What’s the tax torpedo all about?
The tax torpedo hits when your combined income reaches a certain threshold, and triggers additional taxation on your Social Security benefits.
For single filers with combined income above $34,000, or married couples filing jointly above $44,000, up to 85% of Social Security benefits can be taxed. Even if your income is between $25,000 and $34,000 as an individual, or $32,000 and $44,000 as a couple, 50% of your benefits might still be taxed.
This scenario is more common than you may think, with 40% of Social Security beneficiaries pay taxes on their benefits. Plus, the rate at which you’re taxed can also be higher than you’d initially expect if your provisional income calculation bumps you into a higher Social Security tax bracket.
Yet another deadly blow strikes if you're in a state that charges income tax as well. Here’s the good news: if you’re using a Roth account instead, you can avoid that tax torpedo’s devastation. And there are tons of other ways you can reduce your reliance on Social Security in retirement overall, developing a healthier and more robust retirement portfolio.
Orman also emphasized the importance of regularly reviewing your financial portfolio to ensure it aligns with your long-term financial goals in a recent blog post. “You should log in and make sure your mix of investments – stocks/bonds/cash/ – is in line with your long-term goals,” she wrote in a recent blog post.
If you’re wondering what the optimal combination of accounts and assets is for your financial objectives, WiserAdvisor can help you figure it out. They’ll connect you with financial experts who make sure you’re on the right path to achieving your goals.
Their online platform is a streamlined way to find the best advisor for you and your needs. Once you select one of your advisor matches, you can schedule a free, no-obligation consultation to discuss your goals and develop strategies to secure your portfolio.
Why Roth IRAs matter
Qualified Roth IRA withdrawals (after age 59½ and meeting the 5-year rule) are tax-free, and they don't count towards that previous income calculation. This keeps your combined income lower, helping you to hopefully avoid triggering the Social Security taxation thresholds.
That’s where assets that protect you from inflation or market volatility can lend a big hand.
A gold IRA, for example, allows you to hold physical assets like gold, providing a hedge against both. Although it will be subject to income tax, and will contribute to your taxable income upon retirement, a gold IRA can be a terrific risk-adjusted complement to a Roth IRA, which could be riskier depending on assets you hold inside.
American Hartford Gold is a leading dealer of precious metals, and offers IRAs and direct purchases of precious metals and coins. Sign up now for your free 2024 information guide to find out if a gold IRA is the right move for your retirement goals.
More ways to secure your retirement
When planning for retirement, you don’t just want to consider the types of accounts available, like Roth IRAs or gold IRAs. Make sure you’ve got the right stocks, ETFs, and savings plans bringing in those returns for a comfy retirement.
IRAs can provide certain tax advantages, but if you aren’t properly investing within them, they won’t help much.
“I encourage you to keep returning to this thought exercise,” Orman wrote in a recent LinkedIn post. What are the financial steps you might take today to be kindest to your future older self? The 88-year-old, the 90-year-old, the 95-year-old?”
Add real estate to your retirement portfolio
Beyond investing in the stock market, real estate is a fantastic way to diversify your portfolio for retirement and trim back any reliance on Social Security.
But it can be cumbersome, costly and very admin-heavy.
If you want to buy property in America, the average cost is $495,000 across the country. For most, a 40% down payment on that price tag just isn’t feasible. And that could mean you’re looking at a mortgage rate around 6%.
Then there’s the added cost of maintenance and upkeep. That averages at around $18,000 a year, which is steadily climbing, and already 26% higher than four years ago.
You can circumvent that costly mess with First National Realty Partners (FNRP), which allows accredited individual investors to access institutional-quality commercial real estate investments — without the leg work of finding deals yourself.
You can even invest through a Roth IRA — meaning, you’ll receive tax-free payments and distributions that won’t be added to your combined income calculation.
FNRP has developed relationships with the nation’s largest essential-needs brands, including Kroger, Walmart and Whole Foods. You can engage with experts, explore available deals and easily make an allocation, all in one personalized portal.
Invest on auto pilot
Whether you’re currently living the retired life or you want to add to your nest egg, there is a way to do that just by spending as you normally would.
Acorns — an automated investing app that makes building a smart portfolio easily accessible.
All you have to do sign up, link your bank account as you normally would. The app will automatically round up the total cost of your purchases and invest the difference in a portfolio of ETFs. So all it takes to help strengthen your portfolio and save for retirement is to make your everyday purchases and watch your money grow.
If you sign up today, you can get a $20 bonus to get you started.
