a new spin on roths and paying back social security

[mathjak107]

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...

 

[unclemick]

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.

 

[CuppaJoe]

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.

 

[unclemick]

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.

 

[mathjak107]

i always thought you had to do ammended returns but from what he said its a straight dollar for dollar subtraction in income...

 

[unclemick]

Say? Is the loophole still open where Roth income is not counted when figuring how much of Social Security is taxable.

heh heh heh -

 

[mathjak107]

yep!
http://www.fairmark.com/rothira/socsec.htm

 

[JustNtime]

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...

 

[REWahoo]

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:
http://www.early-retirement.org/for...ecurity-any-new-ideas-42992-2.html#post793426

 

[JustNtime]

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.

 

[clifp]

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...

 

[thefinancebuff]

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.

 

[CuppaJoe]

The call OP mentions can be heard on a free iTunes Store podcast, it’s The Ray Lucia Show for 12/17/09, hour one starting at 19:49 ending around 24:30. It’s also on Ray Lucia’s website but I couldn’t pinpoint the time there.

 

[TooFrugal]

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.

 

[sailfish]

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.

 

[clifp]

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.

 

[tryan]

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.