Will my 2024 Social Security check be taxed?

You can apply for Social Security retirement benefits as early as age 62. The longer it takes you to start, until age 70, the higher your monthly check will be. But as great as it is to find ways to increase your benefits, larger incomes also have downsides. the bigger you are combined incomeYour Social Security benefits are more likely to be taxed.

The Social Security Administration uses a formula to determine what your gross income is by adding up your adjusted gross income, tax-exempt interest, and half of your Social Security benefits. If your combined income exceeds the threshold, your Social Security benefits may be taxed up to 50%, depending on your tax filing status. If you pass another threshold, up to 85% of your Social Security benefits may be taxable.

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What is that reference point?

If you are single, the 50% threshold is reached when your combined income exceeds $25,000, and the 85% threshold is reached when your combined income exceeds $34,000. If you are married and filing a joint return, the 50% limit is $32,000 and the 85% limit is $44,000. If you’re married and file a separate return, your Social Security benefits are likely taxable at almost any combined income level.

If these limits seem quite low, there’s a good reason why. The initial 50% tax base was set in 1983 and was intentionally not indexed to inflation. By not indexing the tax base to inflation, Congress has largely assured that the amount of benefits taxed will increase over time as inflation reduces the purchasing power of the dollar.

Taxes on the benefits would go directly into the Social Security system, generating about $49 billion in program revenue in 2022. This is a small but important part of maintaining your Social Security funds.

What can you do about this?

If you expect to be taxed on your Social Security benefits in 2024, here are a few ways you can help. But recognize that your choices today can trigger different types of consequences in the future.

For example, if you withdraw money beyond required minimum distributions from a traditional retirement account, reducing withdrawals will reduce your income. In addition to reducing your costs directly You can reduce your tax liability on Social Security benefits by reducing your tax liability on withdrawal-related income by reducing your combined income.

But the downside to this approach is that it keeps more of your money in a traditional-style retirement plan. The percentage of your account balance that must be withdrawn for eligible RMDs increases each year. This could ultimately lead to larger costs, such as increased Medicare Part B and D premiums, in addition to taxes on Social Security benefits.

Likewise, if you have control over your taxable investment accounts, you can choose what to sell and what to buy to minimize capital gains, dividends, and interest income. Keeping these forms of income low will lower the total income figure used to determine how much you owe in Social Security taxes.

Of course, that also has its pros and cons. It is generally not a good idea to make investment decisions. alone Based on tax implications. This can leave you in a situation where the assets you end up holding are not the best set of assets for your overall financial situation.

Get started now

Even if you actually end up paying more in short-term taxes on your Social Security benefits, it’s important to take a bigger-picture approach to your overall finances. It’s still January, so you have time to evaluate your overall picture for 2024 and make the most sensible decisions while considering your retirement as a whole.

So make today the day to make a plan for your Social Security benefits and how you will handle your taxes accordingly. The choices you make now can help put you in a better position in 2024 and beyond.