Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Taxation of SS
Old 10-14-2018, 08:49 AM   #1
Dryer sheet aficionado
 
Join Date: Sep 2018
Location: Washington, DC
Posts: 42
Taxation of SS

It really stinks about taxation of SS.

Have seen a couple of advertised local seminars on planning for, and minimization of this, but am always skeptical of an annuity sales pitch or something. May just go with my guard up to see if I can learn anything.

This whole retirement planning thing is tedious and time consuming. I can't imagine what people that are not as detail oriented do. See an FA and pay I guess.
Attached Images
File Type: jpg SS Taxation.jpg (246.5 KB, 161 views)
__________________

Tiger8693 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 10-14-2018, 08:56 AM   #2
Thinks s/he gets paid by the post
Souschef's Avatar
 
Join Date: Dec 2015
Location: Santa Paula
Posts: 1,856
I had a broker offer me a QLAC annuity to minimize RMD's. I checked into it and found that at age 85 you might get your principal back
There is no way to beat it. Because of my RMD's I will always have SS taxed.
__________________

__________________
Retired Jan 2009 Have not looked back.
AA 50/45/5 considering SS and pensions a SP annuity
WR 2% SI 2SS & 2 Pensions
Souschef is offline   Reply With Quote
Old 10-14-2018, 09:04 AM   #3
Thinks s/he gets paid by the post
target2019's Avatar
 
Join Date: Dec 2008
Posts: 4,250
Use TurboTax or similar tax program. Plug in your specifics, and there ya go.
If you have last years version, there is a What-If form, also.
target2019 is online now   Reply With Quote
Old 10-14-2018, 09:14 AM   #4
Full time employment: Posting here.
VanWinkle's Avatar
 
Join Date: Oct 2017
Location: Brighton
Posts: 728
Quote:
Originally Posted by Tiger8693 View Post
It really stinks about taxation of SS.

Have seen a couple of advertised local seminars on planning for, and minimization of this, but am always skeptical of an annuity sales pitch or something. May just go with my guard up to see if I can learn anything.

This whole retirement planning thing is tedious and time consuming. I can't imagine what people that are not as detail oriented do. See an FA and pay I guess.
The brkts for SS taxation have never been inflation adjusted. That is the main problem I see in the current system.
__________________
Retired May 13th(Friday) 2016 at age 61.
VanWinkle is offline   Reply With Quote
Old 10-14-2018, 09:19 AM   #5
Thinks s/he gets paid by the post
gauss's Avatar
 
Join Date: Aug 2011
Posts: 2,313
Someone please correct me if I am wrong, but aren't employer contributions to SS paid with pre-tax dollars (for the employer).

If true, at least 1/2 of SS payments should be taxable to the recipient if it is treated like any other investment. Any "growth" in your SS would also be taxable so the ratio should be above 50%.

-gauss
gauss is offline   Reply With Quote
Old 10-14-2018, 09:25 AM   #6
Full time employment: Posting here.
VanWinkle's Avatar
 
Join Date: Oct 2017
Location: Brighton
Posts: 728
Quote:
Originally Posted by gauss View Post
Someone please correct me if I am wrong, but aren't employer contributions to SS paid with pre-tax dollars (for the employer).

If true, at least 1/2 of SS payments should be taxable to the recipient if it is treated like any other investment. Any "growth" in your SS would also be taxable so the ratio should be above 50%.

-gauss
Don't run for office, the truth will never get you elected!!
__________________
Retired May 13th(Friday) 2016 at age 61.
VanWinkle is offline   Reply With Quote
Old 10-14-2018, 09:25 AM   #7
Thinks s/he gets paid by the post
gauss's Avatar
 
Join Date: Aug 2011
Posts: 2,313
Yeah - I am often the spoiler in the room....
gauss is offline   Reply With Quote
Old 10-14-2018, 09:39 AM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 19,498
Quote:
Originally Posted by Tiger8693 View Post
It really stinks about taxation of SS. ....
Tiger, I disagree. I'm not sure why anyone would think that SS retirement benefits should be tax-free.

