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How to reduce or even eliminate taxes on social security using an annuity

How to Reduce or Even Eliminate Taxes on Social Security Using an Annuity

Do you know how you can reduce, or even eliminate, taxes on your Social Security using an annuity? If you don’t, you’re not alone. In fact, most retirees (and those who are approaching retirement) are not aware that their Social Security benefits could be subject to income tax.

But they can…

Up to 85% of your retirement benefits from Social Security could be taxed at your ordinary income tax rate if you start taking these funds prior to your full retirement age and you also earn income from various other sources.

When are Your Social Security Retirement Benefits Taxable?

Depending on when you opt to start receiving your Social Security retirement benefits, up to 85% of this income may be subject to income tax. There are a couple of factors that come into play, though, in terms of how much – if any – Social Security will be taxed.

The first parameter has to do with when you start receiving these benefits. For instance, if you start receiving Social Security prior to your full retirement age (FRA), there is a chance that you’ll be taxed – depending on whether or not you bring in other income, and if so, how much. The other criteria have to do with how you file your income tax return.

Social Security Full Retirement Age

Year of BirthMinimum Retirement Age for Full Benefits
1937 or Before65
193865 + 2 months
193965 + 4 months
194065 + 6 months
194165 + 8 months
194265 + 10 months
1943 to 195466
195566 + 2 months
195666 + 4 months
195766 + 6 months
195866 + 8 months
195966 + 10 months
1960 or Later67

Source: Social Security Administration.

For instance, in 2020, if you file your federal income tax return as an individual, and your combined income is between $25,000 and $34,000, you may have to pay taxes on up to 50% of your Social Security benefit. If you earn more than $34,000, up to 85% of your benefit could be taxable.

If you are married and you file a joint tax return, and you and your spouse have a combined income that is between $32,000 and $44,000, you could owe income tax on up to 50% of your Social Security benefits. And, if you earn more than $44,000, up to 85% of the benefits could be subject to income tax.

What exactly is the “combined income” that these figures are based upon?

To determine that figure, simply take the amount of your adjusted gross income, and add any non-taxable interest that you earn, as well as one-half of your Social Security benefit, and the result is your combined income.

There are actually many types of income that is considered taxable, such as:

  • Wages
  • Salaries
  • Tips
  • Net self-employment or freelance earnings
  • Long-term disability benefits received prior to minimum retirement age
  • Union strike benefits
  • Jury duty fees
  • Rental property income
  • Unemployment benefits
  • Capital gains (other than the exception for selling your primary residence)
  • Severance pay
  • Alimony from an ex-spouse
  • Interest and dividends from investments
  • Royalties and license payments

But for Social Security purposes, pension payments, interest/dividends, and annuity payments are not considered earnings. In this case, even though you may have to pay income taxes on these payments, they are not counted for Social Security taxes.

With that in mind, generating income from an annuity could provide you with more than $44,000 per year. But it won’t impact the taxation of your Social Security benefits. Plus, once you reach your full retirement age, these taxable income figures will no longer apply.

Want to Create a Rock Solid Annuity Income Strategy in Retirement?

If you’d like to create an ongoing income strategy in retirement that seamlessly coordinates with any of the other incoming cash flow you may have, Annuity Gator can help. At Annuity Gator, our mission is to educate consumers on how to plan ahead for the income they need in the future, and to ensure that it won’t run out.

Feel free to reach out to us if you have any questions. You can email us here through our secure online contact form to set up a time to chat. Or, if you’d like to call us directly and talk with an annuity specialist, our toll-free number is (888) 440-2468. We look forward to hearing from you.

How to Reduce or Even Eliminate Taxes on Social Security Using an Annuity

8 thoughts on “How to reduce or even eliminate taxes on social security using an annuity”

  1. Steven Riendeau

    I just received your email about reducing or eliminating taxes on social security payments after retirement and your article states there are no taxes on social security due to annuity income and social security taxes change after full retirement age is reached. I am confused about those statements and currently have an annuity funded by 401k rollover qualified funds. Are you saying the lifetime annuity payments will not be taxed??

    1. Hi Steven– Thank you for your message.
      We would be happy to support you and help you understand this better. Please feel free to contact us directly, toll-free, at (888) 440-2468 to chat with one of our annuity specialists or visit http://annuitygator.com/contact/
      We look forward to hearing from you.
      Best,
      Annuity Gator

  2. Robert Opsitos

    If I read this right. My wife and I social security benefits total 53,000 pensions total 34,000, interest from cd’s 1200 and withdrawal from 401 19,000 looks like I should stop having taxes taken out of our SS and essentially pay no taxes whatsoever!!!

    1. Hi Robert– Thank you for your message.
      We would be happy to support you and help you understand this better. Please feel free to contact us directly, toll-free, at (888) 440-2468 to chat with one of our annuity specialists or visit http://annuitygator.com/contact/
      We look forward to hearing from you.
      Best,
      Annuity Gator

  3. Have cost basis $72000 non qualified vanguard variable annuity matures is 12 yrs. tax wise how best handle .. I am a former reg rep. Thanksp

    1. Hi Jay– Thank you for your message.
      We would be happy to support you and provide you the best options. We need a bit more details from you. Rather than sending information back and forth via email, we believe its best to do through a quick phone call. Please feel free to contact us directly, toll-free, at (888) 440-2468 to chat with one of our annuity specialists or visit https://annuitygator.com/contact/
      We look forward to hearing from you.
      Best,
      Annuity Gator

  4. This obviously doesn’t apply to one receiving temporary disability SSDI benefits and not yet reached their retirement age.

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