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Could Untaxed Social Security Mean More Money in Your Pocket?

There’s increasing discussion in Washington about eliminating federal income taxes on Social Security benefits. While nothing is finalized yet, it’s worth considering how such a change could benefit retirees—especially from a financial planning standpoint.

Currently, up to 85% of Social Security income may be taxable depending on your overall income. If that tax burden were removed, retirees could keep more of their benefits. Without the need to withhold federal income taxes from monthly Social Security payments, recipients would see a noticeable increase in their take-home amounts. Many also have federal tax withheld from IRA or pension distributions to cover taxes on Social Security—removing that burden could reduce required withdrawals and preserve retirement savings longer.

Another often-overlooked benefit: lower taxable income could keep retirees in a lower income bracket. That matters for more than just taxes—it could mean avoiding higher Medicare premiums due to IRMAA (Income-Related Monthly Adjustment Amount) surcharges. It might also reduce exposure to capital gains taxes and preserve eligibility for certain state or local benefits tied to income levels.

From a broader perspective, if retirees are keeping more of their monthly checks, the Social Security Trust Fund may not need to provide as large of cost-of-living adjustments (COLAs) to help offset taxes that no longer exist—an indirect benefit to the program’s sustainability.

As this conversation evolves, it’s a good time to evaluate your retirement strategy. Tax changes can impact your financial picture in unexpected ways, and we’re here to help you stay ahead of them.

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