The $32,000 Warning Married Retirees on Social Security Need to Know

Most older Americans qualify for Social Security by paying into the system for many years.

You actually need 40 work credits to become eligible for retirement benefits. And you can accrue up to four credits per year. But many people pay into Social Security over the course of 20 years, 30 years, or more.

Now you’d think that after paying all of those taxes, you’d be allowed to keep your Social Security benefits in full in retirement. But not so fast.

Many seniors are shocked to learn that Social Security benefits can be taxable. And if you’re married, there’s a key number you’ll want to keep in mind that determines whether you get to keep your Social Security checks in full or not.

Beware the provisional income thresholds

Provisional income is what determines whether seniors pay taxes on their Social Security or not. It’s calculated as the total of your adjusted gross income (AGI), tax-exempt interest income you collect (such as from municipal bonds), and half of the Social Security payments you get each year.

If your provisional income as a married couple is under $32,000, you get to keep your Social Security checks in full. But once your provisional income reaches $32,000, you face taxes on your benefits.

More specifically, with a provisional income between $32,000 and $44,000, you risk taxes on up to 50% of your Social Security benefits. Beyond $44,000, up to 85% of your benefits can be taxable.

To be clear, this does not mean you pay a 50% or 85% tax rate on your Social Security. Rather, it’s that that percentage of your benefits can be taxed at whatever marginal rate you’re subject to based on your total income.

For example, let’s say you’re subject to taxes on 50% of your Social Security, and you collect $30,000 a year in benefits. That means you’ll pay taxes on $15,000 worth of benefits —  not that you’ll lose $15,000 in benefits.

But still, that tax bill could be a blow and source of frustration, especially if it catches you off guard. So it’s important to be prepared.

One trick could help you keep more of your Social Security

If you don’t like the idea of paying taxes on your Social Security (and why would you?), then there’s a strategy worth employing — save for retirement in a Roth account.

Roth IRA or 401(k) withdrawals do not count toward your AGI. So if you’re able to keep your AGI low, you can potentially stay right under the $32,000 threshold that applies to married couples filing jointly.

If you don’t save in a Roth account during your working years, you may be able to do a conversion once you’re retired. You’ll need to time that conversion carefully due to the tax consequences, though, because the sum you convert gets taxed that same year. And you may end up owing taxes on your Social Security while you’re in the process of making that conversion.

But if you eventually manage to get all of your savings into a Roth, you can potentially get out of paying taxes on Social Security for many years afterward, depending on your total income picture.