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Old 01-08-2015, 07:07 AM
 
Location: Mount Airy, Maryland
10,484 posts, read 5,944,584 times
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The fact that bad info is being given out at SS offices is just unforgivable, these are people's lives they are messing with.

Back to the tax issue did I not see where withdrawals that cause taxable income, aka traditional 401 withdrawals, would count towards that $32,000 figure? $32,000 is a pretty low figure, obviously, so how is it that only 1/3 of SS recipients pay taxes on SS?
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Old 01-08-2015, 10:13 AM
 
Location: OH>IL>CO>CT
5,247 posts, read 8,430,817 times
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IRA and 401K withdrawals do count in the calculation . 401k withdrawals are reported on Form 1040 line 16a & 16b, which becomes part of AGI, which is then used in the SS Worksheet. See example at:
Publication 17 (2014), Your Federal Income Tax


Re 1/3 pay taxes on SS, perhaps the other 2/3 have no additional income ?

Re the 32K figure, try the 25K for Single. Been here, doing it. I will pay an additional $240 tax this year because of this "means-testing" of SS benefits :-(
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Old 01-08-2015, 02:21 PM
 
Location: Wisconsin
21,546 posts, read 44,085,236 times
Reputation: 15160
Quote:
Originally Posted by DaveinMtAiry View Post
Back to the tax issue did I not see where withdrawals that cause taxable income, aka traditional 401 withdrawals, would count towards that $32,000 figure? $32,000 is a pretty low figure, obviously, so how is it that only 1/3 of SS recipients pay taxes on SS?
That's 2011 information, per this:

Columnist Is Right -- Most People Do Not Pay Taxes on Their Social Security by Tom Margenau on Creators.com - A Syndicate Of Talent

and I doubt that number is true today.

More and more people have very high SS incomes, many over $30k. In addition, pension benefits and IRA withdrawals add to that. IRS uses what is called a 'provisional' or 'combined' income number - which is the sum of:

50% of SS
Pension
IRA withdrawals
Other Income

Benefits Planner: Income Taxes And Your Social Security Benefits

Should that number exceed $25,000 for singles, $32,000 for marrieds, 50% of the excess - up to the corresponding threshold - is added to ordinary income and is taxable.

In addition, 85% of anything over $25/000/$32,000 - is added to ordinary income and is also taxable.

I will borrow money (0%, 1-2% balance transfer fee) before I will withdraw more than an RMD from a tax-deferred IRA which withdrawal always creates a taxable event and could very well result in a tax hit against my SS benefits.

The old canard that "SS benefits are not taxable" - is false as a general statement. SS is not taxable only if one's combined/provisional income remains below the thresholds.
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Old 01-09-2015, 03:14 AM
 
71,811 posts, read 71,919,037 times
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Quote:
Originally Posted by DaveinMtAiry View Post
The fact that bad info is being given out at SS offices is just unforgivable, these are people's lives they are messing with.

Back to the tax issue did I not see where withdrawals that cause taxable income, aka traditional 401 withdrawals, would count towards that $32,000 figure? $32,000 is a pretty low figure, obviously, so how is it that only 1/3 of SS recipients pay taxes on SS?
for anything but scripted answers on the most basic level do not use the ss offices. far better to pay one of the on line sites that do total work ups and look at all options .

ss can be one of the biggest financial decsions you make in your life. it is worth a few bucks to get a work up done by pros in that field.
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Old 01-09-2015, 03:17 AM
 
71,811 posts, read 71,919,037 times
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Quote:
Originally Posted by Ariadne22 View Post
That's 2011 information, per this:
The old canard that "SS benefits are not taxable" - is false as a general statement. SS is not taxable only if one's combined/provisional income remains below the thresholds.
the taxing of ss can be a terrible tax because it involves 2 moving targets.

the higher your magi the more the ss can be taxed ,that makes for a higher income which drives up the magi which taxes more ss and that again repeats the cycle. once the loop starts your tax brackets can jump alot..

when deciding early on whether to go roth or tradional a big factor down the road going traditional may be getting ss taxed for ever vs no taxes.
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Old 01-09-2015, 04:15 AM
 
71 posts, read 64,618 times
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I gave up trying to figure anything out from the ssa web site. Their info is incomplete at best and just plain wrong at times. They have documents on there, for example, about the Earnings Test which are from 2011!
I type a query bout Earnings Test on the search engines and I cannot find one government document that clearly explains it.
Here's the best page I can find but it is totally incomplete (according to what the paid expert told me today):
Exempt Amounts Under the Earnings Test

Why is it incomplete?
Because what I found out today from a social security expert is that the $15,720 exemption (the amount a person filing for early social retirement can make per year before their benefit is reduced) is calculated differently the FIRST YEAR you collect. Yes it's a $15,720 exemption BUT it is calculated based on monthly x 12.

