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Forbes
11-07-2025
- Business
- Forbes
Trump's New Tax Law Could Cut Social Security Taxes For Millions
Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations. A new tax break aimed at seniors may lighten the load on retirees' Social Security income, but it's not as sweeping or permanent as some headlines suggest. Tucked inside the 'One Big Beautiful Bill,' signed into law by President Donald Trump on July 4, 2025, is a $6,000 tax deduction for individuals aged 65 and older. For couples filing jointly , both partners can claim the deduction if eligible, reducing taxable income by up to $12,000. The benefit is set to run from 2025 through 2028. It doesn't rewrite how Social Security is taxed, but by trimming taxable income on paper, the law could pull millions of retirees below the threshold (below $25,000 in income for individuals or $32,000 for couples), where those benefits get taxed, at least for now. About 64% of seniors already don't pay taxes on Social Security, according to the White House. This bill raises that number to 88%. Despite a White House claim that the law means 'no tax on Social Security,' the fine print tells a different story: The break applies to around 88% of seniors, not all. And it doesn't eliminate taxation on Social Security benefits entirely. 'Low-income retirees are already tax-exempt. So, it is reasonable to say the policy provides relief to middle and upper-middle-class households,' says Krisstin Petersmarck, president and founder at New Horizon Retirement Solutions. For many middle-income retirees, this new deduction could result in smaller tax bills over the next few years. But eligibility hinges on your income. To claim the full $6,000 deduction: Single filers must have modified adjusted gross income (MAGI) under $75,000 Married couples must stay below $150,000 Above those limits, the deduction phases out—reduced by six cents for every dollar over the cap—and disappears entirely once income hits $175,000 (or $250,000 for couples) If you're married and only one spouse receives Social Security, you'll generally benefit more by filing jointly, but it depends on each spouse's age. Here's how it breaks down: The new $6,000 senior deduction only applies to individuals who are 65 or older. For couples filing jointly, each spouse must be 65 or older to claim the full $12,000 deduction (that's $6,000 per eligible spouse). If only one spouse is 65 or older, you can still claim just the $6,000—but only if you file jointly. Filing separately often means more of your Social Security gets taxed, unless you lived apart the entire year. You'll also benefit from the higher income threshold for Social Security taxation when filing jointly: $32,000 versus $25,000 for individuals. If even one spouse is 65 or older, filing jointly lets you claim the deduction and potentially reduce taxes on Social Security, especially if your combined income stays below the phaseout range. Here's how that plays out in practice: A married couple, both over 65, with $120,000 in income, could deduct: The standard deduction ($31,500 for joint filers) Age-related additional deduction ($3,200) The new bonus ($6,000 each) That's $46,700 in total deductions, significantly reducing their taxable income and potentially removing much, if not all, of their Social Security benefits from the tax equation. While the law doesn't directly change how Social Security benefits are taxed, it does make it less likely that retirees will owe taxes on those benefits. That's because the new $6,000 deduction for seniors lowers your total taxable income. On paper, at least. And Social Security benefits are only taxed if your income crosses certain thresholds. So, by subtracting $6,000 (or $12,000 for couples) from your income, you might fall below the level where Social Security starts getting taxed. For example, a couple with $120,000 in income could now deduct up to $46,700 under the new law, potentially reducing the amount of Social Security that's taxable, or eliminating that tax entirely. In short: Social Security tax rules haven't changed, but fewer people will be affected by the taxes. 'Even though the law has passed, it's smart to stay vigilant. Laws can change again, especially if deficits grow,' says Paul Miller, CPA and founder of Miller & Company LLP. 'For now, retirees should revisit their tax projections and possibly adjust estimated tax payments or withholding.' There are a few fine-print rules to be aware of: Married couples must file jointly to claim both deductions. You must include a valid Social Security number for the person receiving the deduction. Foreign income exclusions from sections 911, 931 and 933 of the tax code must be counted in MAGI. While the deduction is pitched as a broad benefit, experts say it primarily helps a specific slice of retirees: middle- to upper-middle-income households that were already paying significant taxes on their benefits. 