The Less Obvious Reason You Might Pay Taxes on Social Security

"If you earn an average wage, Social Security will take the place of about 40% of it in retirement. That's a pretty sizable pay cut, which is why it's best to have savings to supplement those benefits."

"Once you turn 73 (or 75, depending on your year of birth), you'll be forced to start taking required minimum distributions, or RMDs. And those RMDs could drive your total income up to the point where taxes on Social Security come into play."

"The IRS will penalize you 25% of whatever RMD you don't take. So by not taking your RMDs, you're basically throwing away money."

Social Security replaces approximately 40% of average wages in retirement, making supplemental income sources important for most retirees. While some people live modestly on Social Security alone, required minimum distributions (RMDs) from traditional IRAs and 401(k)s complicate this strategy. Starting at age 73 or 75 depending on birth year, retirees must take RMDs or face a 25% IRS penalty. These distributions increase total income, potentially triggering taxation on Social Security benefits even for those attempting to minimize income. Converting retirement savings to alternative account types may help manage this tax situation.

Read at 24/7 Wall St.