I never quite understood the "tax torpedo" thing. Didn't think it really applied to me. But of course it did.
I'm 67. Hit my FRA in January. I've been self-employed for decades, and I had planned to keep working part-time until 70ish, then start SS. But for different reasons my two main clients that accounted for basically all of my income for the last 5 years went poof, right before I hit FRA. Huh, I figured, must be time to retire. So I started SS and got my first deposit in March this year.
Now that I (think I) understand the tax torpedo situation, I think I should have drawn down the IRA before starting SS. I'm within my first year of benefits, so I think I can back out of it? For various reasons my IRA is much smaller than it "should" be, but together with other income (mostly rental properties) the IRA would carry me for a little while.
Looks like I need to submit a form SSA-521 to initiate the process. I think I'd have to pay back the SS I've already received, including Medicare premiums. That would eat about half my IRA. Then the other half would carry me through 2024, and my Roth would cover most of 2025. I'll turn 70 in September 2026. I'm not thrilled to do it, but I could draw down my taxable accounts to stay afloat until I hit 70. My taxable accounts are much healthier than my IRA, but not enough to get careless with them.
I get 8% increase in benefits for each year after FRA, 2/3% per month. So if my IRA/Roth carried me through 2025 and it took 9 months of taxable withdrawals to get to 70, that 9 months would add 6% to my benefits. Probably worth it, since the 6% increase would pay back the 9 months of withdrawals in about 13 months. I think. And in Sept 2026 I can apply for SS again, and my SS check will be about 30% higher than it is now.
Am I missing / misunderstanding anything? Anything else I should know?
I'm 67. Hit my FRA in January. I've been self-employed for decades, and I had planned to keep working part-time until 70ish, then start SS. But for different reasons my two main clients that accounted for basically all of my income for the last 5 years went poof, right before I hit FRA. Huh, I figured, must be time to retire. So I started SS and got my first deposit in March this year.
Now that I (think I) understand the tax torpedo situation, I think I should have drawn down the IRA before starting SS. I'm within my first year of benefits, so I think I can back out of it? For various reasons my IRA is much smaller than it "should" be, but together with other income (mostly rental properties) the IRA would carry me for a little while.
Looks like I need to submit a form SSA-521 to initiate the process. I think I'd have to pay back the SS I've already received, including Medicare premiums. That would eat about half my IRA. Then the other half would carry me through 2024, and my Roth would cover most of 2025. I'll turn 70 in September 2026. I'm not thrilled to do it, but I could draw down my taxable accounts to stay afloat until I hit 70. My taxable accounts are much healthier than my IRA, but not enough to get careless with them.
I get 8% increase in benefits for each year after FRA, 2/3% per month. So if my IRA/Roth carried me through 2025 and it took 9 months of taxable withdrawals to get to 70, that 9 months would add 6% to my benefits. Probably worth it, since the 6% increase would pay back the 9 months of withdrawals in about 13 months. I think. And in Sept 2026 I can apply for SS again, and my SS check will be about 30% higher than it is now.
Am I missing / misunderstanding anything? Anything else I should know?