Retirement benefits
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Retiring with thousands of dollars on hand is something that everyone dreams of. Retirement should be the best part of our lives, but it could also be the worst for some who need to pay a lot before receiving benefits and receiving considerably less than expected.

Social Security is very important most especially for retirees because this serves as a critical source of income. However, many retirees are shocked after seeing that their benefits are subjected to taxes and thereby leaving them with less money.

However, there are ways to avoid this and live a happy retirement life. We will be sharing with you some strategies on how to avoid paying huge taxes on your Social Security Benefits, and here thay are:

1. House your retirement savings in a Roth IRA

To make sure that you are liable for taxes on your Social Security Benefits, you have to calculate what is known as your provisional income. To know this, you have to add up your non-Social Security income, and that includes tax-free income if you are entitled, like interest from municipal bonds, plus 50 percent of what you received annually from your Social Security.

Be reminded that you may be taxed up to 50 percent on your benefits if your provisional income is equivalent to the following:

  • A single tax filer and has a provisional income that ranges from $25,000 to $34,000 a year
  • A couple filing jointly with a provisional income that ranges from $32,000 to $44,000 a year

However, your Social Security Benefits get worst and your taxes may be up to 85 percent if your provisional income as a single tax filer exceeds $34,000 and more than $44,000 for a couple filing jointly. This is oftentimes the case of seniors who have income outside of Social Security and they are being taxed on their benefits to some degree.

One of the best ways to avoid this scenario is to house your retirement savings in Roth IRA. The Roth IRA is not taxed and not counted in your provisional income. This means that you may be able to avoid paying taxes on your benefits if you choose the right savings vehicle.

2. Move to a state that does not tax benefits

It is important to know your provisional income as it will determine if you pay taxes on your Social Security at different levels of the federal government. However, the state where you retire is also a factor you need to consider because this will dictate whether your benefits are subject to taxes at the state level.

Here is a list of states in the country where they DO tax Social Security benefits at different degrees:

  • Colorado
  • Connecticut
  • Kansas
  • Minnesota
  • Missouri
  • Montana
  • Nebraska
  • New Mexico
  • North Dakota
  • Rhode Island
  • Utah
  • Vermont
  • West Virginia

Many of the states mentioned above give exemption to low or moderate-income earners. And if you plan to retire in one of the states mentioned above, you would then manage to avoid paying taxes on your Social Security income.