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If I convert $7,000 to a Roth IRA each year, will this increase my Social Security benefit?

Financial advisor and columnist Brandon Renfro

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If we transfer more than $7,000 per year from a traditional IRA to a Roth IRA over the next four years (which is when we will receive full Social Security), would this be the can we increase the amount we receive in social security? I realize we would pay taxes on that transfer, but I wondered if this would increase our Social Security income over four years while minimizing our taxable Rothschild investment income..

– Kathy

You are correct in saying that you should include a Roth conversion in your taxable income for a given year. However, converted assets are not considered income and therefore do not increase any Social Security benefits you may receive. In fact, Roth conversions can cause you to reduce the portion of your Social Security benefit you keep, although it may seem like you might avoid that possibility.

Consider using this free tool to match with a financial advisor who can help you navigate your personal situation.

A woman uses her phone to calculate how much her Social Security benefits will be.
A woman uses her phone to calculate how much her Social Security benefits will be.

Your Social Security benefit at full retirement age is calculated based on the covered income you receive throughout your career. This includes salary, hourly wages, bonuses, commissions and self-employment income.

Sources of retirement and investment income are specifically excluded from the calculation of Social Security benefits. That includes Roth conversions.

At first glance, it may seem like you’re getting a raw deal. You pay tax on that income, but then you do not receive the benefit in the form of higher social security benefits. However, keep in mind that retirement and investment income is not subject to FICA taxes, which are charged on top of the regular income taxes you pay.

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As a result, you end up paying less taxes on Roth conversions than on earned income. (If you have tax questions or need help optimizing your tax strategy, consider working with a financial advisor.)

How much of your Social Security benefit is taxable is based on what is called your "combined income."
How much of your Social Security benefit is taxable is based on what’s called your “combined income.”

Roth conversions don’t affect the calculation of your Social Security benefits for which you qualify, but they can affect whether you pay taxes on your benefits – and how much. That’s because your other income partly determines how much of your Social Security benefit you must include in your taxable income.

This income measure is called your “combined income.” Calculating it is quite simple. You add up your adjusted gross income (AGI), half of your Social Security benefit, and any tax-free interest you have.

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