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Social Security taxation

Q&A: Approaching retirement? Don’t count on rules of thumb

July 15, 2025 By Liz Weston Leave a Comment

Dear Liz: I have a few questions about my income taxes during my upcoming retirement. I would like to know if doing a Roth IRA conversion will be worth it for me since I might be in a higher tax bracket when I retire. Is there a rule of thumb in regards to doing this conversion? I’m also getting considerable income from my tax-free municipal bond and money market fund. Will that income be taxable when I retire and will it count toward how the government calculates my Medicare premiums?

Answer: Rules of thumb can be incredibly helpful in many areas of personal finance. Guidelines such as “spend less than you earn” and “pay yourself first” apply to virtually everyone. Even more specific recommendations, such as the 50/30/20 budget, can apply to many if not most situations. (The 50/30/20 budget recommends limiting “must have” expenses to 50% of after-tax income, leaving 30% for wants and 20% for savings and extra debt repayment.)

As you enter retirement, though, you’ll be making decisions that may be irreversible. It can be much harder to rebound from mistakes and you’ll have fewer years to do so. That’s why it’s important to get individualized advice from pros you can trust.

Converting a regular retirement account to a Roth IRA can make sense if you expect to be in a higher tax bracket in retirement and can pay the taxes on the conversion without raiding the account. But the conversion also can trigger higher Medicare premiums.

The same is true for municipal bond interest. Muni bond interest typically avoids income tax, but will be included in Medicare premium calculations and may cause more of your Social Security benefit to be taxable as well.

A tax pro can advise you about these issues and offer strategies to lower your lifetime tax bills.

Filed Under: Q&A, Retirement Savings, Taxes Tagged With: IRMAA, Medicare, municipal bond interest, Roth IRA conversion, Social Security taxation

Q&A: Required withdrawals could change Social Security taxation

May 4, 2025 By Liz Weston

Dear Liz: Is it true that when you start your required minimum distributions from 401(k) and 403(b) plans, you give up your monthly Social Security payment? I plan to start RMDs next year at age 71 thinking I will get less money for more years.

Answer: Your withdrawals from retirement plans won’t reduce your Social Security directly. The additional income could, however, make more of your Social Security payment taxable.

Taxes on Social Security are based on something called “combined income,” which is your adjusted gross income plus any nontaxable interest you earned plus half of your Social Security income. If you’re single and your combined income is between $25,000 and $34,000, then up to half of your Social Security payment may be taxable. If combined income is over $34,000, up to 85% may be taxable. For people who are married filing jointly, the bracket for up to 50% taxation is $32,000 and $44,000 while combined income over $44,000 can trigger up to 85% taxation.

To be clear, this does not mean that 50% or more of your benefit goes to taxes. It means that 50% or more of your benefit may be subject to your income tax bracket.

Filed Under: Q&A, Retirement Savings, Social Security, Taxes Tagged With: combined income, required minimum distributions, RMD, RMDs, Social Security taxation

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