SS benefit taxes

[Dash man]

You mentioned your wife is coming into a lump sum inheritance. If it’s not in a retirement account, you may want to discuss the option of converting some of your retirement plan into a Roth IRA. It would then grow tax free which would benefit her later filing as an individual by reducing the RMDs later on.

 

[athena53]

I don't think this is true.

See: https://sgp.fas.org/crs/misc/R43861.pdf at page 2-5, and
https://secure.ssa.gov/poms.nsf/lnx/0601101010


also, for help with the second above https://www.irs.gov/pub/irs-pdf/f1040.pdf

I was wrong about the 15% SS being added in. Thanks to those who corrected me.

Ah, I know that quite well. I had to study a 500-page book on SS for an actuarial exam years ago written by one of the founding actuaries. They took a question on the exam from one of the footnotes.

 

[marko]

Not that it affects me, but I thought SS was not taxed if one's income was below a certain threshold. No?

 

[SevenUp]

Not that it affects me, but I thought SS was not taxed if one's income was below a certain threshold. No?

Yes.

 

[cathy63]

Now that is astounding! I had no idea. Apparently lawmakers have managed to screw me yet again.

Is it my fault I worked very hard during my 35 year career and climbed the difficult promotional ladder. 10 years serving every day on an ambulance (with Hep C as a result) and 20 years as a fire officer that I should have my benefits taxed? - Sorry, that was rhetorical, just had to rant

On a side note, it sounds like you were a Public Safety Officer and may be entitled to a tax break on up to $3000 of insurance premiums if they are paid directly from your pension. See IRS Pub 575 section "Insurance Premiums for Retired Public Safety Officers".

 

[rocks911]

All income is taxable unless exempt by law. SS became partially taxable in 1984, almost 40 years ago!

I must have been too busy working to notice.

 

[pb4uski]

Not that it affects me, but I thought SS was not taxed if one's income was below a certain threshold. No?

Yes, in fact less than half of social security recipients pay taxes on their social security benefits because they don't have enought other income to make any of their social security taxable.

Now if you have a $72k public pension its a whole different thing.

 

[Gumby]

I must have been too busy working to notice.

Well, there's your problem. If you had spent 40 years slacking off, like me, then you would have been able to keep up with this stuff.

 

[old medic]

Is it my fault I worked very hard during my 35 year career and climbed the difficult promotional ladder. 10 years serving every day on an ambulance (with Hep C as a result) and 20 years as a fire officer that I should have my benefits taxed? - Sorry, that was rhetorical, just had to rant

35 years on the Boo-Boo Bus, half that as a Stupid-visor, and my state pension is half yours. Does that help make you feel better?..

 

[Koolau]

35 years on the Boo-Boo Bus, half that as a Stupid-visor, and my state pension is half yours. Does that help make you feel better?..

Ah, yes. My hard hat had the name Stewart J. Pidd on it.

If the hard hat fits...

 

[rocks911]

Now if you have a $72k public pension its a whole different thing.

After I pay for my healthcare at $1000/month and all the taxes taken out that 72K retirement actually results in a 46K retirement, and I have about 46K in bills.

 

[rocks911]

35 years on the Boo-Boo Bus, half that as a Stupid-visor, and my state pension is half yours. Does that help make you feel better?..

Its all relative of course. I have bills that would choke a horse and inflation has eaten up much of the slack I used to have. I could move to my home town in an area that is much much cheaper to live in (the rust belt) but the only way to accomplish that would be through divorce. Im thinking about it nonetheless, bougie Dallas isnt for me

 

[rocks911]

You can't seriously be talking about getting "screwed" when you get $72K/yr for not working all paid for by the taxpayers....

Everything's relative.

 

[rocks911]

You mentioned your wife is coming into a lump sum inheritance. If it’s not in a retirement account, you may want to discuss the option of converting some of your retirement plan into a Roth IRA. It would then grow tax free which would benefit her later filing as an individual by reducing the RMDs later on.

Hey now, thats a helpful perspective. Ill have to think on that. I appreciate the tip

 

[Koolau]

After I pay for my healthcare at $1000/month and all the taxes taken out that 72K retirement actually results in a 46K retirement, and I have about 46K in bills.

You're gonna love Medicare!

 

[Koolau]

After I pay for my healthcare at $1000/month and all the taxes taken out that 72K retirement actually results in a 46K retirement, and I have about 46K in bills.

Is there such a thing as "pension envy"? My (uncola'd) pension is less than half yours. I'm much older than you and I also get decent SS now (taxed on 85% of it) plus I have a large enough 401(k) to fill in any gaps. Once on MC (don't forget a supplement and possibly drug coverage) you'll save a bundle.

