Core Insights - The article discusses the tax implications of converting funds from a tax-deferred retirement account to a Roth account, highlighting that converted funds are treated as taxable income in the year of conversion, potentially increasing the taxpayer's tax bracket and resulting in a significant tax bill [2][6]. Tax Implications of Roth Conversion - Converting funds from a tax-deferred account, such as an IRA, to a Roth account can significantly impact current taxes due to the converted funds being treated as taxable income [6]. - A large Roth conversion can push a taxpayer into a higher income tax bracket, increasing the overall tax owed [6]. Social Security Benefit Taxation - Social Security benefits may be partially taxable, with a maximum of 85% of benefits subject to taxation depending on the recipient's combined income [4][7]. - The IRS uses a formula based on combined income to determine the taxable portion of Social Security benefits, which includes half of the annual benefit, adjusted gross income (AGI), and any non-taxable interest [5][7]. Combined Income Calculation - To calculate combined income, half of the annual Social Security benefit is added to the AGI and any non-taxable interest, which can affect the taxation of Social Security benefits [5][7]. - If combined income exceeds a certain threshold, up to 85% of Social Security benefits may become taxable [7].

Core Insights - Social Security benefits are crucial for retirement planning, but taxation on these benefits is often overlooked [2] - Understanding how combined income affects the taxability of Social Security benefits is essential for retirees [3][4] Taxation of Social Security Benefits - Social Security benefit taxes are based on "combined income," which includes adjusted gross income, nontaxable interest, and half of Social Security benefits [6] - Income tiers determine the percentage of benefits that may be taxable: - Combined income below $25,000: Benefits not taxable - Combined income between $25,000 and $34,000: Up to 50% taxable - Combined income above $34,000: Up to 85% taxable [6][4] Example Scenarios - A retiree receiving $2,700 per month in Social Security benefits has an annual benefit of $32,400, leading to a starting combined income of $16,200 if Social Security is the only income source [7] - If the same retiree withdraws $50,000 from a 401(k), the combined income would rise to $66,200, making up to 85% of the benefits taxable, amounting to $27,540 [8]