Millions of seniors rely on Social Security for their income. While you may hear it is not wise to live solely off these benefits, many seniors do. Some people are able to save for retirement and secure other income streams. Their benefits are only a small portion of their senior income.This is a far better situation. Seniors with income from outside take a big risk: they could be taxed on Social Security benefits. Worse, the rules surrounding these taxes aren't changing in years and seniors often feel the pain.A set of outdated guidelinesSeniors with no income beyond Social Security are generally able to avoid paying taxes on their benefits. However, those who have additional income are often subject to tax penalties.Provisional income is the senior's non Social Security income plus half his or her annual benefits. This determines how benefits are taxed.Senior citizens are subject to tax on 50% of their benefits if their provisional income is greater than $25,000 for singles or $32,000 for married couples. After their provisional income exceeds $25,000 for singles and $32,000 for married couples, they are subject to taxes on upto 85% of their benefits.These thresholds have been in effect for decades. In 1983, it was decided to tax benefits up to 50% at the above levels. This rule was modified to tax up to 15% of benefits at the same levels in 1993.The cost of living has increased substantially, but the income thresholds to pay Social Security taxes have not. Seniors are in a very difficult spot.Benefits are exempted from taxesSeniors who plan for retirement can avoid paying taxes on Social Security benefits. One of the best ways to do that is to set up a Roth IRA.Roth IRA withdrawals don't count towards provisional income and are therefore not taxable income. A single tax filing individual who receives $18,000 per year in Social Security benefits and takes $24,000 in Roth IRA withdrawals each year would not be subject to taxes, despite having a total income $42,000 and a provisional income $33,000.Higher earners can't contribute directly to a Roth IRA, but they have the option of funding a traditional IRA first and then converting it to a Roth account. Roth IRAs can offer many other benefits beyond helping seniors avoid Social Security taxes. It is worth considering. Roth IRAs, for example, are the only tax-advantaged retirement plans that do not require minimum distributions.It is already a problem that seniors are subject to taxes on their Social Security income. The problem is made worse by the fact that the income thresholds used to determine this have not changed over the years.Legislators are already under pressure to alter the calculation of Social Security increases. Senior advocates might encourage lawmakers to reconsider these tax rules.
