You are likely incurring federal income taxes on your Social Security benefits.
As your income sources like interest, pensions, and retirement accounts rises,
the percentage of your Social Security benefits subject to
taxation also increases, up to a maximum of 85%.
This calculator is expertly crafted to assist you in reducing the tax burden on your Social Security income.
It achieves this by guiding you in strategically reallocating income from taxable sources to those that are tax-exempt.
Learn how by examining the two examples on the right, then
explore this calculator to see if shifting your income sources could result in significant tax savings for you.
Example 2: $7,774 Tax Savings
Jack and Susan, who file a Joint return, have
$60,000 of IRA income and
$40,000 of Social Security, which totals $100,000 of which $94,000 is taxable (Social Security taxed at 85%).
Their federal income taxes are $7,774
By shifting $40,000 of their income from the IRA to a Roth IRA:
$20,000 of IRA income,
$40,000 of tax-free Roth IRA income and
$40,000 of Social Security, which totals $100,000 of which $44,000 is taxable (Social Security taxed at 10%).
Their federal income taxes are now $0
Important: Withdrawals from a Roth IRA require a minimum 5-year establishment period. Early planning is essential!
Example 1: Mary, $7,161 Benefit
Mary, a 79-year-old widow, relies on the 5% interest from her $500,000 savings for her living expenses.
With a focus on absolute financial security, she is concerned about potential drops in interest rates affecting her income.
$10,000 of Pension income,
$25,000 of Interest income and
$15,000 of Social Security, which totals $50,000: $46,750 is taxable (Social Security taxed at 78%). Her federal income taxes are $3,854
By shifting the $25,000 interest income from taxable accounts to a 10-year split annuity:
$10,000 of Pension income,
$6,591 of Interest income and
$22,080 of tax-free Return of Principal and
$15,000 of Social Security. Total income of $53,671: $16,591 is taxable (Social Security taxed at 0%).
Her federal income taxes are now $364
$7,161 Benefit: Taxes are $3,490 less; Income is $3,671 higher.
Example 3: $7,774 Tax Savings
Jack and Susan, who file a Joint return, have
$60,000 of IRA income and
$40,000 of Social Security, which totals $100,000 of which $94,000 is taxable (Social Security taxed at 85%).
Their federal income taxes are $7,774
By shifting $40,000 of their income from the IRA to a Roth IRA:
$20,000 of IRA income,
$40,000 of tax-free Roth IRA income and
$40,000 of Social Security, which totals $100,000 of which $44,000 is taxable (Social Security taxed at 10%).
Their federal income taxes are now $0
Important: Withdrawals from a Roth IRA require a minimum 5-year establishment period. Early planning is essential!
Try the following examples, or skip to the inputs to try your own.
Mary's after-tax income from taxable interest (before) and tax-advantaged income (after)
Jack and Susan's after-tax income 100% IRA (before) blended IRA and Roth IRA (after)
Total Income from Above Sources:
Salary + Interest + IRA = . Keep below to eliminate SS taxes.
Social Security subject to tax = — tax free
Federal Income Tax:
Net Income:
Disclaimer: Income tax calculations are based on the tax tables for .
Calculations above are intended solely for illustrative purposes and should not be considered as income tax advice or recommendations.
Before making any financial decisions or implementing any strategies suggested here, consult your tax and financial advisors.
Licensed Insurance Agents: If you sell annuities using the Split Annuity concept,
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