The timing of when you take your Social Security can have a potentially significant impact on your overall tax strategy during retirement. While each person’s case is unique, delaying Social Security often tends to be the best move. Generally, delaying Social Security gives you a better ability to manage tax brackets when you are no longer earning a salary. Let’s look at the details behind the decision.

Consider the case of a 62-year-old couple who is married and files taxes jointly. Also, assume that both are no longer working and have not yet claimed Social Security benefits. They could potentially spend $20,600 from tax-qualified accounts up to their standard deduction and personal exemption. Further, they also could realize an additional $74,900 of qualified dividends and long-term capital gains and qualified dividends from brokerage accounts while still having a federal tax bill of zero. This is due to the 0 percent long-term capital gain and qualified dividends rate for taxpayers in the 10 percent and 15 percent tax brackets.

If such a couple is wealthy enough, keeping their tax bill at or near zero may not be necessary or advantageous. In cases such as this, it would be beneficial to use these early retirement years without both a salary and Social Security benefits taken to make additional Roth conversions from their traditional IRAs. While engaging in such a strategy would require higher taxes in the near term (as well as trigger tax on the previously untaxed qualified dividends and long-term capital gains from above), there might be much less tax to pay later on.

Tax bracket management is also relevant because Social Security benefits can be taxable. Couples who are married and filing jointly may pay income tax on up to 85% percent of their Social Security benefits once their provisional income* is greater than $44,000. The taxability of Social Security benefits is an important concept for people to keep in mind since the provisional income threshold is not indexed for inflation. As a result, under the current system more and more people will eventually end up paying income tax on their Social Security benefits.

Delaying Social Security until age 70 reduces taxable income and provides more room for Roth conversions and realizing long-term capital gains on taxable accounts. Additionally, subsequent Roth distributions do not count when determining how much of Social Security is taxable. As a result, if you have the capacity to get a large portion of your traditional IRAs converted to Roth accounts before age 70, you can enjoy significant tax savings. Doing so can allow you to pay taxes at lower marginal tax rates and may also help later to lower the amount of required minimum distributions.

Overall, there are many potential tax benefits to delaying Social Security. The actual potential depends on a number of factors, such as overall income levels, sources and types of non-wage income and the composition of one’s retirement accounts. As a result, if you have the cash flow to enable putting off Social Security benefits, it might be worth talking with your tax advisor.

*Provisional income is defined as your adjusted gross income plus one-half of Social Security benefits plus tax-exempt interest.