SS Benefits Question

[RASAP]

When I retire I will roll my company 401(k) over to a Vanguard IRA. I plan to start receiving Social Security benefits as soon as I can (62 years). There are a couple of issues with reduction of SS benefits and taxation of SS benefits that I am trying to get straight so, here are my questions:

1. Does the money I withdraw from my IRA count toward the income that is considered when determining how much of my Social Security benefits are taxable?

2. While under full retirement age (66 years), SS benefits are reduced by $1 for every $2 earned above $12,480. Does the money I withdraw from my IRA count toward the $12,480 limit?

Thanks for your help.

[REWahoo]

Quote:

Originally Posted by RASAP 1. Does the money I withdraw from my IRA count toward the income that is considered when determining how much of my Social Security benefits are taxable? 2. While under full retirement age (66 years), SS benefits are reduced by $1 for every $2 earned above $12,480. Does the money I withdraw from my IRA count toward the $12,480 limit?

Don't take my word for it, check it out yourself at http://www.ssa.gov/ , but...

1. Yes

2. No, only earned income (salary, etc.)

[SteveR]

Here is the info. from the SS website.

"Some people who get Social Security benefits have to pay income taxes on them. This will apply to you only if you have other substantial income in addition to your benefits (for example, wages, self-employment, interest, dividends and other taxable income that you have to report on your tax return). No one pays taxes on more than 85 percent of his or her Social Security benefits and some pay on a smaller amount, based on these IRS rules:

If you file a federal tax return as an "individual" and your combined income* is between $25,000 and $34,000, you may have to pay income tax on 50 percent of your Social Security benefits. If your combined income is above $34,000, up to 85 percent of your Social Security benefits is subject to income tax.
If you file a joint return, you may have to pay taxes on 50 percent of your benefits if you and your spouse have a combined income* that is between $32,000 and $44,000. If your combined income is more than $44,000, up to 85 percent of your Social Security benefits is subject to income tax.
If you are married and file a separate tax return, you probably will pay taxes on your benefits.
*On your 1040 tax return, your "combined income" is the sum of your adjusted gross income, plus nontaxable interest, plus one-half of your Social Security benefits."

[Dreamer]

REWahoo is correct that only earned income is counted for social security. Wages or self-employment are counted. I just wanted to stress the self-employment, since a lot of people start consulting after they retire.

Dreamer

[boont]

That is why income from Real Estate rentals is so valuable to a retired person.

Unearnded income, or as I call it "mail box money" is what you want to have.

boont

[2B]

Triggering the dreaded SS tax creates the highest marginal tax rate in the US tax code. Fortunately, there are games to be played with SS, traditional IRAs and how they impact marginal tax rates. If you defer SS after 62, SS grows by about 8.5% for every year you delay up to age 70. By doing ROTH conversions you can build up a future pool of tax free money. It requires a lot of math work and it is very personalized to your individual finances. Do it right and you can keep the tax on SS and traditional IRA withdraws to a minimum.

The people on this forum are the kind that like doing things like that.

[REWahoo]

Quote:

Originally Posted by 2B The people on this forum are the kind that like doing things like that.

While that may be true for some here, we aren't all "the kind that like doing things like that". In my case and probably for many others, it is simply a matter of chosing the lesser of two evils.

[2B]

Quote:

Originally Posted by REWahoo! In my case and probably for many others, it is simply a matter of chosing the lesser of two evils.

Why not choose them both?

[REWahoo]

Quote:

Originally Posted by 2B Why not choose them both?

Be my guest.

[azanon]

Even withdrawals from a Roth (IRA) count?

[Martha]

Withdrawls from a Roth IRA do not effect social security and whether the benefits will be taxed. This is because income from a Roth is not taxable income.

[Jarhead*]

Quote:

Originally Posted by Martha Withdrawls from a Roth IRA do not effect social security and whether the benefits will be taxed.* This is* because income from a Roth is not taxable income.

Yep. The IRS uses "adjusted gross income" as the criteria to determine whether Soc. Sec. is taxed or not.

Realistically though, from the numbers I have seen reported on this board,(Especially if they have a cola'd pension, most will find that their Soc. Sec. will be taxed at 85%). :P

Living in a heavily taxed (State Income Tax) area like Calif., one nice benefit re: Soc. Sec. is that it is excluded from taxes the state collects.
(ReWahoo and Eagle 43 couldn't care less).

Having to start RMD shortly, I can only hope that I live long enough for taxes to become a problem (A few years back, the IRS made mandatory withdrawels much less punitive than previously).

Feeding from Soc. Sec. for 8 years now. :P

Jarhead

[unclemick]

started SS this year - RMD in 7 1/2.

heh heh heh heh heh heh - can't stop the clock.

[Nords]

Quote:

Originally Posted by Jarhead* Realistically though, from the numbers I have seen reported on this board,(Especially if they have a cola'd pension, most will find that their Soc. Sec. will be taxed at 85%).* :P

That's a good point-- does anyone know if the SS taxation brackets are indexed to rise with inflation, too, or will they slowly strangle taxpayers like the AMT does now?

[MasterBlaster]

My understanding is that they are not indexed. So it's a slow strangle just like the AMT

So this is just one of the ways that your benefit is being cut. And the pols don't even have to vote on it.

Here's some info I found on the web...

< When retirees begin to collect Social Security benefits, the income tax is again imposed on up to 85% of their benefits for those whose overall income exceeds a fixed level. For a husband and wife, it's $32,000 a year. For a single person, it's $25,000.

Because these base amounts do not rise with inflation , the number of retirees subject to the triple tax will grow each year. As a result, the tax will eventually hit many who can ill afford to pay it. And this is happening at a time when an increasing number of Americans are forced to work past their planned retirement age because of depleted pensions and retirement accounts. For year 2000, 7.7 million individuals and families with incomes below $75,000 were taxed on their Social Security checks. >

[Jarhead*]

Quote:

Originally Posted by unclemick2 started SS this year - RMD in 7 1/2. heh heh heh heh heh heh - can't stop the clock.

Hey UM: Did you convert a portion of your IrA to Roth?

I was thinking about a few years back, but the IRS stretched the mandatory withdrawel from l6 to 27.4.

At that point, I couldn't force myself to pay taxes ahead of time.

I based my decision on if taxes become a problem, (My IRA has done better than I expected it to do, and being in a high tax bracket would be a problem I wouldn't mind having). I should be so fortunate.

[modhatter]

Boont,

Why do you say "real estate" (mailbox money) is great for retirement. Isn't the income taxed at your regular tax rate? What benifit are you talking about?

[astromeria]

Quote:

Originally Posted by MasterBlaster For a husband and wife, it's $32,000 a year. For a single person, it's $25,000.

So I retire and THEN they remove the marriage penalty for working women that I paid for years. Only to face the upcming marriage penalty for retirees. The game's rigged, I tell ya!

[Martha]

Quote:

Originally Posted by modhatter Boont, Why do you say "real estate" (mailbox money) is great for retirement.* Isn't the income taxed at your regular tax rate?* What benifit are you talking about?

Could be the lovely depreciation deduction. And mortgage interest deduction.

We also had passive losses from other real estate ventures would could offset against rental income. *Sweet until properties are sold.

[laurence]

Now just to be clear, 85% of your SS could be taxed at your tax rate (which could be as low as 15%). You won't have 85% of your SS taken away via taxes!

So this makes a paid off house more appealing. If you withdraw less, you stay under that ceiling!