Understanding Provisional Income & How It Affects Taxes On Your Social Security

In this episode, Kolin and Kyle discuss step number one of a tax-efficient retirement plan: provisional income. Provisional income is used to determine whether a portion of your Social Security benefits are taxable. The four components of provisional income are non-taxable interest, ordinary income, dividends and capital gains, and half of the household Social Security benefit. They provide examples of two different strategies: the traditional strategy, where most income is subject to federal tax rates, and a tax-efficient strategy, where proactive tax planning is used to lower the tax bill and keep more of the Social Security benefits. They emphasize the importance of running the numbers and considering different strategies to maximize tax efficiency in retirement.

Takeaways
‣ Provisional income is used to determine whether a portion of your Social Security benefits are taxable.

‣ The four components of provisional income are non-taxable interest, ordinary income, dividends and capital gains, and half of the household Social Security benefit.

‣ There are different strategies to maximize tax efficiency in retirement, such as the traditional strategy and a tax-efficient strategy that involves proactive tax planning.

‣ Running the numbers and considering different strategies can help lower the tax bill and keep more of the Social Security benefits.

Disclosure: MOKAN Wealth Management is a registered investment adviser with the state of Kansas and Missouri, and may only transact business with residents of those states, or residents of other states where otherwise legally permitted subject to exemption or exclusion from registration requirements. This communication is not intended as an offer or solicitation to buy, hold, or sell any financial instrument or investment advisory services.