ChatGPT Outlines 6 Smart Ways Retirees Can Reduce Social Security Taxes
Written by
Karen Doyle
Edited by
Cory Dudak
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Social Security is typically quite a bit less than your pre-retirement income (from around 28% for maximum earners to upwards of 79% for low earners, according to the SSA), but it may still be taxable.
Since no one wants to pay more in taxes than they have to, I asked ChatGPT how retirees can reduce taxes on their Social Security income. Here’s what it had to say.
How Social Security Is Taxed
ChatGPT began with an explanation of provisional income, which is the basis of how Social Security income is taxed. Provisional income is adjusted gross income (AGI) plus non-taxable interest plus 50% of your Social Security benefit. If your provisional income exceeds $34,000 and you’re single, or $44,000 and you’re married filing jointly, 85% of your Social Security will be taxable. If your provisional income is from $25,001 to $34,000 and you’re single, or if it’s $32,001 to $44,000 and you’re married, up to 50% of your Social Security will be taxed.
Strategies To Reduce Taxes on Social Security
There are ways to reduce the amount of tax you pay on your Social Security, and it starts with reducing your provisional income. Here are some strategies.
1. Use Roth Accounts
ChatGPT recommended using Roth accounts instead of traditional IRAs for your retirement savings, which is good advice, but you’ll need to plan ahead. Qualified withdrawals from Roth IRAs and Roth 401(k)s are tax??’free and do not typically increase provisional income. However, withdrawals from traditional IRAs and 401(k)s do
2. Manage Required Minimum Distributions
Starting at age 73, most tax??’deferred retirement accounts — including traditional IRAs and 401(k)s — require minimum withdrawals that are generally taxable. While you can’t convert an RMD to a Roth, converting funds before RMDs begin can reduce future withdrawals. Qualified Charitable Distributions (ChatGPTs next strategy) can satisfy RMDs without increasing taxable income.
3. Qualified Charitable Distributions
If you’re 70½ or older, you can donate up to $111,000 per year (indexed for inflation, per Secure Act 2.0) directly from your IRA to a qualified charity. And since QCDs are excluded from income and not deducted, they don’t increase your taxable income.
4. Control Your Investment Income
By minimizing realized capital gains, dividends, interest and rental income, you reduce your provisional income. Do this by using tax-efficient funds, holding growth stocks with low dividends and harvest tax losses carefully.
5. Spread Out Withdrawals Strategically
Instead of taking a large withdrawal in one year, spread it out over multiple years if you can. This applied to your first required minimum distribution too — you can push that into the year after you turn 73 if you want, but that means you’re taking two RMDs in one year, which will increase your provisional income.
6. Move to a State That Doesn’t Tax Social Security Income
Some states, including Colorado, Minnesota and Utah, still tax Social Security benefits but offer income??’based exemptions or credits that shield many retirees. Others, including Florida, Texas and New Hampshire, have no state income tax at all. Federal income tax rules, however, still apply.
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