From 24/7 Wall St. · Gerelyn Terzo · · 1m 10s
Boomers Hold $90T in G-Shaped Economy, Social Security Taxable at 70
At 70, boomers' cash earns interest that silently taxes Social Security benefits via 1984 IRS formula.
In brief
At 70, boomers' cash earns interest that silently taxes Social Security benefits via 1984 IRS formula. Higher Treasury yields push retirees into taxable Social Security brackets despite unchanged 1984 IRS thresholds. Originally reported by 24/7 Wall St..
Social Security Tax Trap
Retirees earning 4% on $700,000 Treasuries see $14,700 of Social Security taxable at 70 due to 1984 IRS rules.
“The formula sits in a 1984 IRS rule that's never been updated since 1993.”
The G-Shaped Economy
Boomers control $90 trillion, or 52% of U.S. household wealth, including $3.1 trillion in money-market funds.
Why Interest Taxes Benefits
Combined income formula adds half of Social Security to adjusted gross income, pushing retirees past $34,000 threshold.
Taxable Impact
Each $1 in Treasury interest adds $1.85 to taxable Social Security, hitting 22.2% tax rate for retirees in 12% bracket.
Roth Conversion Strategy
Spreading Roth conversions before RMDs reduces taxable Social Security by shifting income out of combined income formula.
Tax Shelter Options
Municipal bonds and Roth IRAs avoid federal tax while still being counted in combined income calculations.
The 1984 Formula
Congress wrote the Social Security tax formula in 1984 and last updated it in 1993, ignoring rising interest rates.
Here's the gist
Higher Treasury yields push retirees into taxable Social Security brackets despite unchanged 1984 IRS thresholds.
