Take SS ASAP and Invest it instead of waiting?

[OAG]

As I am on a roll on this issue, I'll do some Galting and add that IRS publication 915 addresses the deduction you can take if you repay benefits that were previously taxed. Publication 915 (2008), Social Security and Equivalent Railroad Retirement Benefits

Repayment of benefits received in an earlier year. If the total amount shown in box 5 of all of your Forms SSA-1099 and RRB-1099 is a negative figure, you can take an itemized deduction for the part of this negative figure that represents benefits you included in gross income in an earlier year.

Deduction $3,000 or less. If this deduction is $3,000 or less, it is subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions. Claim it on Schedule A (Form 1040), line 23.

Deduction more than $3,000. If this deduction is more than $3,000, you should figure your tax two ways:

1. Figure your tax for 2008 with the itemized deduction included on Schedule A, line 28.
2. Figure your tax for 2008 in the following steps:
   1. Figure the tax without the itemized deduction included on Schedule A, line 28.
   2. For each year after 1983 for which part of the negative figure represents a repayment of benefits, refigure your taxable benefits as if your total benefits for the year were reduced by that part of the negative figure. Then refigure the tax for that year.
   3. Subtract the total of the refigured tax amounts in (b) from the total of your actual tax amounts.
   4. Subtract the result in (c) from the result in (a).
   
   

Compare the tax figured in methods (1) and (2). Your tax for 2008 is the smaller of the two amounts. If method (1) results in less tax, take the itemized deduction on Schedule A (Form 1040), line 28. If method (2) results in less tax, claim a credit for the amount from step 2(c) above on Form 1040, line 68, and write “I.R.C. 1341” in the margin to the left of line 68. If both methods produce the same tax, deduct the repayment on Schedule A (Form 1040), line 28

Yes, 2008 taxes all done with over $9K on line 68 (used to be line 70) of IRS 1040. That information is also in the 1040 instructions but it points you to pub 915 for additional information.

 

[samclem]

Martha,
Thanks for the valuable update.

. . SSA may want to modify the criteria for withdrawing Title II benefit
applications and limit its use. For example, withdrawals could be limited to cases where
(1) work activity has significantly reduced the amounts received by the beneficiary and . . .

If adopted, an indication that SSA intends to link SS benefit distribution schemes to the amount of other income available to the recipient. One would expect these types of modifications as SS moves to means testing. The camel's nose would be further under the tent.

 

[ziggy29]

If adopted, an indication that SSA intends to link SS benefit distribution schemes to the amount of other income available to the recipient. One would expect these types of modifications as SS moves to means testing. The camel's nose would be further under the tent.

In reality, though, here's the potential Catch-22: if someone is able to pay back $50,000 or more of benefits paid out to them, that would seem to indicate they are "wealthy" enough to be means-tested out of being able to do it....

 

[samclem]

In reality, though, here's the potential Catch-22: if someone is able to pay back $50,000 or more of benefits paid out to them, that would seem to indicate they are "wealthy" enough to be means-tested out of being able to do it....

Right--well, maybe. The recommendation Martha cited only refers to "work activity" and income, not assets (wealth). But the real issue is that SS would, for the first time (as far as I know) be sticking their nose into how much recipients earn. Today they don't care. It's your benefit and you can take it when you want it regardless of your earnings. If you want, you can pay some back and get a larger check from then on. Sure, if you earn too much you can end up paying 50% income taxes on some of it, but that's technically a tax issue, not a SS issue.
But, I'm far from an expert on this stuff.

 

[FIRE'd@51]

if you earn too much you can end up paying 50% income taxes on some of it

I think this is a good point, and it may well apply to those who simply delay SS as well.

For those "wealthy enough" to repay six figures worth of SS earnings, the larger monthly benefit could very well push them into a higher bracket, especially with RMD's kicking in at age 70. Additionally, it could result in subjecting them to Medicare part B means testing as well. Also, all of these consequences become more likely after the death of a spouse, which requires filing as a single person, where the bracket thresholds and Medicare part B thresholds are half those of joint filers.

 

[unclemick]

I think this is a good point, and it may well apply to those who simply delay SS as well.

For those "wealthy enough" to repay six figures worth of SS earnings, the larger monthly benefit could very well push them into a higher bracket, especially with RMD's kicking in at age 70. Additionally, it could result in subjecting them to Medicare part B means testing as well. Also, all of these consequences become more likely after the death of a spouse, which requires filing as a single person, where the bracket thresholds and Medicare part B thresholds are half those of joint filers.

I pay the max tax of SS and the higher amount for Medicare already - it's 'fun' being single.

Or is it the 'evil guvernment revenge' for me being so cheap the first decade of ER and not spending to hep the economy.

