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Old 03-23-2014, 07:15 AM
 
Location: Grove City, Ohio
10,129 posts, read 12,376,133 times
Reputation: 13947

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I'm 66 and the earliest I plan to collect ss is when I am 68 but if I feel like working to 70 then collect that is what I will do.

By waiting our ss benefit grows to a somewhat larger benefit than many people have but I view the extra years working as payback for not doing (saving) what I suppose I should have done back in my 30's, 40's and 50's.

If I collect at 68 I'll receive in the neighborhood of $2,726 while my wife will receive $1,175 for a combined ss income of $3,901 for an annual income of $46,812. On top of this my wife has a small state pension that will amount to around $2,500 after you take the hit for the WEP garbage.

If we don't withdraw any money from IRA's our total income for a year will be right at $49,312 and luckily for us all that is exempt for Georgia income tax but in trying to calculate how much federal taxes would be taken I ran across this online calculator which indicates the total federal tax on $46,812 ss benefits and the $2,500 pension ends up being $0

Seriously, in the back of my mind I always figured around $5,000 in federal taxes every year but if this is true I just got more spending money in my pocket?

How can this be? We get that much money every year and don't pay any federal taxes? Oh my, I feel like a congressman!
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Old 03-23-2014, 09:09 AM
 
508 posts, read 551,786 times
Reputation: 1398
I don't know anything about that calculator, but this site indicates that much of your SS income may be taxable if your combined income is more than 44k. However they use something called a "modified gross income" calculation which counts only 1/2 of your SS income towards that total, so probably you slip under that wire. It looks complicated - if you have any doubts I'd contact a CPA or tax attorney.
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Old 03-23-2014, 09:17 AM
 
Location: OH>IL>CO>CT
5,230 posts, read 8,388,588 times
Reputation: 7185
In your case it works out that way because the first $32000 of other income plus 1/2 of SS benefits (if filing MFJ) are exempt from taxation, and your deductions and exemptions probably takes care of the rest.

See this IRS info for more
Are Your Social Security Benefits Taxable?

where it says, in part:
"A quick way to find out if any of your benefits may be taxable is to add one-half of your Social Security benefits to all your other income, including any tax-exempt interest. Next, compare this total to the base amounts below. If your total is more than the base amount for your filing status, then some of your benefits may be taxable. The three base amounts are:
  • $25,000 - for single, head of household, qualifying widow or widower with a dependent child or married individuals filing separately who did not live with their spouse at any time during the year
  • $32,000 - for married couples filing jointly
  • $0 - for married persons filing separately who lived together at any time during the year"
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Old 03-23-2014, 09:33 AM
 
Location: NE Mississippi
13,645 posts, read 8,559,902 times
Reputation: 19857
Quote:
Originally Posted by nicet4 View Post
I'm 66 and the earliest I plan to collect ss is when I am 68 but if I feel like working to 70 then collect that is what I will do.

By waiting our ss benefit grows to a somewhat larger benefit than many people have but I view the extra years working as payback for not doing (saving) what I suppose I should have done back in my 30's, 40's and 50's.

If I collect at 68 I'll receive in the neighborhood of $2,726 while my wife will receive $1,175 for a combined ss income of $3,901 for an annual income of $46,812. On top of this my wife has a small state pension that will amount to around $2,500 after you take the hit for the WEP garbage.

If we don't withdraw any money from IRA's our total income for a year will be right at $49,312 and luckily for us all that is exempt for Georgia income tax but in trying to calculate how much federal taxes would be taken I ran across this online calculator which indicates the total federal tax on $46,812 ss benefits and the $2,500 pension ends up being $0

Seriously, in the back of my mind I always figured around $5,000 in federal taxes every year but if this is true I just got more spending money in my pocket?

How can this be? We get that much money every year and don't pay any federal taxes? Oh my, I feel like a congressman!
'S true. Works out that way for us. We have rental income, pension, Social Security. 0 taxes.
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Old 03-23-2014, 09:37 AM
 
Location: Los Angeles area
14,018 posts, read 17,726,438 times
Reputation: 32304
^^^^^^ Reed303's answer is excellent because it quotes from the horse's mouth, but I just wanted to add a few sidelights as trivia:

1. No matter how rich one is or how much income one has, only 85% of Social Security benefits are subject to federal income taxation.

2. The revenue generated from income taxes on SS benefits is plowed directly back into Social Security; it does not go into the general fund like the rest of our income taxes.
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Old 03-23-2014, 09:58 AM
 
Location: Albuquerque NM
1,656 posts, read 1,521,661 times
Reputation: 3627
Based on the calculator the OP provided, the OP could also convert about $6-7K of their traditional IRA each year to a Roth IRA without paying any federal taxes. Then the future distributions of the Roth IRA would be tax free.
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Old 03-23-2014, 11:08 AM
 
29,772 posts, read 34,851,819 times
Reputation: 11681
Quote:
Originally Posted by ABQ2015 View Post
Based on the calculator the OP provided, the OP could also convert about $6-7K of their traditional IRA each year to a Roth IRA without paying any federal taxes. Then the future distributions of the Roth IRA would be tax free.
There are those who want to change tax codes to prevent that.
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Old 03-23-2014, 01:23 PM
 
Location: Grove City, Ohio
10,129 posts, read 12,376,133 times
Reputation: 13947
Wow, just wow!

Thank you everybody, each and every one of you, for your well informed excellent answers to my question.

I feel somewhat richer because I always sort of figured 10% of my retirement income to federal taxes and here to find out I have an extra $400 a month or so that I wasn't figuring on!

But my whole life I paid taxes and coming up I don't have to?

I tell you it's great being a baby boomer!
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Old 03-23-2014, 02:14 PM
 
2,037 posts, read 1,945,753 times
Reputation: 3449
wow this is great info and i have to see if it applies to me in a few years. that traditional ira into a roth ira sounds like a pretty nice thing to do too.
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Old 03-23-2014, 02:30 PM
 
2,037 posts, read 1,945,753 times
Reputation: 3449
Quote:
Originally Posted by reed303 View Post
In your case it works out that way because the first $32000 of other income plus 1/2 of SS benefits (if filing MFJ) are exempt from taxation, and your deductions and exemptions probably takes care of the rest.

See this IRS info for more
Are Your Social Security Benefits Taxable?

where it says, in part:
"A quick way to find out if any of your benefits may be taxable is to add one-half of your Social Security benefits to all your other income, including any tax-exempt interest. Next, compare this total to the base amounts below. If your total is more than the base amount for your filing status, then some of your benefits may be taxable. The three base amounts are:
  • $25,000 - for single, head of household, qualifying widow or widower with a dependent child or married individuals filing separately who did not live with their spouse at any time during the year
  • $32,000 - for married couples filing jointly
  • $0 - for married persons filing separately who lived together at any time during the year"
It would be great if your bold part in the first paragraph is the way it works but from the bold part in the second paragraph it seems like it's not the first $32,000 of other income plus 1/2 of SS benefits that are exempt but it's like the amount of income plus 1/2 of SS benefits that is under $32,000. So it seems that if your SS is $10,000 a year then the first $22,000 of other income is exempt from taxes?

This is the first time I've read about this so just wondering if I'm reading it right. Of course I'd rather have your first paragraph be the way it works but just want to make sure.
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