What is “Provisional Income”?! (and how to keep it low enough to collect social security tax-free)

(don’t forget to checkout the video too)

Provisional Income is the determining factor of how your social security will be taxed in retirement.

As long as your retirement income is below the provisional income thresholds, you can collect social security completely tax-free.

But, it’s kind of confusing❗️

The way to determine your provisional income is to cut your social security amount in half and add all other TAXABLE income sources for that year…

This will include income coming from pensions, traditional 401k’s, traditional IRA’s, 457’s, 403b’s, etc. in retirement.

But, it will NOT include any income taken out of a life insurance contract or a Roth IRA.

That’s because that is NOT considered “provisional income”.

So you could take $100M out of a Roth IRA in a single year and STILL collect social security tax-free.

The provisional income limits are fairly low so to achieve a tax-free retirement including your social security, you typically have to start repositioning your money before you start collecting social security.

That’s why it often makes sense to delay social security if you are trying to collect it tax-free.

That will give you some additional time to move money into other environments that are not classified as “provisional income” in retirement

The ideal strategy is often to reposition or spend your taxable money during the early years of retirement to “reduce the balance”.

This then allows all of the taxable money to be collected tax-free by utilizing the standard deduction AND staying below the “provisional income” limits to ensure that social security is also collected completely tax-free. 👏

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