'This mostly helps retirees who were paying significant taxes on their Social Security to begin with,' Miller says. 'Lower-income retirees already didn't pay much tax on benefits, so the largest dollar benefits skew toward the middle of the income distribution.' Under current rules, beneficiaries must pay taxes on a portion of their Social Security if their income exceeds certain thresholds: Individuals with income below $25,000 (or $32,000 for couples) pay no tax Income between $25,000–$34,000 (or $32,000–$44,000 for couples): up to 50% of benefits may be taxable Income above $34,000 (or $44,000 for couples): up to 85% of benefits may be taxed According to the Center on Budget and Policy Priorities, these taxes will generate nearly $1 trillion over the next decade, revenue that supports both the Social Security and Medicare trust funds. Without those taxes, some experts warn, the funding shortfall for Social Security could deepen. 'This deduction provides relief now, but if it's extended or expanded in the future, Congress will need to find a way to pay for it,' says Ash Ahluwalia, managing director and head of Social Security planning at OneTeam Financial. 'Otherwise, it adds to an already massive shortfall.' Critics also point out that, because the tax break is temporary, it adds to the deficit without boosting long-term economic growth. Unlike permanent tax policy changes that might influence retirement behavior or savings rates, short-term deductions like the Senior Bonus offer limited economic ripple effects, while still reducing federal revenue in the near term. The deduction kicks in for tax year 2025, meaning retirees will first claim it when filing in early 2026. But the benefit sunsets in 2028, unless reauthorized by Congress. That timeline leaves retirees with a short window of opportunity and some uncertainty. 'If the law is eventually reversed or modified, that adds more confusion,' Miller says. 'So while it simplifies taxes in the near term, because fewer retirees will owe tax on Social Security. It complicates long-term planning if you don't know whether this policy will last.' Here's how experts suggest retirees and pre-retirees prepare: Revisit your withdrawal strategy. With Social Security taxed less, you may want to draw more from taxable retirement accounts instead of Roths. 'It's a good idea to sit down with a tax advisor to model different scenarios,' Miller says. With Social Security taxed less, you may want to draw more from taxable retirement accounts instead of Roths. 'It's a good idea to sit down with a tax advisor to model different scenarios,' Miller says. Reassess estimated payments. If you're used to pre-paying taxes on your benefits, you might reduce those payments during the deduction years. If you're used to pre-paying taxes on your benefits, you might reduce those payments during the deduction years. Don't let short-term savings sway long-term decisions. 'When to file for Social Security is a long-term decision and should not be swayed by short-term tax relief,' Ahluwalia says. 'Claiming early still reduces your monthly benefit permanently.' For some, however, the new deduction could make earlier claiming slightly more attractive. 'Now that benefits are tax-free for most people, claiming earlier could result in more spendable dollars each year,' Miller adds. 'But you still need to weigh that against the lifetime tradeoffs.' The law may offer near-term relief, but it raises long-term questions about the health of Social Security itself. According to the 2025 Social Security Trustees Report, the program's main trust fund is projected to be depleted by 2033. Without intervention, benefits would be cut by 23% across the board. And while this projection hasn't worsened from the prior year, other legislative changes—like the Social Security Fairness Act—have already increased the shortfall. Making Social Security benefits less taxable may seem like progress to many retirees, but critics warn that it could erode the program's foundation. 'Scaling back taxation would primarily help higher-income beneficiaries,' notes the Center on Budget and Policy Priorities. 'That would make the system less progressive and require either payroll tax increases or benefit cuts to balance the books.' Demographic shifts compound the challenge: In 1960, there were more than five workers paying into the system for every beneficiary, according to a report by the Bipartisan Policy Center . Today, it's just three-to-one, and falling. Meanwhile, Social Security taxes cover a smaller portion of total income than they once did: 83% today, compared to 90% in 1983. So far, lawmakers haven't announced how they'll replace the revenue lost by this deduction, should it be made permanent. Until then, experts urge caution. 'Temporary tax relief is welcome, but it doesn't solve the real problem,' Ahluwalia says. 'And the longer Congress waits to act, the more painful the fix will be.' *Editor's Note: This story was amended on July 11 to add further details on filing jointly or separately.
