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First, I'd like to say that I am so glad I found this place! I have been figuring all of this out on my own and it's great to get feedback from others thinking about the same things.
I have a few questions that my reading here has triggered:
1) Apparently, if you take SS before 66 and have other income, your SS is reduced if you make more than about $15K
a) Does this "penalty" count for any type of income (e.g. distributions from your 401K), or is it just earned income (e.g. income from a job)?
b) If yes, then does this penalty go away once you do turn 66?
2) I have a small pension that I can take under a couple of different scenarios - different amounts/mo with varying payouts and guaranteed payout periods (e.g., 500/mo for life with a certain payout to beneficiaries if I die before 5, 10, or 20 years). Alternately, I can take a lump sum.
a) If I take the lump sum and roll it into a retirement account (401K?) I should be clear from taxes on that, yes?
it only counts earned income not any passive or investment income unless it is a profession. at full retirement age you can work and earn any amount.
money in or rolled into a retirement account is taxed maybe when it comes out . you either get taxed when spending it to live or once the required minimum distributions kick in at 70-1/2 .
there are ways to pay no tax on some of that money too.
depending on your personal tax situation at 65 you have the standard tax deduction,a deduction for exemptions and an extra deduction for being 65 or older.
that allows a certain amount of money to pass each year tax free.
so as an example a couple can pull more than 20k tax free or up to 41k in retirement money out and pay as little as 4.5% in taxes on it.
a 65 year old couple can pull out 41k and pay only 1800 bucks in taxes on it.
but you have to avoid listening to the silly rule of thumb to spend taxable account money first and allow the deferred money to grow,
it makes little sense to not use the gift the irs gives you each year by spending down tax deferred money first.
if you delay taking ss and live off savings you can pull as much as 320k out of your ira's and 401k's and pay near zero tax if you pull that money out of the tax deferred accounts first.
that is a gift many folks do not take advantage of when they fixate on what old school wrong conventional wisdom said by advising you spend the tax deferred accounts last ..
someone who delays ss to 70 and combines their required distributions into the mix will most likely pay way higher tax rates later on if they waited to spend down that ira money as opposed to taking at least 20k out a year at zero taxes. ..
Last edited by mathjak107; 06-02-2014 at 03:34 AM..
First, I'd like to say that I am so glad I found this place! I have been figuring all of this out on my own and it's great to get feedback from others thinking about the same things.
I have a few questions that my reading here has triggered:
1) Apparently, if you take SS before 66 and have other income, your SS is reduced if you make more than about $15K
a) Does this "penalty" count for any type of income (e.g. distributions from your 401K), or is it just earned income (e.g. income from a job)?
b) If yes, then does this penalty go away once you do turn 66?
2) I have a small pension that I can take under a couple of different scenarios - different amounts/mo with varying payouts and guaranteed payout periods (e.g., 500/mo for life with a certain payout to beneficiaries if I die before 5, 10, or 20 years). Alternately, I can take a lump sum.
a) If I take the lump sum and roll it into a retirement account (401K?) I should be clear from taxes on that, yes?
I assume you know that if you collect before 66 or your full retirement age that your benefit is also permanently reduced.
I was told by social security that if you start taking it before 65 , that you have 8% a years less than if you wait. BUT.... you can stop taking SS and by waiting again, you can get that extra 8% for each year you wait to draw.
I hope someone can give me an answer on this one, I tried looking at SSA.gov but couldn't find my exact scenario.
My full retirement age is 66. If I retire at 65 but do not file for SS until my full retirement age, is my SS reduced? Also, how does that last year without income factor into the overall 35 year average?
It is roughly figured on your best 35 years of income as you alluded to, so it won't change anything as long as you have that 35 years of income previous to this.
It is roughly figured on your best 35 years of income as you alluded to, so it won't change anything as long as you have that 35 years of income previous to this.
You would think so, but just today I ran a bunch of numbers on the estimator on the SS site (retire at 57, take SS at 62 vs. retire at 58 take SS at 62, etc), and there was a difference depending on the number of zero income years - meaning they did penalize me for the extra years of zero income. And I have more than 35 years already, so somehow those zero income years were factored in.
You would think so, but just today I ran a bunch of numbers on the estimator on the SS site (retire at 57, take SS at 62 vs. retire at 58 take SS at 62, etc), and there was a difference depending on the number of zero income years - meaning they did penalize me for the extra years of zero income. And I have more than 35 years already, so somehow those zero income years were factored in.
Most likely your "missing" years would have been at a higher rate of pay (even adjusted for inflation) than some of your earlier years when you were younger. Is the difference fairly small? If so I bet that explains it.
I hope someone can give me an answer on this one, I tried looking at SSA.gov but couldn't find my exact scenario.
My full retirement age is 66. If I retire at 65 but do not file for SS until my full retirement age, is my SS reduced? Also, how does that last year without income factor into the overall 35 year average?
The answer to your question regarding If you retire at 65 but do not collect until 66, NO your benefit would not be reduced, it is dependent on when you FILE. in this case you would not be filing with SS other than getting your Medicare,[which you will be billed for separately since you are not collecting yet] until you were full retirement age, thus no reduction.
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