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[JimPK]

I received a response to my question about taxable income for retirees but it did not answer my question. I may have used the wrong terminology and if so I apologize. I want to know how withdrawals from an IRA account where I deducted my contributions, so no tax was paid at that time. My understanding is that the withdrawals are treated as ordinary income and taxable. My only income is my monthly Social Security. I’m not yet subject to the minimum distribution. Will I have to pay taxes if the amount of my withdrawal is less than the standard deduction which I believe is around $28,000 for married retirees over 65? 

[MartyG]

Hi JimPK!!

You've two issues here with interplay.  

Withdrawals from an IRA in your situation is taxable as ordinary income.  Also if your total Adjusted gross income is less than $27,700 (assuming you are married) you will pay no tax.

But.... With other income, social security can become taxable.  If you are married, and your "combined income" is over $35,000, then 50-80% of your social security becomes taxable income, and you get to the $27,700 faster.

Combined income would be 1/2 of your social security plus the amount you withdraw from your IRA (in your example).

So the math is a little squirrelly, but if you have enough income, you will pay some taxes.  

The tax rate begins low, so depending on how much you take out, it would not be much tax.  But if 1/2 of your social security plus your IRA withdrawals is greater than $35,000, you will likely pay tax because a chunk of your SSI becomes taxable and that probably drives you over $27,700 in AGI

Does that help?  I hope that I answered your question this time.

Marty

[TylerH_EA]

Hello @JimPK,

When you receive Social Security Benefits and other income (such as a distribution from an IRA in your case), you will have taxable income. Social Security Benefits are taxable to the extent that 1/2 of your Social Security Benefits (calculated as 50% of the amount shown in Box 5 of your SSA-1099) plus your other income (the distribution from your IRA in this case) exceeds your standard deduction.

For example, let's assume that your standard deduction as a married taxpayer filing jointly is $28,000. Let's also assume that you received $32,000 of social security benefits and that you withdrew $10,000 from your IRA. Finally, let's also assume that your spouse receives no Social Security Benefits and any other income.

You would first need to determine if the $32,000 of social security benefits is taxable. It would be calculated as (50% * 32,000) + (10,000) = $16,000 + $10,000 = $26,000. Because $26,000 is less than $28,000, none of the $32,000 of Social Security Benefits you received will be taxable. 

Now, given that none of the $32,000 of your Social Security Benefits are taxable, the only income that would potentially be subject to tax is the $10,000 IRA distribution. Because the $10,000 is less than your $28,000 standard deduction, you will have taxable income of $0 and will therefore, not owe any tax to the IRS.

So, ultimately, you can withdraw some money from your IRA while also receiving Social Security Benefits. However, it doesn't take much to push you over the threshold of having to pay tax. If both you and your wife are receiving Social Security Benefits, then you will generally be subject to tax on any amounts withdrawn from an IRA because if you and your wife are receiving the maximum amount of Social Security Benefits, half of that amount is likely to exceed your standard deduction without regard to any other income.

[JandKit]

Hi JimPK,

Thanks for your question today. Let me add my views to other tax pros who may see your question. The amounts taken from your IRA account are taxable if they were sheltered when contributed. There are times when some of the funds in a retirement account are considered non deductible and therefore will not be subject to taxes when withdrawn. If the assumption made is that all contributions were sheltered when contributed, they would be subject to taxation when withdrawn. 

Additionally, Social Security is means tested and are subject to taxes whenever one half of your social security plus other taxable income, like your IRA distributions, exceeds $34,000 in your particular case.

If the calculation shown above stays under the $34000 amount, the social security is not taxed and the taxes would be stictly based on the IRA distributions received. Further, If those IRA distribution are less than the standard deduction, you'd pay no taxes for the year based on my understanding of your question!

Have a Great Day!