"Millions of retirees are blindsided by a tax bill each year, and the culprit is usually the same: an IRA withdrawal that single-handedly drags Social Security benefits into taxable territory."
"Social Security uses something called combined income to decide how much of your benefit gets taxed. The formula is simple: adjusted gross income (AGI), plus tax-exempt interest, plus half of annual Social Security."
"After the $30,000 IRA withdrawal, combined income jumps to $50,000. That blows past the $34,000 line, so 85% of her $40,000 benefit, or $34,000, now counts as taxable income."
Retirees often face unexpected tax bills due to IRA withdrawals that elevate their combined income. A single retiree earning $40,000 from Social Security may withdraw $30,000 from an IRA, resulting in a tax bill exceeding $5,000. The taxation of Social Security benefits is determined by combined income, which includes adjusted gross income, tax-exempt interest, and half of Social Security benefits. Exceeding income thresholds can lead to significant tax liabilities, as demonstrated by the example of a retiree whose income jumped to $64,000 after the withdrawal.
Read at 24/7 Wall St.
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