No tax for SSA? PERS tax? W/D more RMD?

[lanyah88]

Hello,

I would like to know if the Social Security Retirement benefits are tax free from 2025.  Public employee retirement system benefits are also tax free?

At 73, should we withdraw more than 26.5 % to reduce future taxes?

Thank you!

[dburns1]

Whether or not your Social Security benefits are taxable depends on your "combined income," which is your adjusted gross income plus any non-taxable interest and half of your Social Security benefits If you file as an individual, you may pay taxes on up to 50% of your benefits if your combined income is between $25,000 and $34,000, and up to 85% if it exceeds $34,000. For joint filers, up to 50% may be taxed if combined income is between $32,000 and $44,000, and up to 85% if it exceeds $44,000.Legislation referred to as the "One Big Beautiful Bill" aims to reduce the tax burden on Social Security benefits for many retirees by introducing an additional deduction for taxpayers aged 65 and older This law includes a temporary $6,000 deduction for individuals age 65 and older ($12,000 for married couples filing jointly where both spouses are 65 or older) for tax years 2025-2028, with the deduction phasing out for higher incomes. As a result of this deduction, analyses suggest that approximately 88% of seniors receiving Social Security will pay no federal income tax on their benefits.

Regarding taking an additional RMD I see no advantage to that as it will raise your income for calculating taxable social security.

[Katie-P]

The One Big Beautiful Bill (OBBB) did not change how much social security income is taxed. Instead, a new senior deduction was created.

Here are the highlights:

• Effective for 2025 through 2028, taxpayers who are age 65 and older may claim an additional deduction of $6,000 per eligible individual.
• The deduction begins to phase out with modified adjusted gross income over $75,000 ($150,000 for a married couple where both spouses qualify). 
• The deduction is available for both itemizing and non-itemizing taxpayers.
• Taxpayers must include the social security number of the qualifying individual(s) on the return.

Regarding your second question: public employee retirement benefits did not change under the OBBB. On the federal return, public pensions continue to be taxable as ordinary income (except for any portion from after-tax contributions). At the state income tax level, how the benefits are taxed depends on your state's specific laws, which range from no tax at all to full taxation.

You also asked if you should withdraw a higher amount than your RMD, in an effort to reduce future taxes. The answer is dependent on many factors. Since the senior deduction is set to expire in tax year 2028, you might want to consider it, but there is a trade-off: you might benefit from a reduction in future taxes by paying the taxes now on a higher retirement distribution, but there's always a possibility that Congress could extend the senior tax deduction past 2028. Also, if you take a higher retirement distribution now, that would push your income up, which could cause you to be in a higher tax bracket, make more of your social security benefits taxable, and potentially increase your Medicare premiums. These are things to consider before making that decision.

I hope this info helps! Thanks for participating in today's event!