How your Social Security benefits are taxed

Combined income is the test

Whether your benefits are taxed depends on your combined income: your adjusted gross income, plus any tax-exempt interest, plus half of your Social Security benefits.

Withdrawals from traditional IRAs, the traditional TSP, and 401(k)s count in your adjusted gross income. Roth withdrawals that are qualified do not.

The thresholds

If you file as single, up to 50% of your benefits can be taxable when your combined income is between $25,000 and $34,000, and up to 85% above $34,000. If you are married filing jointly, the levels are $32,000 to $44,000 and above $44,000.

These thresholds were set decades ago and are not adjusted for inflation, which is why more retirees are affected every year.

The hidden bump

When you take an extra withdrawal, you pay tax on the withdrawal and you may also make more of your Social Security taxable. In certain ranges this can make the effective tax on that extra dollar noticeably higher than your bracket suggests.

What you can do about it

Draw from Roth and taxable accounts in some years to keep combined income lower. Spread Roth conversions out. Consider when you claim Social Security, since a larger benefit raises combined income. And use qualified charitable distributions from an IRA if you give.

State rules differ. Many states do not tax Social Security, but some do, so check your own state.