Yahoo
31-05-2025
- Business
- Yahoo
Should Millennials Really Be Worried About the State of Social Security? Experts Weigh In
Millennials have enough on their plate — rising housing costs, student debt, higher interest rates, etc. Now they are adding Social Security to the list of concerns. Learn More: For You: For years, headlines have warned that the Social Security program is running out of money, leaving many wondering if there will be anything left when they retire. Social Security's trust fund may potentially dry up in the 2030s, but even if they do, payroll taxes will continue to cover a majority of Social Security payments. Even so, experts say changes are coming. Here's what to know about the future of the Social Security program and how to prepare for retirement. 'It is no secret that the Social Security trust fund is facing trouble. Current projections say that the fund will be able to pay 100% of benefits through 2035. Then, if Congress does not act, benefits will be reduced by about 21 to 22%,' Krisstin Petersmarck, National Social Security Advisor (NSSA) and investment advisor representative at New Horizon Retirement Solutions in Bloomfield Hills, Michigan, wrote in an email. Social Security is funded primarily through payroll taxes from current workers, but as the Baby Boomer generation continues to retire, the number of beneficiaries is outpacing the number of workers paying into the system. 'The fact is, more people are leaving the workforce than entering it,' Petersmarck added. 'So, millennials should be concerned.' According to the Social Security Administration's most recent Trustees Report, there were 2.7 workers per beneficiary in 2023. By 2040, the ratio is projected to drop to 2.3 when the baby boomer generation has largely retired and will continue to decline gradually thereafter due to longer life expectancies. Millennials still need to prepare for retirement, with or without Social Security. The SSA has stated that Social Security only replaces about 40% of annual pre-retirement earnings on average. 'I am a financial advisor, building an independent planning practice designed for millennials,' explained Jonathan Ford Jr., president, founder and investment advisor at JFJ Advisory Services in Morrow, Ohio. 'I help every one of them plan for retirement as if Social Security won't be around forever.' Ford tells his clients that they must take responsibility for their own retirement. 'If necessary changes are made to preserve Social Security, then that would just be the cherry on top. We could consider early retirement or spending more and enjoying more during retirement,' he stated. 'It's a classic case of 'plan for the worst, hope for the best.'' As for steps millennials can take right now, Ford recommends an employer 401(k) as a starting point, especially if they offer a match. If not, then an IRA is another option he suggests that offers tax savings. 'Time will be any young investor's most valuable asset,' Ford noted. 'If they are proactive and start saving now, then they won't have to worry when they get to retirement. Even saving a small part of your paycheck routinely can add up over time.' More From GOBankingRates 10 Unreliable SUVs To Stay Away From Buying 5 Types of Cars Retirees Should Stay Away From Buying This article originally appeared on Should Millennials Really Be Worried About the State of Social Security? Experts Weigh In Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
04-05-2025
- Business
- Yahoo
Should Gen X Really Be Worried About the State of Social Security? Experts Weigh In
Every week there seems to be new chatter about the future and fate of Social Security. For Gen Xers, who are the next in line to retire, this can cause serious anxiety about whether or not America's safety net will be there when they're ready to take it. Find Out: Read Next: Experts explained whether Gen Xers should really be worried about the state of Social Security. There is an uncomfortable truth about Social Security that people may not like to hear, according to Krisstin Petersmarck, National Social Security Advisor (NSSA) and investment advisor representative at New Horizon Retirement Solutions. 'People think that since they paid into the system they are entitled to benefits in retirement. Unfortunately, this simply is not accurate. The money you paid into the system while you are working benefits people who are receiving their Social Security benefit.' Learn More: Because of the structure of the current funding system for Social Security benefits, if it isn't overhauled in some way through policy moves, Petersmarck warned there is a real risk that Gen X recipients will see a reduction in their Social Security benefits. 'The largest factor affecting the Social Security system is that there are more workers leaving the workforce and claiming benefits than there are workers entering the workforce and paying into the system,' she explained. Additionally, wage growth has not keptup with inflation in recent years, according to Sara Levy-Lambert, head of operations at Thus, less money has been coming into the program through payroll taxes. 'These pressures are exacerbated by lengthening life expectancies, which has meant that more retirees are drawing benefits for longer lengths of time,' Levy-Lambert added. Experts disagree on the likelihood of Gen Xers getting their full benefits. Petersmarck expects that it is 'realistic' for Gen X to expect to receive their full benefits at the currently scheduled retirement age. However, Kevin Thompson, a CFP with 91 Capital Group LLC, said, 'The reduction [in benefits] is absolutely real if there is no significant change in the current funding.' Currently, the Social Security Trust could become insolvent by 2033 or 2034, which could mean a significant reduction in Social Security benefits for beneficiaries moving forward. The federal government could also raise the retirement age, forcing Gen Xers and those who come after them to work longer or save more. Another possibility would be to roll back cost of living adjustments (COLAs), Levy-Lambert said. This might 'also tamp down the growth in benefits over time, particularly if inflation continues running ahead of adjustments.' The most realistic reform to the Social Security system is raising taxes, both Petersmarck and Thompson agreed. 