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Pay attention to your AGI: Presently, if your adjusted gross income (AGI) is $25,000 to $34,000 (for single filers) or $32,000 to $44,000 (for those filing jointly), up to 50 percent of your Social Security benefits are taxable. If your AGI goes above these thresholds, 85 percent of benefits are taxable. As such, if you’re riding the line on a tax threshold, reducing your income through tactical tax strategies is key. Here are a few ways to do so:
📌 Prioritize withdrawals from tax-free accounts: Withdrawals from a Roth 401(k) or Roth IRA are tax-free “as long as the account has been open for at least five years.” This means that money is not counted as taxable income when calculating for Social Security.
📌 Take IRA or 401(k) withdrawals before claiming Social Security: This will help you reduce your balance, minimize the size of future RMDs and might allow you to delay taking Social Security benefits if generating enough income.
📌 Make tax-deductible contributions to retirement accounts: IRA contributions can be fully or partially tax-deductible, depending on your income or if you have an employer-sponsored retirement account.
📌 Offset investment gains with losses: Also known as tax-loss harvesting, this strategy involves selling depressed stocks and leveraging losses to “offset income earned on capital gains”.
📌 Pivot to a tax-efficient investment portfolio: Utilizing tax-deferred accounts, such as a 401(k) or IRA, for income-generating investments can help keep your total AGI lower.
Make the most of YOUR money: Don’t leave your tax bill in the government’s hands. Being proactive and employing tax strategies at your disposal will help put a bigger paycheck in your pocket.