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Social Security Tax Savings

Finishing Well / Hans Scheil
The Truth Network Radio
April 3, 2021 8:30 am

Social Security Tax Savings

Finishing Well / Hans Scheil

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April 3, 2021 8:30 am

Do you know what your “other income” is? Hans and Robby go over how your Social Security is taxed, and strategies you can put into place that could lower the taxes paid. 


Don’t forget to get your copy of “The Complete Cardinal Guide to Planning for and Living in Retirement” on Amazon or on for free!


You can contact Hans and Cardinal by emailing or calling 919-535-8261. Learn more at 

Faith And Finance
Rob West
Planning Matters Radio
Peter Richon
Faith And Finance
Rob West
Faith And Finance
Rob West
Faith And Finance
Rob West
Finishing Well
Hans Scheil

Woodrow Kroll here. When you train one pastor in Ecuador, some donor friends are standing by to train a second pastor. Call 833-443-5467 or go online at

Every gift counts and now every gift is doubled. Sit back, enjoy it, share it, but most of all, thank you for listening and choosing the Truth Podcast Network. This is the Truth Network. Welcome to Finishing Wealth, brought to you by, with certified financial planner Hans Scheil, best-selling author and financial planner, helping families finish well for over 40 years. On Finishing Wealth, we'll examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing social security, Medicare, IRAs, long-term care, life insurance, investments, and taxes. Now let's get started with Finishing Wealth. Today's show on Finishing Wealth with certified financial planner, Hans Scheil, is social security tax savings. Who wouldn't want a little tax saving? And there's, well, we'll talk about Royce Reynolds later in the show.

I love his sayings. But, you know, I was thinking about this whole topic of, you know, tax, and somehow or another, it all has to do with percentages. And when I was a little kid taking math class, you know, I probably would not have liked to hear this, but, you know, the person that, or the one that invented the whole math system, that would be God. And it doesn't take long to figure out that so much of the world that we live in has to do with numbers and percentages.

And one of the beautiful things about the Hebrew alphabet, which they used, you know, to write the original Torah scrolls with the Bible, Moses and stuff, is that those letters all have numeric values. And so the whole concept of tithing, which, you know, was to some relationship with tax, you can see this, that they would give, you know, one-tenth of their income. And you may wonder, no, or may wonder, I wondered, you know, how did Abraham know that he was supposed to give a tenth of his stuff to McKissle Deck, you know, the King of Salem of God Most High? You might remember after that incident, he gave him a tithe. And that's the first mention of that word. Well, he knew that because to the Hebrews, they know that the yud, which is their letter that means a lot, it's the smallest letter when Jesus said, I'm not going to take one jot or tittle out of the law.

Well, that was the jot that he was referring to. And that number value of that is 10. And that yud makes up the first letter of the hand of God, okay? And so we make financial transactions with our hands. And God's hand has everything to do with, right, providing for us our income. So if you think about it, Hans, you know, if you were going to, you know, God provided you with $500,000 income this year, so your tithe, you know, would be significant like $50,000. You know, and I could see, you know, if you looked at it like tax, like what a horrible thing, I got to give $50,000 of my income to, you know. But really, if you got to write a $50,000 check to the church, I mean, wouldn't that be absolutely delightful?

And in doing so, you see, God has provided and now we provide, you know, again, through our hand, that whole idea of the yud. And so as we transition into this part of our life where we're now going from Social Security income, it's pretty cool to know. And I think what you're going to hear about in today's show that there are certain parts of this that are actually of your retirement income after you start your Social Security that can be absolutely tax-free.

Well, sure. And what I'd like people to do is learn enough about how their Social Security is taxed so that they can make decisions going forward. I mean, how it's taxed on your 2020 return if you're just doing that now, there's nothing we can do about that other than learn about it and how much tax we've got to pay.

I want you to be able to make decisions about your other income and what it looks like on your tax return so that you pay the least amount of tax you have to pay in your retirement or show you how to save some money. So we have most clients coming into us in their 60s, some in their 70s doing makeup stuff. And when they kind of learn about what we do and then they realize all the things that they didn't do when they were 65 or 62 or younger. And we have many people also coming in their 50s. And those people in their 50s are not, they're not getting Social Security checks yet, but it's never too early to begin planning for this because whenever you start your Social Security check, and if you're a married couple, you're going to have two Social Security checks. That's going to be a significant part of your income in retirement. And if it's not a significant part of your income, that means that the other income that you have is real significant and just means that, first of all, you're going to be paying a good amount of tax on your Social Security and you're paying a good amount of taxes anyhow. And that's not necessarily a bad thing. That means that you've done very well and God's blessed you very, very well.

