Three Ways to Beat Taxes on Social Security Income

As retirees well know, the federal government takes back part of your social security through taxes. Depending on your level of income, the tax can be levied on up to 85% of your social security benefits. Can you beat the tax? Yes, many can and here's how:

The general approach is to defer income. Deferred income does not appear on your tax return, is not part of your taxable income and can reduce the amount included for the social security benefit tax. Tax free income will not help because tax free income is included when the government calculates the tax on your social security benefits—only tax deferred income will help. Here are your sources of tax deferred income:

• Annuities. Some investors shy away from annuities because they have the mistaken impression that annuities tie up their money. In fact, annuities are issued in terms as short as one year. Reinvested interest is all deferred and such an investment can reduce or eliminate the tax on social security income.
• E Bonds. The interest is also tax deferred. Beware however that the interest rates on E Bonds is very low and saving the tax may be offset by low interest.
• Certain zero coupon bonds. There are a few issues of corporate zero coupon bonds that have tax deferred status.

Will these investments help you? Bring in a copy of your tax return (1996 or 1997) and we can help you determine how much tax you may be wasting and can save in 1998 and future years.

*The Annual Percentage Yield (APY) represents the interest earned through each eligible call date based on simple interest calculations, an investment price of 100 and are accurate as of December 8, 2005 . Funds may not be withdrawn until the maturity date or redemption date. However, the CD is redeemable at par upon death of the holder. Rate and availability subject to change. These CDs may be sold on the secondary market prior to maturity or call date and such sale price may be less than their original cost.