Taxpayers could reduce federal taxes on Social Security benefits by shifting retirement savings to Roth accounts, avoiding combined income thresholds.
Retirees may lower or eliminate federal taxes on Social Security benefits by investing in Roth retirement accounts. Withdrawals from Roth accounts are not counted toward combined income, which determines tax liability on benefits.
Federal taxes on Social Security benefits are based on combined income—adjusted gross income plus half of annual benefits. For example, a retiree with $30,000 in 401(k) withdrawals and $24,000 in benefits faces a combined income of $42,000, potentially triggering taxes.
Thresholds for taxation, unchanged since the 1980s, start at $25,000 for individuals and $32,000 for couples. Roth accounts offer a legal strategy to stay below these limits.