Most people don’t realize it, but up to 85 percent of your Social Security benefits can be taxed.
That comes as a shock to many retirees who assumed those benefits would be tax-free. The good news is that there are ways to reduce or even avoid paying tax on Social Security. Understanding how benefits are taxed and what planning opportunities exist can significantly affect your retirement income.
How Social Security benefits are taxed
The IRS doesn’t tax all Social Security income. Whether your benefits are taxable depends on your “combined income.” That’s a formula that includes:
- Your adjusted gross income (AGI)
- Plus any nontaxable interest (like municipal bond income)
- Plus half of your Social Security benefits
If that combined income exceeds certain thresholds, a portion of your benefits becomes taxable. Here are the current (as of 2025) thresholds:
- Single filers: If your combined income is between $25,000 and $34,000, up to 50 percent of your benefits may be taxable. Above $34,000, up to 85 percent may be taxable.
- Married couples filing jointly: If your combined income is between $32,000 and $44,000, up to 50 percent may be taxable. Above $44,000, up to 85 percent may be taxable.
These thresholds are not indexed for inflation. More retirees meet or exceed them yearly because of rising income from pensions, dividends, or required minimum distributions.
Why planning matters
If your only income in retirement is Social Security, you are unlikely to owe any tax. But most people have other sources of income that push them over the threshold. That makes tax planning essential.
Even if you can’t eliminate taxes on your benefits, you can reduce them. A well-structured withdrawal strategy or a shift in asset location can make a noticeable difference.
Strategies to reduce taxable Social Security benefits
Several common strategies can help you effectively manage your income and tax liability.
Withdraw from Roth accounts instead of traditional accounts
Roth IRA withdrawals don’t count as part of your combined income. That makes them one of the best tools for reducing the tax burden on Social Security.
If you need extra money in retirement and want to keep your combined income low, tapping your Roth IRA can help. You’ll avoid increasing your AGI and possibly triggering taxes on your benefits.
Delay Social Security and draw down pre-tax accounts first
This is sometimes called the “bridge strategy.” Instead of claiming Social Security early, you live off distributions from your traditional
IRAs or 401(k)s for a few years. Doing so can reduce the balance in those accounts and lower your future required minimum distributions.
When you eventually claim Social Security, your taxable income from those retirement accounts may be lower, which can reduce the portion of your taxable benefits.
Consider Roth conversions before age 73
Roth conversions move money from a traditional IRA to a Roth IRA. You pay tax now, but future withdrawals are tax-free.
By doing Roth conversions before your required minimum distributions begin (currently at age 73), you can reduce the size of your traditional accounts, which may lower your future AGI, reduce RMDs, and minimize the chance of triggering tax on Social Security benefits later on.
Roth conversions must be done carefully, since they can increase your taxable income in the short term. When timed right, they can be an effective way to lower taxes over the long run.
Manage investment income strategically
Dividends, capital gains, and interest can all affect your combined income. If you’re on the cusp of a tax bracket change, harvesting losses to offset gains or holding appreciated assets in tax-deferred accounts can help.
Sometimes, you may want to avoid generating extra income in a high-benefit-tax year and defer it to a future year when your income will be lower.
Be cautious with municipal bond income
Many retirees like municipal bonds because the interest is tax-free at the federal level. While muni bond interest is excluded from your AGI, it is added back when calculating your combined income for Social Security taxation purposes.
You may increase your taxable benefits if you rely heavily on muni bonds and receive Social Security. Coordinating these sources and possibly limiting muni bond exposure once Social Security benefits begin is important.
Use qualified charitable distributions (QCDs)
If you are over 70½, you can donate directly from your IRA to qualified charities through Qualified Charitable Distributions (QCDs).
To qualify, you must be age 70½ or older, and donations can only be made to 501(c)(3) organizations, excluding donor-advised funds and private foundations.
You can contribute up to $108,000 in 2025 and use up to $54,000 of a QCD to make a one-time donation to a charitable remainder trust.
QCDs count toward your required minimum distribution (RMD) and are excluded from taxable income, which helps lower your adjusted gross income (AGI) without affecting your standard deduction.
QCDs remain a valuable tool for charitable giving and help reduce the taxation of Social Security benefits. Check for updates related to inflation adjustments or changes in regulations.
Time annuity income carefully
If you have income from an annuity, be strategic about when it starts. Spreading annuity payments over multiple years or deferring them until later in retirement can help you avoid spikes in income that push you above the taxable thresholds.
Some retirees choose deferred income annuities that begin paying after age 80 to control taxable income earlier in retirement and potentially increase payout amounts later, helping to avoid tax complications during the earlier retirement years.
Understand the ripple effect
Reducing the tax on Social Security isn’t just about keeping more of your benefits. It also affects other aspects of your financial life.
A higher AGI can increase your Medicare Part B and Part D premiums through IRMAA (Income-Related Monthly Adjustment Amounts). It can also reduce deductions, impact tax credits, and push you into higher marginal brackets.
This makes Social Security tax planning part of a much bigger picture. Every dollar of income can have ripple effects across multiple parts of your tax return.
The importance of year-by-year planning
There is no one-size-fits-all solution. In some years, you may want to accelerate income. In others, you might focus on keeping it low. The key is year-by-year planning, aligning with your income sources, tax brackets, and benefit start dates.
This kind of planning typically requires software modeling or the help of a financial advisor who understands retirement tax strategy. Done right, it can save tens of thousands of dollars throughout retirement.
What you can do now
If you’re still working, consider contributing to Roth accounts. If you’re approaching retirement, explore whether Roth conversions make sense. If you’re already receiving benefits, look at whether your current withdrawal strategy is increasing the taxation of those benefits unnecessarily.
The earlier you plan, the more flexibility you’ll have. But even later in retirement, there are steps you can take to reduce the bite of taxes.
