hi daryl rosen here i am the voice behind get financial strength now and i have a very important
video for you about social security specifically how your social security benefit is taxed
i am going to show you by way of this fancy whiteboard exactly how the tax is calculated
and i'm going to introduce you to a fascinating phrase provisional income you're going to want to
tell all your friends that you now understand the phrase provisional income so the reason this is so
important is because this is the computation the irs does to determine whether or not you're going
to pay tax on your social security um it's there's not always a way to avoid taxation on social
security but i want you at least to understand how it's computed so let's take a look at this
i have here three buckets so every asset you have every investment account you have can go
into one of three buckets the taxable bucket means that we're paying tax on the growth
the tax deferred bucket those are 401ks iras 403 bs and that that bucket we have yet to pay
tax on you might recall when you put money into a 401k you got a tax deduction that money grew tax
deferred hopefully for many years and now when we take it out we have to pay the piper a little bit
and then there's tax free accounts so this is the computation that the irs does so again provisional
income this is what they do they take all the income from this bucket your taxable buckets
so dividends interest rental income wages anything that comes in this taxable bucket you know because
you get a 1099 at the end of the year then we have the tax deferred bucket so this is anything
that comes out of your tax deferred bucket this could be rmds required minimum distributions this
could be any kind of a distribution also pensions right so often people who have
big pensions can't avoid the tax they pay on their social security so anything that comes out of the
tax deferred bucket anything that comes out of the taxable bucket these are your income sources
if you have a part-time job that's in the taxable bucket plus plus one-half of your social security
in a given year so so let me let me say that again then we'll we'll put some numbers behind
it any taxable wages any taxable interest income any dividend income anything that
would come out of 109.99 any distributions from a 401k from an ira pensions right
anything that comes out of this bucket anything that comes out of that bucket plus one half of
your social security is your provisional income darrell do you think people like our videos
beats me how do we find out we can ask them how like this if you like our videos give us
a thumbs up below anything else yes subscribe this way you'll see our content right away tell
the viewers why we do this to help them create safety simplicity most of all financial strength
in the future got it to subscribe just click the button below now back to our regularly scheduled
video okay so i cleared the board up a little bit so we have a little bit of space so let's put
some numbers behind the concept again anything from taxable anything from tax deferred plus
one half of your social security so here's some numbers let's say and i'm going to get a different
mark here let's say that we had 22 000 that came out of this bucket in the year 2021. let's say
we had 50 000 that came out of that bucket in the year 2021 so i put these numbers right here
22 and 50. now let's say your social security benefit was 30 000 remember the formula is
a plus b plus one half year social security so thirty thousand dollars divided by two
and this is i didn't need a calculator for this is fifteen thousand dollars so this means that
our provisional income and i'm gonna use the red marker because this means we're gonna pay
is eighty seven thousand 000 so that's the provisional income now here are the limits
that the irs uses to to determine whether or not you're going to pay if your provisional income is
less than 32 000 you're not taxed on any or social security if your provisional income is greater
than forty four thousand dollars you're going to pay tax on 85 of your social security benefits so
in this case thirty thousand dollars times eighty 85 is 25 500 that's the amount of income you're
going to have to declare on your tax return that that can be that could be quite a hit
anything that comes out of here anything that comes out of here
plus one half of your social security that's your provisional income calculation so how do we
how do we make this a little bit better how do we lower this well over here you notice
i'm not talking about the tax-free bucket so anything that comes out of that tax-free bucket
is not part of that social security calculation so when we hear things about roth accounts when we
hear about certain properly structured cash value life insurance policies really what we're saying
is that we want sources of income and retirement that don't affect that social security
calculation so that is the definition that is how provisional income is calculated i hope
that is helpful for you in review one more time quickly anything that comes out of
taxable anything that comes out of tax deferred plus one half of your social security if it's
greater than 44 000 that number you're going to pay tax on 85 of your social security benefit