Americans Beware: Suze Orman Explains The Little-Known Trick To Dodge The Social Security 'Tax Torpedo' And Retire With More Money

Suze Orman recently dropped a golden nugget of financial wisdom on her podcast, urging listeners to consider only having Roth retirement accounts. 

“The best way to prepare for retirement is to only have Roth retirement accounts – bar none,” she said. Her advice is aimed at avoiding the dreaded "tax torpedo," which has left many retirees shocked by unexpected taxes on their Social Security benefits.

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So, what exactly is the tax torpedo? It's a sneaky tax that hits when your combined income pushes past certain thresholds. If you’re single and your income surpasses $34,000 or if you’re a married couple earning more than $44,000, up to 85% of your Social Security benefits can be taxed. 

Even at lower income levels – between $25,000 and $34,000 for individuals or $32,000 to $44,000 for couples – 50% of your benefits could be taxed. According to the Social Security Administration, nearly 40% of beneficiaries are affected by this tax. And depending on where you live, state taxes might pile on as well, worsening the blow.

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The good news is that Roth retirement accounts can help you dodge this torpedo. Qualified withdrawals from a Roth IRA (after age 59½ and meeting the five-year rule) are tax-free and don't count toward your combined income, keeping you below those critical taxation thresholds. Orman's advice is crystal clear: it's time to reconsider how you’re saving for retirement.

In a recent blog post, Orman urged retirees to regularly review their portfolios, stating, "You should log in and make sure your mix of investments – stocks, bonds and cash – is in line with your long-term goals."

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One potential addition to that plan is a gold IRA, a smart hedge against inflation and market volatility. While income from a gold IRA will be taxable, it offers a risk-adjusted complement to the Roth IRA. With physical assets like gold, retirees have another layer of security during market swings.

But Orman doesn't stop at retirement accounts. She emphasizes the importance of making decisions today that your future self will thank you for. In another blog post, she wrote, "I encourage you to keep returning to this thought exercise. What are the financial steps you might take today to be kindest to your future older self? The 88-year-old, the 90-year-old, the 95-year-old?"

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Another way to lessen your dependence on Social Security is by investing in real estate. While real estate can be a bit of a hassle – between high down payments, mortgage rates around 6% and annual upkeep costs averaging $18,000 – it's a strong option for diversifying your retirement portfolio. And yes, you can even invest in real estate through a Roth IRA, ensuring tax-free gains and distributions that won't trigger the tax torpedo.

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