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a new spin on roths and paying back social security
Old 12-18-2009, 05:46 PM   #1
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a new spin on roths and paying back social security

Had a caller on ray lucia's radio show bring up a brilliant move... the latest idea as we all know is to take social security early, pay it back at full retirement age and get a whopper of a benefit.

heres the new idea, the guy paid back 8 years of social security just before he was to start the rmds on his ira.

well from what he said the way it works when you pay back ss is you subtract that lump sum off your income the year you give the ss back.

that left him with a negative income. i guess you cant carry that over so he did a roth conversion to eat up all that negative income ..

end result is he saved a huge chunk in taxes almost getting the roth conversion done tax free.....


sounds like a new idea to look into...
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Old 12-18-2009, 05:56 PM   #2
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Sounds too good to be true. Where does one check it out?

heh heh heh - we have an IRS manned by a couple of little ladies down the street. At age 66 they all look young to me.
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Old 12-18-2009, 06:01 PM   #3
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I'm hoping they keep that deal open; maybe it will still be there for us because so few people will do it. When I mention it to older friends who seem financially literate, they aren't aware of it, haven't even considered it. Eight years should work out well for me and I am planning on paying back from deferred income in a traditional IRA.
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Old 12-18-2009, 06:13 PM   #4
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I'm hoping they keep that deal open; maybe it will still be there for us because so few people will do it. When I mention it to older friends who seem financially literate, they aren't aware of it, haven't even considered it. Eight years should work out well for me and I am planning on paying back from deferred income in a traditional IRA.

YES! Four years to RMD! And cheap SOB that I am currently on track to have deferred income in Trad. IRA.

heh heh heh - I hope like Motel 6 they keep the light on and don't close/lock the door.
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Old 12-18-2009, 06:13 PM   #5
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i always thought you had to do ammended returns but from what he said its a straight dollar for dollar subtraction in income...
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Old 12-18-2009, 06:28 PM   #6
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Say? Is the loophole still open where Roth income is not counted when figuring how much of Social Security is taxable.

heh heh heh -
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Old 12-18-2009, 06:36 PM   #7
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yep!
http://www.fairmark.com/rothira/socsec.htm
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Old 12-18-2009, 06:37 PM   #8
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Hmmm...
I don't know any reason you couldn't do the SS payback trick more than once. Sooo, if you kept track of your payback amount, you could pay it back every 2-3yrs to zero taxes for those years. Paybacks at 65 -- 68 -- 70 for example. ymmv.

Perhaps there are even advantages to doing annual paybacks to lower your tax bracket (and keep the payback amounts lower!)? The grumpy SS lady would really love you, I'm sure...
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Old 12-18-2009, 06:40 PM   #9
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i always thought you had to do ammended returns but from what he said its a straight dollar for dollar subtraction in income...
That's also what OAG said when he went through the SS payback drill:
When to take Social Security - Any new ideas?
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Old 12-18-2009, 06:44 PM   #10
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Say? Is the loophole still open where Roth income is not counted when figuring how much of Social Security is taxable.

heh heh heh -
I personally don't consider that a loophole, (a feature maybe ). If they did consider the Roth income, it would be an end around to double taxing the Roth money(at least the contributions/rollovers portion) and the tax-free gains wouldn't exactly be so tax-free anymore.
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Old 12-18-2009, 11:11 PM   #11
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I had thought about stepping up conversions right before taking SS and during periods when you had capital loss. But I hadn't thought of doing it during the year you pay back SS. It is quite smart idea, oh and yes it is a loophole...
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Old 12-19-2009, 01:30 AM   #12
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end result is he saved a huge chunk in taxes almost getting the roth conversion done tax free.....
But you forgo the tax credit if you take it as a deduction against income. Whether you are better off depends on the rate SS was taxed at versus the rate the conversion would be taxed at.
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Old 12-19-2009, 02:47 AM   #13
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The call OP mentions can be heard on a free iTunes Store podcast, itís The Ray Lucia Show for 12/17/09, hour one starting at 19:49 ending around 24:30. Itís also on Ray Luciaís website but I couldnít pinpoint the time there.
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Old 12-19-2009, 03:18 AM   #14
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sounds like a new idea to look into...
It is definitely something to check into further. I just love hearing about tips like that. Thanks for posting it, mathjak107.
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Old 12-21-2009, 12:16 PM   #15
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This whole scenario is based on the fact that the guy had 8 years of SS on hand in a taxable account to pay back. This may not be very easy for the average person to do.
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Old 12-21-2009, 02:38 PM   #16
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This whole scenario is based on the fact that the guy had 8 years of SS on hand in a taxable account to pay back. This may not be very easy for the average person to do.
True enough, but for this group which argues about should you have 3, 5 or 10 years of expenses in cash (and of course total income is >> Social Security) it should be a piece of cake . We're not average.
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Old 12-22-2009, 07:25 AM   #17
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So If I sold an income property to pay back SS, same rules would apply. Dollar for dollar reduction in income.

Right?

Like having your cake and eating it too. Income from early SS and income from the property. Then MORE income from SS and one less property to manage. Sounds too good to be true.
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