealth Advisor at GreenUp Wealth Management. In your working years, most people have one main source of income – their job. But in retirement, income can come from multiple sources. Similar to farming, the seeds that you plant are the crops that you’ll harvest. The income that will fund your retirement is largely affected on how and where you save your income while you’re working.

Now let’s take a look at some typical sources of income in retirement. They’ll include Social Security, using your investments with principal, interest, dividends and capital gains, annuities, if you’re lucky enough to have a pension, your 401(k)s, pre-tax and Roth IRAs or other retirement savings accounts, or even part-time work. Your income in retirement not only affects your tax bracket but also determines the taxes you’ll pay on your Social Security and can even affect your Medicare bill.

Let’s look at an example of how a high income affects how much your Social Security is taxed. Claudia and Clarence are both retired. They were both high earners in their respective careers, and now each receive $3,822 per month from Social Security. Claudia has a small pension that pays her $1,000 per month and they receive $5,000 in dividends and $10,000 in capital gains each year.

Let’s look at their tax situation. In this scenario, Claudia and Clarence’s 2024 federal taxes would be $1,023. But what if they wanted to remodel their kitchen and took $60,000 from their IRA to cover the cost? Their income will increase significantly from the IRA distribution, but even though they only received $60,000 more in their pocket, their taxable income went up $107,435.

That’s because the amount of their taxable social security jumped from $30,534 to $77,969. Their federal income tax bracket jumped from 10% to 22%, and their federal tax liability went from $1,023 to $18,243. And that’s because of income thresholds that can cause your Social Security to be taxed at 0, 50, or even 85% depending on what the IRS calls the combined income calculation.

What if Claudia and Clarence had a Roth IRA to take money out of for their kitchen remodel? For those of you that are retired, careful tax planning can save you from tax surprises. And for those of you that are still working, think about diversifying your future income sources, giving yourself flexibility and options to mitigate taxes in the future.

At GreenUp, we believe tax planning is an important part of your financial plan. Speak to your GreenUp Wealth Advisor about how tax planning can help you. I’m Tony Marquez, and thanks for watching.


  • Tony Marquez, CFP®

    Senior Vice President | Wealth Advisor | Kansas City -- Tony is a Certified Financial Planner and has his master’s degree in Finance. Tony strives to be the expert, resource, and advocate that clients deserve when navigating a complex financial world. Prior to joining GreenUp Wealth Management in October of 2021, Tony worked as a Financial Advisor for a large financial services firm. There, he gained expertise in a variety of areas including financial planning, social security and retirement income strategies, college savings, and investment management.

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