There are numerous parallels of after tax retirement contributions that are later substantially taxed.

The closest one to SS would be annual investments into a deferred annuity that was then annuitized for life at age 62 or 66 or 70... a large portion of the annuity benefits received would be taxable. Same thing for a non-deductible IRA.

Let's say that you invested $5,000 annually in a non-deductible IRA from age 25 to 65. At a 7% average annual return, at age 65 you would have about $1 million on $200,000 of contributions. If you the converted that to a life annuity, you would receive about $64k a year in benefits. Your basis would be about $9k... your $200k of contributions divided by 22 year remaining life according to the IRS annuity tables. So $55k of the $64k in benefits would be taxed... that's 86%.

Another example... take your FRA SS retirement benefit and annualize it. Then divide the annual amount by 4% to get the dollar amount needed to provide that annual benefit under the 4% rule. The take your SS contributions from page 3 of your SS statement and divided it by the dollar amount computed above... I get 15% for me... meaning that ~15% of what I receive is a return of the taxes that I paid and the other 85% relates to taxes paid by my employers (that I was never taxed on) and growth (that I was never taxed on).... so I have no reason to object to 85% of my SS being taxed.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is online now   Reply With Quote
Old 10-14-2018, 09:40 AM   #9
Dryer sheet aficionado
 
Join Date: Sep 2018
Location: Washington, DC
Posts: 42
I'm not arguing about the 'political" aspect of it, just said that it sucks. I'm for no cap on FICA, with a continual decrease in return so that SS can be extended, but I know a lot of people feel otherwise.

Still, I hope for a system or way to mitigate the impact, much like strategies to use subsidies for pre-Medicare HI.
Tiger8693 is offline   Reply With Quote
Old 10-14-2018, 09:44 AM   #10
Thinks s/he gets paid by the post
Fedup's Avatar
 
Join Date: Mar 2014
Location: Southern Cal
Posts: 4,032
The break is in state tax for me. Assume you can live on $70k of income, you get zero tax on SS from state. So that’s where I focus to minimize my tax. Roth conversion now will minimize that in the future.
Fedup is offline   Reply With Quote
Old 10-14-2018, 09:49 AM   #11
Dryer sheet aficionado
 
Join Date: Sep 2018
Location: Washington, DC
Posts: 42
Quote:
Originally Posted by Fedup View Post
The break is in state tax for me. Assume you can live on $70k of income, you get zero tax on SS from state. So thatís where I focus to minimize my tax. Roth conversion now will minimize that in the future.
Yes, this will play a role in my future "relocation" efforts. Well, that and sunshine.
Tiger8693 is offline   Reply With Quote
Old 10-14-2018, 10:51 AM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 6,516
The best way I've heard is to eliminate RMDs by converting your IRA to a Roth before you take SS. Tax efficient investing is another way, using index funds that throw few or no CG distributions. Use Spec ID on your mutual fund cost basis so if you sell investments, you can sell losers and smaller gainers.

Maybe there are ways with annuities or other vehicles but you have to watch that you aren't costing yourself more than you are savings.

I haven't looked too much at this because even with index funds, the dividends I get along with a small pension will almost certainly make my SS taxed to the limit.
RunningBum is online now   Reply With Quote
Old 10-14-2018, 11:44 AM   #13
Recycles dryer sheets
 
Join Date: Jun 2016
Posts: 200
Seems very inefficient to give somebody tax $
and then turn around and charge them a tax on those $.
But it is the parasitic bureaucratic way.
Spock is offline   Reply With Quote
Old 10-14-2018, 12:58 PM   #14
Moderator Emeritus
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 41,018
In retirement I am enjoying glorious oceans of free time that I never had while working. Honestly I just do not waste my precious time getting upset about taxes, though YMMV.
Quote:
Originally Posted by Tiger8693 View Post
This whole retirement planning thing is tedious and time consuming. I can't imagine what people that are not as detail oriented do. See an FA and pay I guess.
I think a lot of those who are mathematically challenged, do not plan at all. They just work until they can't any more, and then live on SS and whatever else they can get. I suppose those who don't qualify for SS probably are homeless, eat at soup kitchens and beg on street corners. My understanding is that a lot of our nation's elderly live in extreme poverty.