Just like my friend, Royce Reynolds, he used to own the Crown organization. When we were losing money for a couple of years there, he made a statement I've never forgot where he said, oh, I long for the days I was paying all those taxes. Because if you're paying taxes or you're paying thighs, right, it means God's blessed you tremendously. And, right, there's worse problems to have.

Yeah. And so what I want to get down to most people and many people in retirement, I mean, if you've got a married couple to be looking at $50,000 a year in Social Security income is very realistic. Somewhere in that zone, maybe even more if you had two people with strong earnings records. So you get that amount of money and if you just look at Social Security by itself and you had nothing else or you showed no other income or you had it all deferred or something, that $40,000 to $50,000 is going to be tax-free. So that means that's your net check. In most states, you've got no state income tax. And with the federal government, the way they determine your tax on your Social Security is by your other income or the income other than Social Security. So it's not a bad thing to have a bunch of other income.

That means you're very well off. You're just going to be paying taxes on that other income and you're going to be paying taxes on your Social Security. And now for the good news, when I ask people, most people know coming into us when they're in their 60s, they know they're going to have to pay taxes on their Social Security. They know that there's going to be some taxes on that.

Now, when you talk to people that are in their 70s, they definitely know there's taxes on it because they've been paying them for a while. Then you start asking them, how do they figure that? People come up with all kinds of stuff. But I'm always surveying people.

Every new client coming in, certainly not to make fools out of them, but I want to know what they know and I want to know what they think. And sometimes some of the things they think are not correct. I mean, they're just assuming something. And so we've got to peel all that back to find out what's actually happening. And then we got to at least understand this stuff well enough to make decisions going forward to see if we can perhaps reduce that tax a little bit.

I mean, that's the premise of the thing. And so I'm going to tell you how it works is that if you have no other income besides Social Security, then you're not going to pay any federal income tax. And you're not going to pay any state income tax because most states don't tax Social Security.

Let's go to the other extreme. If you have a lot of other income, okay, let's just say you have $100,000 a year of other income, and then you have your Social Security, I got news for you. You're going to pay taxes on your Social Security and your $100,000 of other income. Now, a bit of good news is nobody is going to pay tax on more than 85% of their Social Security. Or another way to put it is 15% of your Social Security check is always tax-free. Tax, F-R-E-E, free.

Free. Right. So that would be 15% on this person that's making $100,000.

Yeah. So if this was a couple and they made 100 grand from things other than Social Security, they're still not going to be in that high of a tax bracket. A married couple at that number, maybe like 20% or something like that. So if they're at 20%, and that won't be on all the money, but let's just make it simple.

That'd be $20,000. Now, with the Social Security, if they had, let's say, $50,000 of Social Security income, what we want to be sure is that 9,000, is that right? 7,500 of that Social Security, or 15%, is always tax-free. But the other 42,500 of their Social Security income, they're going to pay tax at that 20% rate, or they're going to pay, you know, $8,500 or so in taxes.

So, you know, and I've just gone to both extremes. I've gone over just Social Security and no other income, no tax. And then I've gone to the other extreme, a lot of other income and Social Security, tax on the other income, and then 85% of that Social Security check being taxed, 85% of it being taxed.

So that's kind of an oversimplification. Well, what happens in between? So in between, let's put it this way, is you can make some other income, and still pay no tax on your Social Security. And you can also, if you just have some other income, and I'll just use a simple number like $1,000 a month or $12,000 a year as some other income, if that's what you have in addition to Social Security, you're not going to pay any tax or much tax on that $12,000 because of deduction, standard deduction, that sort of thing. So there's an amount of Social Security and some other income that is going to really be all tax-free.

Now, we're going to have to finish this after we take a break here. Yeah, so we want to tell you that today's show, obviously, we're talking about income tax. So it's one of those seven worries in Hans's book, The Complete Cardinal Guide to Planning for and Living in Retirement. So income tax, being one of those chapters, you can download that for free or just ask Hans for the entire book at

Go to his email address and ask for The Complete Cardinal Guide to Planning for and Living in Retirement. And I happen to know in this next segment, you're going to hear some really cool ideas because the name of the show is, again, Tax Savings. We had to explain the tax so that we could later tell you how to save.

So that's all coming up in the next section of Finishing Well. Hans and I would love to take our show on the road to your church, Sunday school, Christian, or civic room. Here's a chance for you to advance the kingdom through financial resources by leveraging Hans' expertise and qualified charitable contributions.

Veterans aid and attendance, IRAs, Social Security, Medicare, and long-term care. Just go to and contact Hans to schedule a live recording of Finishing Well at your church, Sunday school, Christian, or civic group. Contact Hans at

That's Welcome back to Finishing Well with today's show, Income Tax Social Security, Income Tax Savings, right? That's all we're about, tax savings here today on Finishing Well. And when we lift our hero, he was explaining essentially how the tax itself works.