Best move financially - stay married! (I threw that in for free - oh, and YMMV.)

 

[Gumby]

Is there such a thing as "pension envy"? My (uncola'd) pension is less than half yours. I'm much older than you and I also get decent SS now (taxed on 85% of it) plus I have a large enough 401(k) to fill in any gaps. Once on MC (don't forget a supplement and possibly drug coverage) you'll save a bundle.

Best move financially - stay married! (I threw that in for free - oh, and YMMV.)

If it makes you feel better, even if your pension is half as much as his, it's still more than double mine.

 

[Montecfo]

Did you seriously expect that SS income would be tax-free when your other pension income is taxed?

From an equity perspective, it should not be taxed. You get no deductions for paying into it. Same with pensions. If you make a non-deductible contribution to one, that money is not taxed when distrbuted.

Normally in the Internal Revenue Code, that is how it works.

Not saying that is why the OP thought that, but understandable I think why one could.

 

[Montecfo]

35 years on the Boo-Boo Bus, half that as a Stupid-visor, and my state pension is half yours. Does that help make you feel better?.. [emoji23]

Pension?

What's that??

 

[pb4uski]

After I pay for my healthcare at $1000/month and all the taxes taken out that 72K retirement actually results in a 46K retirement, and I have about 46K in bills.

I'm skeptical. A married couple filing jointly in Texas with $72k of pension income would pay $5,121 in federal income taxes and $0 in Texas state income taxes. So if your healthcare is really $1k/month that would leave you $54,879 for spending, not $46k.

And in the OP you mentioned that you also had $27k a year of 457 withdrawals. That would increase your federal tax by $3,240 (12% marginal rate) and would leave you $90,639 available for spending.

Don't expect much sympathy. And you might want to check your withholdings... it sounds like you are having way too much withheld.

https://www.irscalculators.com/tax-calculator

 

[pb4uski]

From an equity perspective, it should not be taxed. You get no deductions for paying into it. Same with pensions. If you make a non-deductible contribution to one, that money is not taxed when distrbuted.

Normally in the Internal Revenue Code, that is how it works.

Not saying that is why the OP thought that, but understandable I think why one could.

It sounds like we agree that contributions should not be taxed because the contributions were after-tax money and not deductible... like contributory pension plan benefits or non-deductible IRA withdrawals or annuity benefits that are all only partially taxed... the growth is taxed but the contributions are not.

I'll use me as an example. At my FRA of 66/2, I'll get $2,983/month. If I die at an average age of 82 (crossover point), then I'll collect 190 months or $566,770. According to my SS statement, over my career I paid $128,088 in SS taxes. But a portion of those taxes were for life insurance and disability insurance benefits and about 70% relates to pension benefits, so $89,662 relates to retirement contributions.

$89,662/$566,770 is 15.8%... reasonably close to 15% that is excluded from taxation... so my contributions... money that I previously paid tax on, is excluded from taxation... as it should be. YMMV.

 

[Hermit]

I didn't read all the replys, but if not mentioned, I like to think of this tax as nice because the Gubmint lets me have 15% of SS income tax free!

 

[pb4uski]

I actually verified this % with my own calculations and SS history, but

1. High earners generally do not get a market return on what they put in. One very rigorous actuarial study calculates the annuity value of all the SS benefits (including COLA, Survivor, etc.) and for me it's about 75% of what I could buy in the open market. ...

Actually, I did this exercise with mine. I did a spredsheet with my earnings from my earnings record from my SS statement. Then I retrieved the SS rates for each year and recalculated the taxes that I paid and the total was pretty close to the total shown on my SS statement and it was within a couple hundred $$$. I took 72% of that, assuming that 28% related to life insurance and disability income insurance. These were annual outflows.

Then I added annual inflows for my PIA and then inflated it at 4% per annum until age 82. Calculated an IRR of estimated cashflows from 1970 (age 15) to 2037 (age 82). IRR was 6.86%... a little better than the return on 100% bonds from 1926-2021 according to Vanguard.

I also played with a few different COLAs... IRR is 6.28% with a 2% COLA and 7.43% with a 6% COLA.

Not bad IRR methinks.

 

[Sunset]

If it makes you feel better, even if your pension is half as much as his, it's still more than double mine.

Oh, I'd love to have a pension like yours, even if it's less than 1/2 of his 1/2 of his big one.

Pension?

What's that??

You & me.... nothing comes in the mailbox each month...

 

[Koolau]

If it makes you feel better, even if your pension is half as much as his, it's still more than double mine.

Yeah, I always forget that part.

Count your blessings!