No Tax on Social Security

https://amzn.to/4msRo2kIn this episode, we unpack the real story behind the bold headline “No Tax on Social Security,” as introduced in the One Big, Beautiful Bill Act (OBBBA). While the name suggests a total elimination of taxes on Social Security, we clarify that the bill actually introduces a new “Senior Deduction” rather than exempting Social Security benefits entirely from taxation. It’s important to understand that Social Security income still plays a role in determining your provisional income, and for many, taxes on those benefits will continue.

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⏱️Chapters & What You’ll Learn:
(00:00 - 00:10) – Introduction & Misconceptions
(02:20) – What Is the Senior Deduction?
(05:52) – Income Thresholds & Phaseouts
(08:16) – Duration & Sunset Provision
(11:36) – Planning Strategies & Roth Conversions
(20:22) – Practical Guidance & Closing

We discuss how the Senior Deduction works. Starting in 2025 and running through 2028, taxpayers age 65 and older can claim an additional $6,000 deduction per person — on top of the standard deduction. For a married couple both over 65, that’s an additional $12,000. When paired with the standard deduction, eligible couples can shield up to $46,700 of income from taxation. However, the deduction begins phasing out at $150,000 of modified adjusted gross income (MAGI) for joint filers and phases out entirely at $250,000. For single filers, the phaseout begins at $75,000 and ends at $175,000.

We walk through examples showing how this deduction impacts taxable income and demonstrate the real tax savings potential for couples near or below the income thresholds. However, for those with higher incomes or large IRA balances, we emphasize that tax planning remains critical. Just taking the deduction without looking at the big picture could be shortsighted.

Next, we explore how this temporary deduction fits into our ongoing strategy of moving to tax-free retirement income. Even with the new deduction, the long-term question remains: will tax rates go up in the future? We believe they will, given underfunded Social Security and Medicare programs, ballooning national debt, and interest obligations. That’s why we still recommend Roth conversions, especially for those with large pre-tax IRA balances. Using bracket management, clients can strategically convert funds into Roth IRAs while minimizing taxes and keeping income within the deduction thresholds.

We provide real-world examples of how strategic conversions today — even if they temporarily increase tax — can provide long-term protection from potentially higher future tax rates. We also show how those who’ve already moved to tax-free strategies are positioned to benefit fully from the Senior Deduction while minimizing taxable income.

Ultimately, the key message is clear: the Senior Deduction is helpful, but it’s no substitute for a long-term tax plan. The benefits vary widely depending on your income, age, and account types. To truly take advantage of the bill and prepare for the future, every individual or couple needs a tailored tax strategy.

For more information about anything related to your finances, contact Bruce Hosler and the team at Hosler Wealth Management: Visit us online at https://www.hoslerwm.com/

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