'A higher wage base on the taxable Social Security amount seems to be the only answer that could quickly resolve this issue,' Thompson said 'But the current administration does not seem too likely to implement that and are doing their best to take more money out of the system than they want to put into it.' The Social Security Fairness Act is one such contributor that will inevitably take more money out of the system. With the risk of Social Security benefits reduction, it may be a good idea to save more money now, Petersmarck said. 'Consider maxing out your 401(k) contributions, IRA contributions and investment accounts you fund with after-tax dollars.' Try not to rely on Social Security benefits as your sole source of income in retirement, she added. Your plan should provide income from other sources where you have saved. Fortunately, the IRS has increased the amounts you can save in these various buckets so take advantage of them, she urged. Putting your money into assets that appreciate over time — like a home, stocks or mutual funds — may also help provide a hedge against the projected deficit in Social Security benefits, according to Levy-Lambert. 'It is also a good idea for Gen Xers to stress-test financial plans as if those benefits were less after they retire. For example, planning for a buffer by tucking away some more money could offer more security if the worst happens,' she said. If you are a Schedule C-filing business of any kind, you may have an advantage, Thompson said, because you can implement some tax-saving strategies. Consult with a tax professional to see your options, he said. At the end of the day, the best bet is to plan for living on fewer Social Security benefits while hoping for the best. More From GOBankingRates 6 Used Luxury SUVs That Are a Good Investment for Retirees How Far $750K Plus Social Security Goes in Retirement in Every US Region 7 Overpriced Grocery Items Frugal People Should Quit Buying in 2025 12 SUVs With the Most Reliable Engines Sources Krisstin Petersmarck, New Horizon Retirement Solutions Sara Levy-Lambert, Kevin Thompson, 9i Capital Group This article originally appeared on Should Gen X Really Be Worried About the State of Social Security? Experts Weigh In
Yahoo
28-04-2025
- Business
- Yahoo
Best CD Rates This Week: Don't Miss Out on APYs as High as 4.50%
A certificate of deposit can be a smart way to protect your money from the ups and downs of the market. Your rate is fixed when you open a CD so your returns will stay the same regardless of what happens in the economy. At a time when tariffs, inflation and recession worries fill the news, this peace of mind can be especially valuable. Today's top CDs offer annual percentage yields as high as 4.40% -- more than three times the national average for some terms. But we've seen rates tipping downward in recent weeks so if you're thinking of opening a CD, doing it sooner rather than later could be a wise move. Experts recommend comparing rates before opening a CD account to get the best APY possible. Enter your information below to get CNET's partners' best rate for your area. CDs offer many benefits, including: Low risk: CDs held by an FDIC-insured bank or NCUA-insured credit union are protected for up to $250,000 per depositor, institution and account category. That means that if your bank fails, your money is safe. Other investments, like stocks, may potentially yield higher returns over the long term, but they're also volatile, which means you could lose money at any time. Guaranteed returns: Your APY is locked in when you open a CD, unlike with savings accounts, where interest rates can vary at any time. A CD's fixed rate makes it easy to calculate how much interest you'll earn over time and protects your funds from rate drops after you open your account. Competitive rates: Traditional savings accounts offer minimal APYs, sometimes as low as 0.01%. Today's top-yielding CDs have APYs of 4.50% or more, which can make a difference in your interest earnings and help your money keep pace with inflation. Barrier to access: Many CDs, however, charge an early withdrawal penalty if you take your money out before the term ends. This can help you resist the urge to dip into your funds before you need them. CDs have plenty of perks, but they're not always the right fit for your needs. "Right now, both a CD and a high-yield savings account are good options but you must remember a CD has a fixed term, whereas an HYSA offers more flexibility to access your money," said Krisstin Petersmarck, a financial advisor at New Horizon Retirement Solutions. "The tradeoff is CDs offer a higher interest rate for your money to be locked in versus HYSAs that offer a lower interest rate." To determine if a CD is the right choice for your money, ask yourself the following questions: When will you need your funds? You'll pay a penalty if you take money out of a CD before it matures. In contrast, you can withdraw cash from a savings account at any time, free of charge (as long as you mind any monthly withdrawal limits). How much do you have to deposit? Some CDs require a minimum deposit to open an account, typically $500 to $1,000. If you can't find an account with an attractive APY for the amount you want to deposit, try looking into a high-yield savings account with a low or no minimum deposit. Do you want to add money over time? Most CDs (though not all) only allow a one-time deposit. If you'd like to regularly add money to your savings over time, consider a high-yield savings account. Do you need some discipline? If you're worried you'll be tempted to tap into your savings before you need it, a CD imposes an early withdrawal penalty, which can help give you reviews CD rates based on the latest APY information from issuer websites. We evaluated CD rates from more than 50 banks, credit unions and financial companies. We evaluate CDs based on APYs, product offerings, accessibility and customer service. The current banks included in CNET's weekly CD averages include Alliant Credit Union, Ally Bank, America First Federal Credit Union, American Express National Bank, Barclays, Bask Bank, BMO Alto, Bread Savings, Capital One, CFG Bank, CIT, CommunityWide Federal Credit Union, Discover, EverBank, First Internet Bank of Indiana, First National Bank of America, Forbright, LendingClub, Limelight Bank, Marcus by Goldman Sachs, MYSB Direct, NexBank, Quontic, Rising Bank and Synchrony. *APYs as of April 28, 2025, based on the banks we track at CNET. Earnings are based on APYs and assume interest is compounded annually. Sign in to access your portfolio
