Big Beautiful Series: No Tax on Social Security?
episode
DIY Money | Personal Finance, Budgeting, Debt, Savings, Investing
14 min
4 speakers
3 chapters
transcribed 1 month ago
Transcript
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Transcript generated automatically by AI and may contain errors.
What is this episode about and who are the hosts?
Hey, this is Allie, and thanks for listening to the show. Give us a five-star review where you listen, and share this episode with someone who might need to hear it. Now, enjoy the show.
Welcome back to another episode of DIY Money.
DIY Money. What's shaking, eh? How much? Not much. Just got back from Kings Island. How was that?
We were just talking about... Yeah, you're an adrenaline junkie.
Yes. It was honestly amazing. The best ride... Well, actually, I do have one qualm with Kings Island. Qualm? Qualm? You've been hanging around Daniel too long. Does he say qualm?
Daniel says all the European weird phrases.
Is that European that he says?
Who says qualm?
Me! Okay.
Okay, fair enough.
All right, whatever.
Houston, we have a problem.
One issue. Okay, here it is. Are you a park sprinter, like the last ride of the day? Because I'm that person. Yes, we got off the Diamondback. It was like 9.50. Park closes at 10. And I looked at Caroline and I was like, all right, buddy, we got to make it. And we sprinted like the entire park. I was so winded. Like we probably ran like half a mile, it felt like. And we get to like the entrance to the, I don't know what it's called, but the spinning one, that's like the swings, but like massive, super, super tall. Yeah. Okay. We get in line for that one. We're about to enter the line and this maintenance guy is like, hey, I'm so sorry. This ride's actually closed for the drone show. Are you kidding? But we had run like the entire park.
So that's my only qualm. But then we got on the baby swings and it was a good end to the day. We watched the fireworks while we were on the little swings, which is honestly, that's a fire ride. But that was my weekend.
Very nice.
But I'm here and I've had my coffee. I'm ready to rock.
You're ready to rock. That's fantastic. Oh, you know, just another weekend.
Two more days till freedom? No, tomorrow's freedom.
Tomorrow, my wife finishes her PA school final exam. It's like her board's exam. It's called the Pants. It's a really weird name.
P-A-N-T-S?
P-A-N-C-E-S.
That makes way more sense.
I like your pants. So she'll take that, and then we will be done. She'll have to wait like five days, which is going to be excruciating for her. But then we'll get that, and we'll be good to go, and we're going to the beach, and life is good. So we got to love it. But this is very important. We are on our last episode of our Big Beautiful series. So we need to break down kind of the thing that we see, Allie, I think the most confusion on when it comes to the Big Beautiful bill, at least when it comes to financial things that people do not understand is what in the world is happening with Social Security and how it is being taxed. And I think it'd be really helpful if you could just break down for a little bit how Social Security is taxed now and
And then we can go into kind of some of the new rules.
Yeah. Well, I hate the way Social Security is taxed because it makes my job very confusing. But right now, the way Social Security works, and we explain this quite a bit, is people think you're either taxed at 0, 50, or 85%. And that's not the way that this works. Social Security is taxed on kind of a sliding scale. And that scale slides based on the amount of income you have outside of Social Security. And so, for example, if you're only receiving Social Security, let's say I get $50,000 from Social Security, I have zero taxes because I don't hit the threshold for them to start taxing my Social Security income. Now, let's say I have $50,000 of Social Security income, but I have my 401k account, which is now an IRA, and I'm required to take distributions from it.
So I get, let's say, another $50,000. required distributions from that account. Well, now the $50,000 of required distributions makes it where some of my Social Security is taxable. So that's kind of the first piece of this. Now, what that means is, let's say the $50,000 of Social Security, it goes on my tax return, but not all $50,000 of that gets counted towards the amount of income that's taxable. And so typically we'll use 50% because that's easy math.
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