Yeah. So this whole issue of the formula for this, I want to spend as little time as we need to and kind of get through this, then talk about what you can do to manipulate the formula or to make the formula work in your favor. So the way Social Security does taxes is that the first thing we got to come up with your combined income. And that's just another term, accounting term, invented by Social Security and the IRS. And so combined income is half of your Social Security that you earn during the year. So if you're a couple, that's two checks, whatever they are for the year, and then you divide it by two.

So you cut it in half. So if we took this couple in the example earlier, if they had $50,000 worth of Social Security income, they divide that by two, it's $25,000. And then we're going to add our adjusted gross income.

And they actually add another little letter to that modified adjusted gross income. But I'm going to try to just make the show simple is then they add to that half your Social Security, they're going to add just your income, whatever that is before deductions. You know, in that case, those people had $100,000 added to $25,000, they had $125,000 of combined income, and they were way over the exemption amount that would make all of their Social Security taxable, or 85% of attacks, which, again, is confusing, because it makes you think on paying 85% in tax. No, no, no, no, no, that just means if you took the whole $10,000, and that means $8,500 would be subject to the tax rate that you're paying on your other income. Yeah, so they were paying taxes at a 20% rate on 85% of their Social Security. Right. So it makes it more like 16% tax or 17% or something like that. This is why I should have paid attention in math class. Well, I don't know whether it's a gift or a problem, I can do a lot of this stuff in my head.

And that always stops me from short, starts with shortcutting the computer. Most of you don't fall in either of these categories. You're not these people with a lot of income other than Social Security, and then you're not these people with no other income or just a little bit, you're somewhere in between. And that's where the formula comes in. So you're either single, and then we're just counting one Social Security check and one person's other income, or you're married filing jointly. And if you're married filing jointly, then it's two Social Security checks, if you're both of age and getting it, and it's two incomes all put together in one pot. And the threshold for the combined income for the single person to where you start paying tax is $25,000.

And the threshold for the married couple is $34,000. So if you take that earlier formula with the combined income and you plug all that in, which is half your Social Security plus your adjusted gross income, and if that equals more than $25,000 for a single or $34,000 for a couple, so it's a pretty low threshold, now you're going to get into how much of your Social Security is taxable. And it goes pretty quickly to 50%. So 50% of your Social Security is taxable at your corresponding tax rate. And then it climbs up again pretty quickly to the 85%. So, you know, if you fall in this tweener zone, which is probably most of you, you're going to be paying income taxes at your normal tax rates on from either half your Social Security up to as much as 85% of it will be taxable.

So I could go over that five times for a lot of you and you're going to change the dial. So that's the formula. And so just understand, no other income, just Social Security, no income tax. Some other income and Social Security, probably no tax anyhow. And when you get some significant other income, maybe significant to you, not to Mr. and Mrs. Big Bucks, but it's significant to you, like a couple thousand, 3,000 a month, and your Social Security, then you're going to be paying taxes on probably half your Social Security, maybe up to as much as 85% of it. And then know that you're never going to pay taxes on that last 15% of your Social Security. That's always going to be tax free. Now, the real key to this story, and I can just tell people what I've done, is I've transferred most of my traditional IRA money into a Roth.

I've converted most of it. And I've paid the taxes at a younger age, even though that was painful. So I now have an account that's accumulating that's going to generate for me tax free income if I need it. It's going to be tax free.

It's also not going to count in this formula. And if I do my math right, if I'm able to live until 70, and then I'm able to hold off with my Social Security and work till 70, and then I start my Social Security check, and my wife starts hers under the spousal benefit, we're going to be getting about $70, $75,000 a year in Social Security payments. So that's pretty nice. And then the money that we have in addition to that to live off of, if that's not enough, that's going to come from tax free sources, like a Roth IRA, like life insurance cash values that I'm making loans on. That's where a big portion of my savings is put. And basically I'm going to have a tax free retirement. So the amount of money that I need to live on is a lot less than it is now while I'm paying a lot of federal and state taxes and Social Security taxes.

Right. And for me, whose brain is taking a couple of years to get his head wrapped around this concept is that if I have money sitting in a regular IRA or a 401k, and I'm making distributions, or in other words, taking money out of that IRA or that 401k, that money that you take increases your income. Where if you had money in a Roth IRA or a savings account or life insurance, that money doesn't change your income. It's money you needed and was income. It might even come out of an annuity that you've already paid tax on the money going into the annuity. If you've got the money coming out, it feels like income, but since you've already taxed, it's been taxed when you originally made that income, it no longer affects what your tax is going to be.

