Social Security benefits are a vital source of income for many retirees in the United States. However, depending on where you live and your income level, you may have to pay taxes on these benefits. In 2025, nine states will tax Social Security benefits.
Connecticut, Rhode Island, and West Virginia are among the states that will tax Social Security benefits in 2025. The specific rules and income thresholds vary by state. For example, in Connecticut, you are exempt from the tax unless your adjusted gross income (AGI) exceeds $75,000 for single filers or $100,000 for married joint filers.
If you live in one of these states and expect to owe taxes on your Social Security benefits, there are strategies you can consider to minimize or avoid the tax burden. One option is a Roth conversion. Withdrawals from traditional retirement accounts like 401(k)s and IRAs count towards determining if your benefits are taxable, but Roth IRA distributions do not.
Converting traditional retirement assets to a Roth IRA can be beneficial, but it is a taxable event and the full benefits won’t apply until at least five years after the conversion. Another strategy is to be strategic in your timing.
Strategies to minimize Social Security taxes
If you can keep your income below the taxable limit, you won’t owe taxes on your Social Security benefits. This might involve delaying your claim for Social Security benefits and withdrawing more from your savings earlier in retirement. Drawing down on investment accounts earlier can help you stay under the income threshold later on.
Delaying claiming Social Security benefits until age 70 will also increase your monthly checks, providing a larger amount of retirement income in the future. This can help you offset smaller investment withdrawals when needed. Maximizing your charitable contributions can also reduce your income and keep it under the exemption threshold.
For those aged 70-and-a-half or older, you may be able to donate your Required Minimum Distribution (RMD) directly to a charity, subject to certain limits and conditions. By exploring these options, you can significantly reduce or even eliminate state taxes on your Social Security benefits. Although relocating to one of the 41 states that don’t tax Social Security benefits is an option, it shouldn’t be the sole factor in choosing where to retire.
It’s important to consult with a tax or financial professional for personalized advice based on your specific situation. They can help you determine a safe withdrawal rate and optimal tax strategy to maximize your retirement income and minimize your tax burden.
