RT Journal Article
SR Electronic
T1 Practical Applications of How Social Security Coordination Can Add Value to a Tax-Efficient Withdrawal Strategy
JF Practical Applications
FD Institutional Investor Journals
SP pa.2022.pa508
DO 10.3905/pa.2022.pa508
A1 William Reichenstein
A1 William Meyer
YR 2022
UL https://pm-research.com/content/early/2022/08/06/pa.2022.pa508.abstract
AB The spike in marginal tax rates associated with the taxation of up to 85% of an individual’s Social Security benefit is termed the “tax torpedo.” In How Social Security Coordination Can Add Value to a Tax-Efficient Withdrawal Strategy, from the Fall 2021 issue of The Journal of Retirement, William Reichenstein and William Meyer, principals at Social Security Solutions, Inc., demonstrate how marginal tax rates can spike when a retiree collects both Social Security benefits and income drawn from tax-deferred accounts in the same year. The authors use a series of case studies to model how financial advisors can identify optimal tax-efficient strategies for clients who are able to delay the start of Social Security benefits. In the early years of retirement, income is drawn from tax-deferred accounts, and additional tax-deferred funds are converted to Roth accounts. When Social Security benefits later begin, the Roth accounts can be drawn upon tax-free as needed. This strategy can add significant value to portfolios by reducing income taxes and Medicare premiums.