I can hardly wait for RMD(in 5 yrs) even with the recent market downturn.

heh heh heh -

 

[FurBall]

We're running the numbers to decide if DH should withdraw and reapply this year. The report raised a question for me. It said "Repayment would include both SSA benefits as well as any Medicare benefits paid by the Agency on behalf of the beneficiary. See SSA, POMS GN 00206.095 – Processing and Repayment in Withdrawal(WD) After Payment Effectuation Cases."

POMS GN 206 didn't clear it up for me -- it said that repayment includes "hospital insurance (HI) payments when HI is also being withdrawn" Form 521 has no place to specify that HI is being withdrawn or not.

OAG -- did you have to pay back anything other than your Gross (before any deduction for Parts B or D) SS payments?

 

[FIRE'd@51]

I pay the max tax of SS and the higher amount for Medicare already - it's 'fun' being single.

Don't know if it's true, but an insurance salesman told me that the reason Medicare didn't raise the part B deductible or monthly premium for 2009, was the result of all the extra money it took in through means-testing.

 

[OAG]

It is the gross (which repays SSA for the MEDICARE Premiums they paid on his behalf) you pay back. You should have the little pages they send each year where they list the GROSS and then tell you the MEDICARE Deduction (currently $96.40). You pay back the Monthly Gross Figure (times 12, of course). Also he will have to payback any ADDITIONAL benefits you got on his record. Personally, I did not do it like the flow chart in the SSA IG Report. I did the 521 form with a cover letter stating I wanted to withdraw and I understood I would also have to payback the additional benefits DW received. We both signed the letter and stated in the letter she concurred with the application. Later on they called me to discuss it and still later they sent two letters, one for you (if applicable) and one for him telling you the dollar amount to send to them. They wanted certified payments but I sent personal checks and all went fine. This is a LONG process - took like a year to get it all done. After the dust settles you will get a letter from MEDICARE telling you to send money for premiums subsequent to the withdrawal approval (date from which the SSA SUSPENDS further payment of SS Benefits).

Feel free to PM me if this is not clear or if I can answer any other questions you may have.

 

[FIRE'd@51]

Also he will have to payback any ADDITIONAL benefits you got on his record.

I assume your DW now gets approximately half your new amount, correct?

This brings up an interesting question. If you took the benefits at 62 and then died before repaying. Could DW still repay on your behalf, and thereby end up with your higher amount? Hope I made this clear.

 

[OAG]

If DW took her benefits at 62 then received a higher amount based on DH record when he took his benefits (example: she got $300 monthly on her record then when he took his benefits hers increases to say $500 a month - the ADDITIONAL $200 per month would have to be repaid too for each month she received it. Now when he reapplies say his benefits are $1,800 a month then hers are $900 a month BUT since she originally applied at 62 they WILL BE reduced by 25% (same percentage they were reduced for taking them originally at 62) so she will get 75% of the $900 or $675 per month. Total monthly benefit for both would be a GROSS $2,475 BEFORE MEDICARE Preimums are deducted. When DH dies (assuming he predecess DW) she gets his GROSS monthly benefit ($1,800 in this example). Specifically, I can't answer that second question your raise FIRE'd@51 but my GUESS (from my reading of all this stuff) is she could since she is a impacted individual.

BTW here in another interesting twist. Could DW withdraw her application separately and in effect recover the 25% reduction? I considered this but the numbers are not that good since the payback amount is large versus the net increase potential (approximate payback (in the example) would be about $300 a month for about 8 years or $28,800) for a $275 a month increase.

 

[FIRE'd@51]

Thanks OAG,

As usual, a very clear and thorough explanation.

 

[haha]

Additionally, it could result in subjecting them to Medicare part B means testing as well. Also, all of these consequences become more likely after the death of a spouse, which requires filing as a single person, where the bracket thresholds and Medicare part B thresholds are half those of joint filers.

Everyone is subject to Medicare part B price adjustment based on adjusted AGI 2 years prior.

I haven't paid the base premium since this rule went into effect. In 2008 they didn't increase my premium, but they decided to grab it all in one hunk in Jan 2009. In 2008 I realized a lot of cg losses, so I think I am under the threshold for tax year 2008 and will pay the base premium in 2010.

And by the way, there are single people whose spouses didn't die. Some of us are just single. Can't remember for sure, but I think the "adjusted for tax free income" threshold in 2008 for the calendar year 2010 is about $80,000 for a single taxpayer.

Ha

 

[FIRE'd@51]

And by the way, there are single people whose spouses didn't die. Some of us are just single. Can't remember for sure, but I think the "adjusted for tax free income" threshold in 2008 for the calendar year 2010 is about $80,000 for a single taxpayer.

Understood. My point was that there must be lots of married couples with AGIs above 80K but significantly below 160K who will potentially become ensnared by this part B means-testing after the death of a spouse. Many are probably not even aware of the 50% reduction in threshold for single filers.