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GOBankingRates’ editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services – our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines<\/a> and our products and services review methodology<\/a>.<\/p>\n 20 Years<\/strong> Trusted by<\/strong> Ever since the 401(k) option was added to the American tax code in 1978, the employer-sponsored retirement savings plan has been a foundational element of any smart investment portfolio and a crucial financial safety net for most retirees\u2019 golden years. <\/p>\n However, some retirees are discovering that a robust 401(k) balance<\/a> can actually cost them money \u2014 specifically, higher taxes on Social Security benefits<\/a>. Read on to learn more.<\/p>\n \u00a0<\/strong><\/p>\n \u00a0<\/strong><\/p>\n Attack of the \u2018Social Security Clawback\u2019<\/p>\n According to a recent analysis from 247WallSt<\/a>, retirees who have more than $800,000 held in their 401(k) accounts could find themselves prey to higher taxes. Essentially, required minimum distributions<\/a> (RMDs) for taxpayers over the age of 75, when combined with Social Security<\/a> benefits, can push a retiree\u2019s income to a point where 85% of those Social Security benefits become vulnerable to taxation \u2014 what 247WallSt calls the \u201cSocial Security Clawback.\u201d<\/p>\n<\/p>\n \u00a0<\/strong><\/p>\n How To Avoid Surprise Social Security Taxes<\/p>\n David Beren of 247WallSt has recommended that retirees execute Roth conversions during the period between when retirement starts<\/a> (typically around age 65) and when RMDs being (roughly a decade later) and to do so at lower marginal tax rates. This can lower future RMDs, thereby lessening Social Security taxation.<\/p>\n Evan Mills, financial analyst at Scholar Advising<\/a>, agreed when speaking to GOBankingRates. \u201cThe best thing to look at is Roth conversions, taking money from those pretax accounts and moving it into Roth. That\u2019s going to lower your RMDs in the long run,\u201d he said.<\/p>\n \u201cNow once you\u2019re in RMD years, it becomes a little different. At that point, if you\u2019re able to, something like Qualified Charitable Distributions<\/a> (QCDs) can help. You\u2019re sending those RMDs directly to a charitable organization, which lowers your taxable income and that can help reduce how much of your Social Security<\/a> is actually taxed,\u201d Mills explained.<\/p>\n \u00a0\u201cAnother piece of it is asset location,\u201d Mills added. \u201cYou generally want lower growth assets sitting in those pretax accounts to help keep RMDs lower over time. And then your higher growth assets, those are better suited for Roth accounts or even taxable accounts, where capital gains treatment can be more favorable than ordinary income. That helps control the impact of RMDs over the long run.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"DNY59 \/ Getty Images\/iStockphoto Commitment to Our Readers GOBankingRates’ editorial team is committed to bringing you unbiased reviews…\n","protected":false},"author":3,"featured_media":773160,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[47770,64,8726,255,700,708,67,132,68],"class_list":{"0":"post-773159","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-401k","9":"tag-business","10":"tag-gobankingrates","11":"tag-personal-finance","12":"tag-retirement","13":"tag-retirement-planning","14":"tag-united-states","15":"tag-unitedstates","16":"tag-us"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@us\/116517785463526048","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/773159","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=773159"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/773159\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/773160"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=773159"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=773159"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=773159"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}![\"\"](\"https:\/\/cdn.gobankingrates.com\/wp-content\/uploads\/2023\/11\/icon-20.svg?webp=1&quality=75\"){kind=icon}
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