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My wife and I are retired. Our only income is from our state retirements and our ss checks. This year to lower my taxes I wanted to put some extra cash we had into our IRAs and were told that even though we could put money into them that the IRA would give NO tax shelter and all of the money would be taxed . The bank said that only earned income money could be put into an IRA for tax reasons.. Evidently government retirement and SS is not considered earned income.. I earned my retirement money because no one else did, and it is not free... This is not right. any ideas on how I can stash some cash and protect it from taxes?
Bascially its been shelter and how is being disbursed to you and is taxable income. If you have done Federal tax returns you know the differences in earned verus pensions and SS as listed on the forms. If SS were earned then it would like be fullytaxed ;not 85% taxed. Its fair because those are the rules to shelter earned income to invest it to maximuize earnings on it.Municipal abnd gains are tax free.
My wife and I are retired. Our only income is from our state retirements and our ss checks. This year to lower my taxes I wanted to put some extra cash we had into our IRAs and were told that even though we could put money into them that the IRA would give NO tax shelter and all of the money would be taxed . The bank said that only earned income money could be put into an IRA for tax reasons.. Evidently government retirement and SS is not considered earned income.. I earned my retirement money because no one else did, and it is not free... This is not right. any ideas on how I can stash some cash and protect it from taxes?
What is not right about it? Why do you feel the government owes you protection from taxes? Don't you get the idea behind giving a tax shelter to earned income and not other income? It is to encourage people to save while they are working so they don't come onto the public dole when they are no longer working. Tax policy (in addition to its primary function of funding government services from libraries to paved roads to disease control and much more) is often used to encourage certain behaviors (like buying houses) and discourage others (like smoking). So IRA's and 401(K)'s are there to reward and encourage saving for retirement and that's the whole idea behind penalties for early withdrawal. We retirees should all be glad to get those rewards - there is nothing axiomatic about their existence.
Now you want more rewards beyond what has been so generously granted to us by Congress? Can you say entitlement mentality? Color me disgusted.
(By the way, I am not some young person complaining about senior attitudes - I am 69.)
The bank said that only earned income money could be put into an IRA for tax reasons..
Evidently government retirement and SS is not considered earned income...
Do you really not understand what "earned" means?
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any ideas on how I can stash some "extra cash" and protect it from taxes?
A shoe box will work fine. Stuff it full of Benjamin's. No taxes.
My wife and I are retired. Our only income is from our state retirements and our ss checks. This year to lower my taxes I wanted to put some extra cash we had into our IRAs and were told that even though we could put money into them that the IRA would give NO tax shelter and all of the money would be taxed . The bank said that only earned income money could be put into an IRA for tax reasons.. Evidently government retirement and SS is not considered earned income.. I earned my retirement money because no one else did, and it is not free... This is not right. any ideas on how I can stash some cash and protect it from taxes?
Your money is already taxed so no more taxes on that money. What they are saying is you cannot use is IRA, it is a vehicle for preparing for retirement. The money earned while saving the money you are talking about can be sheltered using trusts. Pick up a book on Amazon called The Living Trust Advisor: Everything You Need to Know About Your Living Trust (Kindle Edition) by Jeffrey L Condon.
Oh and BTW. there is no penalty for withdrawing money you have already taken out of your IRA unless you bought a bond or other vehicle and cashed in before due date.
I believe I understand to a degree, My problem is when I remove money from the IRA it is taxed like earned income but I cant add to it.. Gezzz we are only 62. We have paid taxes and supported our government all our lives and now they still want to tax our poor little pensions and hard earned SS checks... That is our money because we earned it working hard being public servants. the good thing is we invested in our states retirement plan and didn't lose money like those who had money in stocks and money market scams when our economy crashed several years ago.
I believe I understand to a degree, My problem is when I remove money from the IRA it is taxed like earned income but I cant add to it.. Gezzz we are only 62. We have paid taxes and supported our government all our lives and now they still want to tax our poor little pensions and hard earned SS checks... That is our money because we earned it working hard being public servants. the good thing is we invested in our states retirement plan and didn't lose money like those who had money in stocks and money market scams when our economy crashed several years ago.
I applaud your determination and sticktoitness. It is very difficult for many to understand that. Mathjak is correct you could take you savings and buy an annuity much like your pension. You would then avoid RMDs at 70 and a half. He is also correct you will get back ultimately more then you put in. It's all in how comfortable you are with your financial management skills. The book I mention and Ed Slott The Retirement Savings Time Bomb will help you make sense of some of the options you face.
You should only be faced with fed tax on SSA and the portion you withdraw. That should be a reduced tax rate. The state should not be taxing your SSA. I hope this answers your questions. Welcome to the forum and congrats on making it to retirement.
We are not there yet and I came here to get answers. There are some very smart people here. Just remember as my retirement briefer said your retirement is yours and no one else is just like yours. Learn from those in it or have similar circumstances.
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Originally Posted by mathjak107
if it is money you will not need to live on ,a single premium life insurance policy would pass to your wife tax free with no rmd's.
the policy is leveraged so you get more than you spend on the policy..
I had forgot the annuity option. It is something I/we are considering as well. Thanks for chiming in.
Last edited by oldsoldier1976; 04-24-2013 at 03:29 AM..
Reason: More clarity
the annuity though is taxable as you withdraw , the life insurance ploy is never taxable.
on annuities you pay taxes based on a life expectancy table with each payment.
but they serve two different purposes. one counts on you dying and one counts on you living.
if you feel you will have quite a bit left over you won't spend while you are alive but your spouse will need it ,then the life insurance is the best choice.
if it is money you both will need to live then the annuity is the better choice.
there is no magic though in the life insurance ploy. you can get the same result growing your own ira over the same number of years but the big wild card is will you live long enough to do it and will markets co-operate.
the insurance gives you guaranteed results to plan around .
in most planning annuities seem to work best at around age 70 or so.
Don't you get the idea behind giving a tax shelter to earned income and not other income? It is to encourage people to save while they are working so they don't come onto the public dole when they are no longer working.
This is a very important point, which often gets overlooked. The reason for the tax deferral is to reduce the chances that the individual will be unable to afford to pay for the basics of life, themselves, in retirement.
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I believe I understand to a degree, My problem is when I remove money from the IRA it is taxed like earned income but I cant add to it.. Gezzz we are only 62. We have paid taxes and supported our government all our lives and now they still want to tax our poor little pensions and hard earned SS checks... That is our money because we earned it working hard being public servants. the good thing is we invested in our states retirement plan and didn't lose money like those who had money in stocks and money market scams when our economy crashed several years ago.
