The problem, though, is that these thresholds have been in place for decades. In 1983, the decision was made to tax up to 50% of benefits at the aforementioned levels. In 1993, that rule was amended to tax up to 85% of benefits, also at those same levels.
Meanwhile, the cost of living has risen substantially since then — yet the income thresholds for Social Security taxes haven’t. And that leaves seniors in a pretty bad spot.
Avoiding taxes on benefits
Seniors who save for retirement strategically may be able to avoid getting slammed with taxes on their Social Security benefits. And one of the easiest ways to make that happen is to save in a Roth IRA.
Roth IRA withdrawals are not taxable income and also don’t count toward provisional income. As such, a single tax filer who collects $18,000 a year in Social Security and also takes $24,000 a year in Roth IRA withdrawals would not have to pay taxes on benefits, despite having a total income of $42,000 and a provisional income of $33,000.
While higher earners aren’t allowed to contribute to a Roth IRA directly, there’s always the option to fund a traditional IRA and then convert it to a Roth account afterward. It’s a move worth making, considering that Roth IRAs offer other benefits in retirement outside of helping seniors avoid taxes on Social Security. For example, Roth IRAs are the only tax-advantaged retirement plan to not impose required minimum distributions.