Social Security may be one of your largest assets. What and when you collect will make a huge difference to your lifetime benefits.
Today’s Social Security question is about the effects of drawing down IRAs on benefits and taxation.
Question: I am brand new to reading your column. I am interested in the effect that withdrawing money from my IRA (taxable income) will have on my Social Security benefits. Is it best to withdraw money from the IRA until age 70 and then claim maximum Social security benefits, or will the IRA income adversely affect the benefits schedule? Is there an advantage to postponing withdrawal from the IRA until after I start receiving Social Security benefits?
Answer: Yes, timing your taxable withdrawals from your tax-deferred retirement accounts (regular IRAs, 401(k)s, 403(b)s, Keogh accounts, SRAs, etc.), your non-taxable withdrawals from non tax-deferred retirement accounts (Roth IRAs, Roth 401(k)s, Roth 403(b)s, …) and your partly taxable withdrawals from your non-deductible IRAs can and will affect all your future tax payments. So, too, will doing Roth conversions and deciding whether to contribute, at the margin, to Roth or non-Roth accounts. In general, you want to time your taxable withdrawals to periods when your tax rates are low. Roth withdrawals don’t trigger Social Security benefit taxation, which is based on the level of modified adjusted gross income of MAGI. Roth withdrawals aren’t counted as part of MAGI. So having more in Roths and less in regular retirement accounts is a good thing from the perspective of Social Security benefit taxation. There is extremely precise commercial software software program available to explore ways to safely raise and smooth your lifetime living standard, including managing your retirement account contributions and withdrawals and considering Roth conversions.
My weekly Social Security column appears on PBS NEWSHOUR’s website.
