Worried Social Security Won’t Be Enough? Invest in a Roth IRA

Social Security benefits aren’t going to pay you enough money to support you by themselves. But even though you’ll require supplementary income, your retirement benefits from the Social Security Administration will be an important support source. That’s because these benefits are guaranteed to come for the rest of your life. As a result, it makes sense to try to make this money stretch as far as it can.

If you want to make the most of your Social Security, it’s a good idea to think carefully about what kind of retirement investment account you’ll use for your supplementary savings. A Roth IRA may be your best choice for one key reason.

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Here’s why investing in a Roth IRA can make your Social Security benefits stretch further

A Roth IRA can be a great retirement plan if you’re worried Social Security won’t provide enough money. That’s because when you invest in one, you reduce the chances of your Social Security benefits being taxed in retirement.

It may come as a surprise, but you can actually end up owing federal taxes on your retirement funds. You will be taxed on benefits by the IRS once income exceeds $25,000 for single filers and $32,000 for married joint filers.

These income limits may seem very low, and that’s because they are. They have never been adjusted since benefits started to be taxed after a rule change in the 1980s. Unlike other key Social Security metrics, the thresholds at which benefits are taxed are not increased to account for the impact of inflation. Since wages and benefits go up in most years to protect buying power as the price of goods and services increase, more and more people each year end up being taxed on their Social Security checks because the thresholds for taxation do not adjust even as payments naturally grow larger.

That’s the bad news. The good news is, only certain income counts when calculating whether Social Security benefits become taxable. It’s not all your income that matters. For purposes of this formula, only taxable income plus 1/2 your Social Security benefits plus a limited amount of non-taxable income count. And distributions from a Roth are not taxable, so they won’t count — unlike distributions from a traditional 401(k) or IRA.

You can take as much money out of your Roth as you want without worrying about Social Security benefits becoming taxable

Since Roth distributions do not count when determining if you will owe federal tax on Social Security income, investing money in a Roth can help you protect the value of your benefits.

You are always going to need supplementary income from savings because Social Security benefits aren’t enough to live on. If that money comes from a Roth, you won’t have to worry about how much you take out before you start losing Social Security funds.

It’s best to start investing in a Roth ASAP if this is a concern, as Roth conversions can have undesirable tax consequences and tie up your retirement funds — so consider making a switch to your retirement plan if you’re currently using a traditional account and are worried that your money won’t go as far as you need it to in your later years.

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