Social Security benefits may be tax free or includible in gross income at 50% or 85%. This depends on a couple’s income, Social Security benefits, and tax-exempt interest. The fact that the benefits are payable to a third party does not change the tax result; the Social Security checks are being used for the taxpayer’s benefit.
A retirement account to which up to $4,000 (or $5,000 if you are 50 or over) may be contributed for 2007, but deductions for the contribution are restricted if you are covered by a company retirement plan. Earnings accumulate tax free.