BOSTON (MainStreet) -- If you are nearing retirement and haven't paid much thought to "line 8a," you need to -- or risk losing thousands of dollars of income for years to come.
Line 8a on your tax return is for recording taxable interest. Even shrewd and safe investments can lead to having a portion of Social Security checks kicked back over to the government based on what is claimed.
Earnings guidelines provide an annual limit ($25,000 for individuals; $32,000 for married couples). Exceed those limits by so much as $1 and you lose a portion of your benefit to the marginal tax rate.
"That's the trigger point, and once you've jumped that hurdle you've got to pay taxes on your Social Security based on what your marginal tax bracket is," says Jay Tyner, president of Semmax Financial Group of Greensboro, N.C.
He offers the example of a single filer with $25,000 in overall income and a CD, tucked away somewhere, that kicks in $500 in interest that leads to a tax on Social Security income. It's all too easy to let the various buckets of post-retirement wealth -- pensions, Social Security, tax-exempt income -- amass past the limits, he says.Retirees often make the mistake of thinking "I'm not going to have any taxes to worry about, because I'm not going to work anymore," Tyner says. "Well, that's not the way it works."
"They could be sending back up to $2,000 of that $10,000 of Social Security to Uncle Sam," he says.
Retirees can rebalance assets to more tax-favorable accounts and reallocate to more tax-preferred investments to increase overall income and deter double taxation, Tyner says.