How to Reduce Taxes When You Start Social Security

For many retirees, Social Security represents a foundational piece of lifetime income. But one of the biggest surprises people encounter is that Social Security benefits may be taxable. In fact, depending on your total income, up to 85% of your benefits may be subject to federal income tax.

That doesn’t mean 85% of your benefit goes to taxes — but it does mean that more of your income may be taxed than you expected. Fortunately, with thoughtful planning, you can reduce how much of your benefit is taxed and keep more of your retirement income working for you.

Why Social Security Can Be Taxed

Social Security taxation is based on something called provisional income, which includes half of your Social Security benefit, most taxable income such as wages, pension payments, or withdrawals from pre-tax retirement accounts, and interest or dividends from investments. Because provisional income is influenced by the rest of your financial picture, your tax bill depends largely on how all the pieces of your retirement plan work together — not just when you begin benefits. That’s where planning becomes valuable.

Be Thoughtful About When You Claim

Deciding when to start Social Security is one of the most important choices you’ll make. Many people begin at age sixty-two simply because it’s the earliest opportunity. But doing so locks in a lower benefit for life and increases the number of years your benefit may be taxed.

Delaying benefits provides two potential advantages. Your monthly benefit increases, and you gain extra years to manage withdrawals from pre-tax accounts before Social Security begins. Because of this, timing isn’t just about maximizing monthly income; it’s also about improving tax efficiency over your lifetime.

Coordinate Pre-Tax Withdrawals Carefully

Traditional IRAs and 401(k)s have helped millions save for retirement, but withdrawals from these accounts are fully taxable. Taking too much from pre-tax accounts can unintentionally increase provisional income and cause more of your Social Security to be taxed.

Many households benefit from managing pre-tax withdrawals before benefits begin, especially during the years between retirement and age seventy-three when required minimum distributions start. Spreading out these withdrawals earlier in retirement can help reduce future tax pressure. Small, intentional withdrawals in your sixties may save taxes in your seventies and beyond.

Use Tax-Free Income When Possible

Roth IRAs can also play a major role in tax-efficient planning. Withdrawals from Roth accounts generally do not increase provisional income. That means using Roth dollars for some expenses can help keep you in a lower tax bracket and reduce the portion of Social Security that is subject to tax.

Even if you don’t currently have a Roth account, there is still time to build one intentionally through conversions.

Consider Roth Conversions Before Claiming

A Roth conversion involves moving money from a traditional IRA or 401(k) into a Roth IRA. You pay taxes on the amount converted today, but the assets then grow tax-free, and withdrawals do not increase provisional income later on.

For many households, the early retirement years — after full-time work ends but before Social Security and required distributions begin — present a valuable opportunity to convert assets at reasonable tax rates. This can help manage taxes in later years and preserve more of your Social Security benefit. Conversions are not for everyone, but when done purposefully, they can create meaningful long-term tax benefits.

Use Charitable Giving Strategically

For those who already give to charity, there is an additional option called a Qualified Charitable Distribution, or QCD. Beginning at age seventy-and-a-half, retirees can send IRA dollars directly to a qualified charity. These gifts can reduce taxable income, can count toward required minimum distributions once they begin, and can help lower the amount of Social Security subject to tax. QCDs are often one of the most efficient ways to support meaningful causes while also helping manage taxable income.

The Bottom Line

Social Security taxation catches many retirees by surprise, but it doesn’t have to. The key is designing a coordinated withdrawal strategy before benefits begin. The right approach depends on your overall financial picture — including how and when you retire, what accounts you have available, and your long-term goals. Two households with the same Social Security benefit may end up paying very different tax bills simply because of the way they plan.

A proactive and coordinated strategy can help you keep more of your benefits and create a more stable income plan over your retirement years. If you’d like help reviewing your Social Security timing and how it fits into your broader retirement plan, I’d be glad to talk through your options.

Disclosure

This material is provided for informational and educational purposes only. It is not intended to be, and should not be interpreted as, specific investment, tax, or financial advice. Investing involves risk, including the potential loss of principal. Individuals should consult with a qualified financial professional before making any investment decisions to determine what may be appropriate for their personal situation.