Focus on other retirement income sources, too
Retirees who have multiple sources of income besides Social Security are obliged to pay tax on part of their Social Security benefit.
Whether we’re talking about pension payments, dividends, interests from any of your savings or investments, earnings from a part-time collaboration, or withdrawals from traditional 401(k)s and IRAs, they are all sources of retirement income that might contribute to taxable Social Security payments.
Take IRA withdrawals before you sign up for Social Security
You might have some control over the way you withdraw your retirement account in your 60s, mainly because you could take penalty-free distributions after you reach 59 and a half (in some cases, even 55 years old), but you won’t be required to take the minimum amount of withdrawals until you reach 72 years old.
You could even reduce your Social Security income tax bill, as long as you withdraw money from the traditional 401(k) or even IRA in those years before signing up for Social Security.
While some retirees prefer taking a bigger retirement account distribution the year before signing up for Social Security, others take their IRA distributions for many years, to delay claiming their Social Security and even qualifying for a bigger Social Security payment.
After reaching 70 years and a half, you’ll be able to avoid paying income tax on your IRA required minimum distribution, as long as you donate it to any qualifying charity.
“RMDs might get fully or partly eliminated from tax returns by use of qualified charitable distributions.” as Jim Blankenship, certified financial planner and the founder of Blankenship Financial Planning in New Berlin, Illinois, explained. When you donate a certain distribution to charity, it doesn’t count as income and also doesn’t contribute to the taxation of your Social Security payments.
