Before and After: Managing Social Security Taxes

If you've built significant wealth, paying taxes on some of your Social Security benefits is almost unavoidable.

Indeed, when your provisional income—your modified adjusted gross income (MAGI) plus 50% of your Social Security benefit (and your spouse's if filing jointly)—exceeds a mere $34,000 as an individual or $44,000 as a married couple filing jointly, up to 85% of your Social Security benefit could be taxable.¹ 

Just a small increase in your provisional income can take you from no taxes on your Social Security benefits to having 85% of your benefits taxed.

When Congress initially enacted the rules that made a portion of Social Security benefits taxable, the provisional income thresholds weren't indexed to inflation. Over the years, incomes have risen while provisional income thresholds have stayed the same, resulting in more taxation of Social Security benefits.

However, it's your MAGI that has the greatest impact on how much tax you'll owe on your Social Security benefits. If you're concerned about paying taxes on your benefits, there are a couple of strategies that could help:

On top of your traditional 401(k)s and IRAs—whose withdrawals will be taxed as ordinary income in retirement—think about adding:

• Roth accounts: These accounts are funded with after-tax dollars, so not only are withdrawals entirely tax-free in retirement—as long as you're 59½ or older and have held the account for at least five years—but also the income isn't included in your MAGI. Be aware, you cannot make Roth IRA contributions if your MAGI in 2026 exceeds $168,000 as an individual or $252,000 as a married couple filing jointly. However, there are no income restrictions on Roth 401(k) contributions or Roth conversions.
• Taxable accounts: Unlike tax-deferred retirement accounts—which will be subject to required minimum distributions (RMDs) when you turn 73 (75 if born in 1960 or later)—these accounts can be tapped for income at your discretion. But remember, you'll realize taxable capital gains when you sell investments with a net profit, and income from dividends and interest will be taxable in the year you receive it.

Strategically withdrawing from your accounts with different tax treatments can help keep your taxable income low. For example, funding an unusually large expense—like a dream vacation—from your Roth account would allow you to get the necessary funds without generating additional taxable income. You could also sell assets in your taxable account that have lost value—a strategy called tax-loss harvesting—to avoid creating additional provisional income.

When it comes to taxes, we recommend consulting with a tax professional or financial advisor to help ensure you implement the best strategy for your situation.