It doesn't drive the formula. So what's the strategy here? Well, if you're in your fifties, try to work on your Roth IRA. I mean, you just, if your 401k allows you to make contributions directly into their Roth side, give some serious consideration to making your contributions start next week into the Roth side of things. So you'll just be accumulating money right from the beginning. You will lose a tax benefit now, but you'll be gaining a lot. So that would be something to do in your fifties. If you're in your sixties and you've got money accumulated into a regular traditional IRA or 401k, think about doing some Roth conversions.

Think about moving some of this money before you're even on social security over to the Roth side and see the bad news here is you're going to have to pay the tax now. So that's going to hurt and that stops a lot of people. So I don't want you to run out and do that without getting some professional help.

Make sure it makes sense. But you also may need somebody to talk you through this just because there's a lot of stop signs. If you're doing this yourself, you say, I'm not paying that. Well, it still might be in your best interest.

So that would be one strategy. We have a lot of clients doing what I've done is accumulating a bunch of money in a whole life policy and whole life is a long term proposition. So you're going to be paying into that for a minimum of 10 years. So, you know, but you could start something like that in your sixties and then as long as you have the money to pay the premiums and, you know, we would make sure that, you know, you're stuffing money into an account where you can later, when you're on social security, start drawing out money that doesn't show up on your tax return. Because once you're on social security and once you're on significant social security, two of you, especially, I mean, it's almost like your other income is double taxed because you're going to pay tax on it just for earning it like you do on any income. And then it's going to cause your tax on your social security to have to be, it's like it's double taxed.

So you really want to get a strategy together to still have the income but not have it be taxed later in retirement. And a place for those of you that haven't done any planning like this and you're taking a big hit on social security taxes now and you're over 70, there's a thing called QCDs, Qualified Charitable Distributions. And so we can take those minimum distributions that you're now making and direct them to the charity directly.

Now there's a bunch of rules with this. So I don't want anybody to run out and do this but if you want to bone up on QCDs or just give me a call, you can just send money straight from your IRA to the charity, to the church, to whatever qualified charity that you want. You can send it to several and that money never shows up on your tax return nor does it drive up the taxes on your social security. Right. And so in that strategy, right, so somebody normally is giving already 10% of their income to the church and they're doing that out of their social security check or they're doing it out of whatever income they have.

But now in the QCD idea, which by the way has to be your first distribution of the year and so while we're still in the first quarter for a week or so, it's a good time to think about that before you make any other distribution to know that part of that strategy is get a hold of Hans or somebody can help you with it quickly. But now I take and I make my distribution to the church early on like boom, I've given them the whole years of what I know is going to be my income. Some people we do this, they're able to give more and they do.

Right, because they're... It's like a straight tax deduction and it comes back to you if it lowers the tax you're paying on the social security side. Right, so you make the distribution at the beginning of the year. Now you've made your tithe for the year to the church.

Of course now if you want to make regular offerings or whatever you want to do, the church is up to you. But you know that other income is not being taxed. We have a lot of clients who they're not old enough for this yet, but they learn about it listening to the show, reading our stuff. We end up doing it for their parents because their parents can make this whole equation. We also have a lot of people within churches where you're too young to do this, but there's older people in the church sitting on IRA money. They're just taking the minimum and they're complaining about it because they got to pay taxes. They're living off their social security and they have them influencing that some of that money can just be given directly to the church and the taxes are completely avoided. And the idea, again, it's this great thing to pay taxes. Like Roy said, bring me back to the day when I paid all those taxes. God blesses you, you get a chance to give more. Give more to the government and give more to the church. In its own way, there's lots of ways to look at things, but I love the way to look at it.

I've thought that ever since I heard Roy say it. Yeah, give me the days where I can pay a lot of income tax. But again, planning and being the best possible steward of your stuff calls for wisdom and people that work in this stuff all the time. And it's a simple phone call away or maybe a click from your computer to go to Cardinal Guide. That's don't forget the guide after Again, Hans' book, The Complete Cardinal Guide to Planning, Foreign Living and Retirement is all available there as well as the chapter on what we talked to today.

But I don't know how it is. We always run out of time before we run out of stuff, Hans, but it's been a great show. Thanks again.

It has. Thank you. We hope you enjoyed Finishing Well brought to you by Visit for free downloads of this show or previous shows on topics such as social security, Medicare, IRAs, long-term care, life insurance, investments and taxes, as well as Hans' best-selling book, The Complete Cardinal Guide to Planning, Foreign Living and Retirement and the workbook. Once again, for dozens of free resources, past shows or to get Hans' book, go to If you have a question, comment or suggestion for future shows, click on The Finishing Well radio show on the website and send us a word. Once again, that's, This is the Truth Network.
Whisper: medium.en / 2023-12-08 22:32:52 / 2023-12-08 22:43:49 / 11

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