The threshold at which Social Security benefits become partly taxable is a pretty low one. For single tax filers, the IRS starts taxing benefits once your provisional income hits $25,000. And for married joint filers, the key number when benefits become taxable is $32,000.
These numbers aren’t indexed to inflation, so as wages go up and retiree income climbs higher, more seniors will have Social Security taxes to worry about. They won’t be your problem, though, if your distributions are coming from a Roth 401(k) and don’t count as income.
3. Tax rates are likely to go up
Claiming an upfront tax break by using a traditional 401(k) makes sense if you think your tax rate is higher when you’re working than it will be in your later years. But a Roth 401(k) is a better bet if you think you’ll be taxed at a higher rate later because it makes sense to claim the tax break at the time when your rates will be highest so it provides the most savings.
The reality is, by historical standards, tax rates are very low right now. And government debt is climbing and will continue to grow as the population ages and an increasing number of seniors are supported by a smaller number of workers, putting strain on key federal programs. Most people probably will see their taxes go up if the government raises rates, so you may want to play the odds and put off the tax savings.