Social Security benefits can go a long way toward helping you enjoy a more financially secure retirement. However, you may not collect as much as you think.

Your monthly checks are subject to both state and federal taxes, and these taxes can take a significant bite out of your benefits. If you're going to be depending on Social Security to pay the bills in retirement, taxes could wreak havoc on your financial plans.

Fortunately, there are ways to avoid taxes on your benefits. With the right strategy, you may be able to get out of paying them altogether. Here's how.

Two older people looking at a tablet.

Image source: Getty Images.

1. Move to a different state

Whether you'll owe state taxes on your benefits depends on where you live. Social Security benefits count as income in retirement and are subject to income taxes, but not all states tax income. In addition, some states do have an income tax but exclude Social Security benefits.

The good news is that most states do not tax Social Security, and there are only 13 that do. These 13 states that do tax benefits include:

  • Colorado
  • Connecticut
  • Kansas
  • Minnesota
  • Missouri
  • Montana
  • Nebraska
  • New Mexico
  • North Dakota
  • Rhode Island
  • Utah
  • Vermont
  • West Virginia

If you live in one of these states, your benefits will be subject to state income taxes. Exactly how much you'll pay will depend on how much you're earning as well as your state's individual laws.

Relocating to a more Social Security-friendly state could help you save money on taxes, but be sure you've done your research before you move. Some states may not tax Social Security, but they could have a higher cost of living, higher property or sales taxes, or other expenses that might end up costing you more than if you'd stayed in your current state.

2. Contribute to a Roth IRA

Social Security benefits are also subject to federal taxes, regardless of which state you call home. Federal taxes on benefits are more difficult to avoid, as they depend on your retirement income. However, there is one way to reduce or eliminate them: Keep most of your savings in a Roth IRA.

The IRS uses a figure called your "combined income" to determine what percentage of your benefits will be subject to federal taxes. Your combined income is your adjusted gross income plus half of your annual Social Security benefit amount. So, for instance, if you're withdrawing $40,000 per year from your 401(k) and are earning $20,000 per year from Social Security, your combined income would be $50,000 per year.

Percentage of Your Benefits Subject to Federal Taxes Combined Income for Individuals Combined Income for Married Couples Filing Jointly
0% Less than $25,000 per year Less than $32,000 per year
Up to 50% $25,000 to $34,000 per year $32,000 to $44,000 per year
Up to 85% More than $34,000 per year More than $44,000 per year

Data source: Social Security Administration

The only way to get out of paying federal taxes altogether is if your combined income falls below $25,000 per year (or $32,000 per year for married couples filing jointly).

However, Roth IRA withdrawals do not count toward your combined income. So, for example, say you're withdrawing $40,000 per year from your Roth IRA and are receiving $20,000 per year from Social Security. In this case, your combined income is just $10,000, and your benefits would not be subject to federal taxes.

Taxes may be inevitable, but they don't have to eat away at your Social Security benefits. With these two strategies, you can reduce your taxes and keep more of your money.