SS / Tax question.

[cjacks]

I retired in July of this year at the age of 63. Back in January I took a withdrawal from my 401K. (To pay off remaining debts) Can anyone tell me if that withdrawal which is "earned income" will be considered when determining if my social security income is taxable? (Since the withdrawal was made before I retired) My wife also retired in August and according to SS we are allowed to make $44000 before we pay tax on SS income. That withdrawal along with some income we received after retiring puts us over the $44000.if it counts, I understand that up to 85% of our SS income could be taxable. We both stayed under the $1260/ mo. allowed after we retired to avoid reduction of SS benefits.
I have a meeting with my tax consultant in two weeks to discuss this and a couple other matters. I was just wondering if anyone knows if I will have to pay tax on my SS income? Thanks!
Cjacks

 

[haha]

I retired in July of this year at the age of 63. Back in January I took a withdrawal from my 401K. (To pay off remaining debts) Can anyone tell me if that withdrawal which is "earned income" will be considered when determining if my social security income is taxable? (Since the withdrawal was made before I retired) My wife also retired in August and according to SS we are allowed to make $44000 before we pay tax on SS income. That withdrawal along with some income we received after retiring puts us over the $44000.if it counts, I understand that up to 85% of our SS income could be taxable. We both stayed under the $1260/ mo. allowed after we retired to avoid reduction of SS benefits.
I have a meeting with my tax consultant in two weeks to discuss this and a couple other matters. I was just wondering if anyone knows if I will have to pay tax on my SS income? Thanks!
Cjacks

If the income shows up on your 2013 1040, it will be part of the income considered to determine what tax you pay on your SS received in the same tax year.

Ha

 

[cjacks]

Thanks HaHa,
From a tax stand point it has turned out to be a dumb thing to take the money to pay off debts. I just wanted to clear the debt before I retired. I think the taxes will end up being more then the interest. I knew I had to pay tax on the money I withdrew, I didn't realize it would affect my SS income.
Next year I will be more careful with how much I withdraw and how much I earn. Even though my tax bill is higher then I would like, I get a lot of satisfaction of being retired and debt free. Paying taxes just seems like a waste of good money. Thanks again!
Cjacks

 

[Rustward]

Thanks HaHa,
From a tax stand point it has turned out to be a dumb thing to take the money to pay off debts. I just wanted to clear the debt before I retired. I think the taxes will end up being more then the interest. I knew I had to pay tax on the money I withdrew, I didn't realize it would affect my SS income.
Next year I will be more careful with how much I withdraw and how much I earn. Even though my tax bill is higher then I would like, I get a lot of satisfaction of being retired and debt free. Paying taxes just seems like a waste of good money. Thanks again!
Cjacks

Don't beat yourself up too badly. The "d" word is a little too strong. It was more like an uninformed decision. Whether they will admit it or not, most people have made uninformed decisions in their lives. It is not the worst thing that could have happened.

On the bright side: 1) you did have the money to pay the debts, and 2) the debts are paid.

 

[kaneohe]

.........according to SS we are allowed to make $44000 before we pay tax on SS income.
Cjacks

That isn't quite right........see instructions for line 20 here on p.29.....
the SS worksheet
http://www.irs.gov/pub/irs-pdf/i1040.pdf

 

[cjacks]

Kaneohe,
Thanks for you input. I am going to have my tax consultant help me thru the worksheet on page 29. I am still hoping the tax will end up being a fairly minor amount.

 

[kaneohe]

You might want to have a go at the wksht before you go. It might be a little intimidating at first but it's not as bad as it looks once you've done it.
A rough calculation based on little knowledge.............
Add half of your SS to your other income: 44K + half of SS
There are 2 income thresholds in the calculation 32K and 44K for married filing
jointly. Since your "income" calculated above exceeds 44K, one guess for
the taxable SS = 6K + 85% (half of SS); the alternate guess is 85% of SS.
You pick the lower of the 2 guesses.

as a check, you might want to input your info into Taxcaster
https://turbotax.intuit.com/tax-tools/calculators/taxcaster/
if the link doesn't work, just google for it.

btw : in your OP, you mentioned that the withdrawal from 401K was
"earned income". I'm a bit puzzled by that since normally it would not be
considered that ...........is that because you were still working this year and the withdrawal was considered a reversal of some of this year's contributions?