Is Social Security Taxable? 4 Ways to Minimize Taxes

And remember, it's not just the federal government that could tax Social Security benefits. You could also pay state taxes on your benefits if you live in Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, or West Virginia.

Unfortunately, the federal income thresholds used to determine the taxability of your Social Security benefits aren't adjusted for inflation, meaning many people will find their income too high to avoid taxation on their benefits. Instead of concentrating on what you can do to avoid taxes on your Social Security benefits, it might make more sense to focus on managing your overall tax liability throughout retirement. Here are four tax-smart strategies to consider.

We generally recommend to delay taking Social Security if you don't need the extra funds to pay for your living expenses. Each year you defer taking your benefits after age 62, your future payments will increase up until age 70. Again, before postponing your Social Security, assess your personal circumstances to ensure you'll have the funds to live comfortably. 

If you don't have the means to delay and you need to claim Social Security benefits before you reach your full retirement age—typically between ages 66 and 67—know that your earned income, such as wages from a part-time job or being self-employed, can potentially reduce your Social Security benefits. 

If you are under full retirement age for the entire year, $1 will be deducted from your benefit payments for every $2 you earn above $23,400 for 2025. In the year you reach full retirement age, $1 will be deducted for every $3 you earn above a $62,160 in 2025, but this only applies until the month before you reach your full retirement age. This reduction is only temporary. The month you reach full retirement age, your payments will be recalculated because the Social Security Administration will credit back the deducted amount due to any excess earnings.

That said, the Social Security Administration (SSA) has a special earnings limit rule for earned income in the first year of retirement. Let's say you file for Social Security in July and have already exceeded the annual earnings limit. You'll receive the full monthly benefit amount the rest of the year so long as the SSA considers you retired under the rule. If you return to work or become self-employed later in the year, you may not be able to collect any benefits for any month you earn above a certain amount or work more than 15 to 45 hours, depending on your age and occupation. After your first year of retirement, your monthly Social Security benefit will be based solely on your annual earnings limit.

Once you reach age 73, you generally need to take annual required minimum distributions (RMDs) from your tax-deferred retirement accounts, such as traditional IRAs and 401(k)s, which are taxed as ordinary income. However, Roth IRAs and Roth 401(k)s do not have RMDs, and you won't pay taxes on withdrawals as long as you're age 59½ or older and it's been at least five years since you initially funded the account.

Converting to a Roth could help lower your tax liability, especially if you think you'll be in a higher tax bracket during retirement. You can open a Roth at any time, but be aware that you'll pay income tax on the converted funds upfront. Before taking action, consider consulting a tax professional or wealth advisor to ensure this strategy fits your financial goals.

Most investments held in a taxable account, like at your brokerage, generate income in the form of interest, dividends, or capital gains. With careful planning, you can employ a few strategies to potentially lessen the annual taxes on such income. For example, shifting some of your assets to tax-efficient investments, such as municipal bonds, tax-exempt mutual funds, or tax-exempt exchange-traded funds, can offer continued growth without increasing taxable income. But remember, although municipal bonds are generally exempt from federal and state income taxes, the IRS includes interest from these bonds to calculate your combined income.

If you need to sell investments, focus on ways to lower your taxes. For example, gains from assets that you've held for more than one year will have a preferred long-term capital gains tax rate of 0%, 15%, or 20%—depending on your income level. You can also potentially minimize taxes on investment income through tax-loss harvesting, where you offset capital gains by selling an underperforming asset.

For those who are charitably inclined, you may be able to offset taxes with a charitable contribution. However, this only works if you itemize your deductions. If you're age 70½ or older, another way to make a donation and potentially reduce your taxes is by making charitable gifts directly from your IRA, known as a qualified charitable contribution (QCD).

A QCD won't provide a tax deduction, but this type of distribution doesn't create taxable income either. And the amount you give may be able to count toward your RMD for the year, assuming you do the QCD before taking all of your RMDs. Each individual can use a QCD to donate up to $108,000 tax-free to a qualified charity in 2025 (the annual QCD limit is indexed for inflation). You can also use up to $54,000 of a QCD to make a one-time donation to a Charitable Remainder Trust (CRT) or Charitable Gift Annuity (CGA) in 2025.

Unless congress changes the rules, most retirees will have some portion of their Social Security benefits be taxed. But understanding how your benefits impact your overall retirement income can help you consider strategies for minimizing your overall tax bill. Take care to work with your wealth advisor and a local tax professional to help make sure your retirement income stays on track.