By W Financial Advisors • Wealth Wednesday Brief • 3–5 min read
SCENARIO
"You mean I have to pay taxes on my Social Security?" Linda asked, looking at her tax return with her accountant for the first time in retirement. She'd received $28,400 in Social Security that year and had taken a $35,000 IRA withdrawal to cover some home renovation costs.
Her accountant nodded. "About $24,000 of your Social Security is taxable this year."
Linda had spent her working life assuming Social Security was exempt from taxes. She was not alone in this misunderstanding, and the consequences of not planning for it can add up to thousands of dollars over a retirement.
THE CONCEPT
Social Security benefits were originally tax-free when they were introduced. That changed in 1983, when Congress made a portion of benefits taxable for higher-income recipients. Since 1993, up to 85% of benefits can be included in taxable income.
The IRS uses a concept called "combined income" (also called provisional income) to determine how much of your Social Security is taxable:
Combined Income = Adjusted Gross Income + Nontaxable Interest + 50% of Social Security Benefits
For single filers (thresholds set by law in 1983 and 1993; not adjusted for inflation; confirm no legislative change before publication):
- Below $25,000: No Social Security is taxable
- $25,000–$34,000: Up to 50% of Social Security may be taxable
- Above $34,000: Up to 85% of Social Security may be taxable
For married couples filing jointly:
- Below $32,000: No Social Security is taxable
- $32,000–$44,000: Up to 50% may be taxable
- Above $44,000: Up to 85% may be taxable
Notably, these thresholds have never been adjusted for inflation since they were enacted. As of 2026, they remain at the same levels set in 1983 and 1993, meaning a growing share of retirees cross them each year simply due to rising nominal incomes.
EXAMPLE
Consider George, a single retiree with $35,000 in Social Security benefits and $30,000 in IRA withdrawals.
His combined income: $30,000 (IRA) + $17,500 (50% of Social Security) = $47,500.
Since this exceeds $34,000, up to 85% of his Social Security, or up to $29,750, may be included in his taxable income. Combined with his IRA withdrawal, his taxable income before deductions is potentially $59,750.
Now consider what happens if George's advisor suggests he take $5,000 less from his IRA in a given year, instead drawing from a taxable brokerage account with lower capital gains. His combined income drops to $42,500, which is still above $34,000, but the actual tax calculation is more favorable. Small adjustments to income sources can sometimes produce meaningful changes in how Social Security is taxed.
STRATEGY
Managing Social Security taxation involves some of the same tools as broader tax planning:
- Minimize combined income in high-Social Security years. IRA withdrawals are a primary driver of combined income. Strategies that reduce IRA withdrawals, such as drawing from taxable accounts, Roth withdrawals, or a brokerage account, may reduce the taxable portion of Social Security.
- Roth conversions before Social Security begins. If you can delay Social Security (maximizing the benefit) while also doing Roth conversions in pre-Social Security years, you may reduce future IRA balances and therefore reduce future combined income.
- QCDs to reduce AGI. Qualified Charitable Distributions from IRAs count toward your RMD but are excluded from AGI, which reduces combined income and potentially reduces how much Social Security is taxed.
- Understand state taxation. Many states do not tax Social Security benefits at the state level. If you live in a state that does, this may be worth factoring into your overall retirement income and residency planning.
COMMON MISTAKE
The most common mistake is taking large IRA withdrawals in years when Social Security income is also high, without considering how the combination affects taxation. A retiree who takes a $50,000 IRA withdrawal for a home renovation, on top of $35,000 in Social Security, may inadvertently make a large portion of their Social Security taxable in that year, creating a tax bill they didn't anticipate.
Planning large, one-time withdrawals in years when other income is lower, or structuring them as Roth conversions in earlier years instead, may significantly reduce this exposure.
KEY TAKEAWAY
Social Security taxation is driven by your total income picture, not by the benefit itself. Thoughtful management of your other income sources may reduce the portion of your Social Security that is taxable, allowing you to keep more of your retirement income in your pocket.
SOURCES & REFERENCES
1. Internal Revenue Service. Publication 915: Social Security and Equivalent Railroad Retirement Benefits. Combined income thresholds. irs.gov.
This article is for informational and educational purposes only and should not be construed as personalized investment, tax, or financial advice. All examples are hypothetical and for illustrative purposes only. Please consult a qualified financial professional for guidance on your individual situation. W Financial Advisors is an independent registered investment adviser.
Every situation is different. If you would like to think through how this applies to your plan, we are here to help.
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