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I tried to check this out online, but apparently couldn't come up with the right incantation of search arguments. I'm thinking ahead to the time we retire and I've heard two different opinions on the taxation of social security benefits.

1) Social Security benefits may be taxed if you have enough income from **any** other source be it job, pension,401K, 403b, Roth IRA, or whatever.

2) Social Security benefits may be taxed if you have enough **earned** income; income from investments, retirement accounts, pensions, and so forth do not affect the taxation of Social Security benefits.

Which is true -- or neither?
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Social Security is taxed based total of most earned or unearned income. There are some exceptions to what is included in the income calculations.

Most tax exempt income is included.

Your statement 2 is not true.

Statement 1 is partially true. Non-taxable distributions from a ROTH IRA aren't included. 401Ks and IRAs may have mixture of taxable and non-taxable distributions.
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1) Social Security benefits may be taxed if you have enough income from **any** other source be it job, pension,401K, 403b, Roth IRA, or whatever.

This one is close to true. Anywhere from none to 85% of your SS benefit goes into your gross income, depending on what other income you have. You can see the calculation in the worksheet for line 20 of the 1040.

2) Social Security benefits may be taxed if you have enough **earned** income; income from investments, retirement accounts, pensions, and so forth do not affect the taxation of Social Security benefits.

This one is false, but I suspect it's a twisting of another rule. If you're below Full Retirement Age and receiving SS benefits there's a limit to how much earned income you can have. If you exceed that amount your SS benefit is reduced. You can read about this at www.ssa.gov.

Phil
Rule Your Retirement Home Fool
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1) Social Security benefits may be taxed if you have enough income from **any** other source be it job, pension,401K, 403b, Roth IRA, or whatever.

2) Social Security benefits may be taxed if you have enough **earned** income; income from investments, retirement accounts, pensions, and so forth do not affect the taxation of Social Security benefits.

Which is true -- or neither?



i'd say mostly (1), though definitely not from Roth
(tIRA, cap gains, int & dividends ..... )


http://apps.irs.gov/app/vita/content/globalmedia/social_secu...
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It's also worth pointing out that while it may be taxed from 0% to 85%, it isn't on a sliding scale. It's either 0%, 50% or 85%
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"It's also worth pointing out that while it may be taxed from 0% to 85%, it isn't on a sliding scale. It's either 0%, 50% or 85%"

Where did you get that? It is very much a sliding scale. 28.3% of mine was taxed for 2012. In 2011 it was close to 60%. 85% is the max that can be taxed. 0% is the least. But it could be anything in between depending on your income.
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Oops. It looks like I was wrong. I must have been thinking of something else, but I'm not sure what. I'll check my reference material when I get back to the office.
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"It's also worth pointing out that while it may be taxed from 0% to 85%, it isn't on a sliding scale. It's either 0%, 50% or 85%"

Where did you get that? It is very much a sliding scale. 28.3% of mine was taxed for 2012. In 2011 it was close to 60%. 85% is the max that can be taxed. 0% is the least. But it could be anything in between depending on your income.

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You're both right - sort of. SS Benefits can be taxed partly at 0 and partly at 50%, OR partly at 50% and partly at 85%, which can end up with the percentage subject to tax being almost anything.

Bill
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"It's also worth pointing out that while it may be taxed from 0% to 85%, it isn't on a sliding scale. It's either 0%, 50% or 85%"

Where did you get that? It is very much a sliding scale. 28.3% of mine was taxed for 2012. In 2011 it was close to 60%. 85% is the max that can be taxed. 0% is the least. But it could be anything in between depending on your income.
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You're both right - sort of. SS Benefits can be taxed partly at 0 and partly at 50%, OR partly at 50% and partly at 85%, which can end up with the percentage subject to tax being almost anything.


No!!! Let's be precise in our use of the English language. Depending on your income level either 0%, 50% or 85% of your Socisl Security benefits are subject to income tax. The amount subject to tax may be a blended percentage as you cross certain income level thresholds.

The tax rate that is applied to the reportable social security benefits is the same as your regular income tax rate which ranges from 0% to 35% (t/y 2012)

Ira
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