For planning purposes, some others (including a few forum members) simply assume a retirement tax rate that they know is a bit higher than they will actually experience. Then when they retire and encounter a tax rate less than that, they can happily blow the excess on fun and discretionary spending.
__________________
100% retired since 2009 and never plan to work for anybody ever again, paid or not. Retirement funded by Social Security, mini-pension, and investments (AA 45:55, mostly Vanguard). Debt free with no mortgage and over-the-moon happy to be retired.
W2R is offline   Reply With Quote
Old 10-14-2018, 01:14 PM   #15
Thinks s/he gets paid by the post
 
Join Date: Apr 2011
Posts: 2,021
Quote:
Originally Posted by Tiger8693 View Post
I'm for no cap on FICA, with a continual decrease in return so that SS can be extended, but I know a lot of people feel otherwise.
Regardless of the money's purpose, it's a pretty amazing thing to say you're for a 6.2% tax rate increase above $132K salary plus the same on employer for daring to pay above that amount. Now there's a real job and economy killer. Net, your position is noting but political.

Raising retirement age is much simpler.
gerntz is offline   Reply With Quote
Old 10-14-2018, 01:17 PM   #16
Thinks s/he gets paid by the post
 
Join Date: Apr 2011
Posts: 2,021
Quote:
Originally Posted by Spock View Post
Seems very inefficient to give somebody tax $
and then turn around and charge them a tax on those $.
But it is the parasitic bureaucratic way.
FICA payments aren't taxes. They're insurance.
gerntz is offline   Reply With Quote
Old 10-14-2018, 01:19 PM   #17
Thinks s/he gets paid by the post
Fedup's Avatar
 
Join Date: Mar 2014
Location: Southern Cal
Posts: 4,032
It’s a part of income distribution, nothing to do inefficiency. You only know that at tax time.
Fedup is offline   Reply With Quote
Old 10-14-2018, 01:29 PM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 19,809
Quote:
Originally Posted by Spock View Post
Seems very inefficient to give somebody tax $
and then turn around and charge them a tax on those $.
But it is the parasitic bureaucratic way.
Not everyone is taxed on SS income. It depends on their other income.
__________________
Retired since summer 1999.
audreyh1 is online now   Reply With Quote
Old 10-14-2018, 01:31 PM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
travelover's Avatar
 
Join Date: Mar 2007
Posts: 10,745
Invest in real estate and depreciate it enough every year to offset any income. Claim most of the value is in the appliances and parking areas so you can accelerate that depreciation. That's how the cool people do it.
__________________
Yes, I have achieved work / life balance.
travelover is online now   Reply With Quote
Old 10-14-2018, 01:40 PM   #20
Full time employment: Posting here.
USGrant1962's Avatar
 
Join Date: Dec 2016
Location: DC area
Posts: 680
Quote:
Originally Posted by gerntz View Post
FICA payments aren't taxes. They're insurance.
The Social Security Administration disagrees. https://www.ssa.gov/OACT/ProgData/taxRates.html

You can argue whether the payments are insurance - they are called that but there is no binding insurance policy - but the payments are certainly a tax.
__________________

__________________
Semi-ER March 24, 2017
USGrant1962
USGrant1962 is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Presidential candidates taxation policies Trek FIRE and Money 26 01-08-2008 07:52 PM
Series EE Savings Bonds--Taxation RetireeRobert FIRE and Money 6 12-12-2007 01:35 PM
Trust Taxation - Canada My Dream FIRE and Money 32 11-08-2006 05:30 PM
What's more important, asset allocation or taxation nun FIRE and Money 3 04-07-2006 07:40 PM
State Taxation on Pensions and S.S. maddythebeagle FIRE and Money 5 07-25-2005 04:41 PM

» Quick Links

 
All times are GMT -6. The time now is 11:31 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2018, vBulletin Solutions, Inc.