I was told that AFTER the 1st year you collect, you can make, say, $3000 a month for the first 5 months of the year ($15k) and then no more and you would be okay, still get all your benefits because you do not go OVER the $15,720 exemption.

HOWEVER:
In the FIRST year you apply, they ask you "how much do you plan to earn this year?" and they want a MONTHLY figure. You say $3,000 a month, but only for the first 5 months and they say "No, then you will not get any benefits."
Why?
Because they have to multiply whatever you plan to make x 12 so they'd figure 12 x $3k = $36k so you get zero benefits.

Okay, so "why can't I just TELL them I will make $1k/month, then, and then at the end of the year they'll see I only made $15k so it won't matter what I TOLD them, the fact is I made less than the $15,720."

"No!"
Why?
Because they'll look at the figures and see I made more than $15,720 divided by 12 or $1310/mo for those 5 months and they will disqualify me for benefits and make me pay back benefits I received because I was over the limit - even though I really wasn't.

Now, I said "That sounds crazy! I can't believe they do it that way!" But she says they do.

I now have to call Social Security and confirm that this is correct but this was someone who is paid for social security info so I believe they are right. Yet the Social Security web site does not have - or at least I cannot find - that info. And I can't even accept what the Social Security person says unless they can show me where it says that in the law.

Nowhere do I see that info on the soc. sec. web site. I believe the expert because that is her business, but I would like to find official confirmation at the ssa site but cannot find it. It SHOULD be on the above page, but it is not.

This is the mess we have to deal with and why forums like this are great because you may learn something here that you cannot find anywhere else. Now, am I 100% sure the above is true? No. But at least I can use it to do further research.

But when the SSA site itself is lacking info and has old documents linked to, and many SS workers are, shall I say, "less than fully informed", then what is a future retiree to do??

Now I have to find documented proof of the above, true or false, because otherwise who knows? One expert says one thing and another says something else; the ssa site does not clearly explain it in detail so who knows what the reality of it is??

Anyone know where I can verify the above info re the Earnings Test, is true? Or false? (A link or manual/document # from SSA would be the only absolute proof, but I'll accept your authoritative statement as a start.)
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Old 01-09-2015, 04:22 AM
 
71,811 posts, read 71,919,037 times
Reputation: 49380
you can get great advice and work ups here but correct anwers are rarely free.

Get Your Solution
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Old 01-09-2015, 11:24 AM
 
Location: OH>IL>CO>CT
5,247 posts, read 8,430,817 times
Reputation: 7209
Quote:
Originally Posted by pdsnickels View Post
I gave up trying to figure anything out from the ssa web site. Their info is incomplete at best and just plain wrong at times. They have documents on there, for example, about the Earnings Test which are from 2011!
I type a query bout Earnings Test on the search engines and I cannot find one government document that clearly explains it.
Here's the best page I can find but it is totally incomplete (according to what the paid expert told me today):
Exempt Amounts Under the Earnings Test

Why is it incomplete?
Because what I found out today from a social security expert is that the $15,720 exemption (the amount a person filing for early social retirement can make per year before their benefit is reduced) is calculated differently the FIRST YEAR you collect. Yes it's a $15,720 exemption BUT it is calculated based on monthly x 12.

I was told that AFTER the 1st year you collect, you can make, say, $3000 a month for the first 5 months of the year ($15k) and then no more and you would be okay, still get all your benefits because you do not go OVER the $15,720 exemption.

HOWEVER:
In the FIRST year you apply, they ask you "how much do you plan to earn this year?" and they want a MONTHLY figure. You say $3,000 a month, but only for the first 5 months and they say "No, then you will not get any benefits."
Why?
Because they have to multiply whatever you plan to make x 12 so they'd figure 12 x $3k = $36k so you get zero benefits.

Okay, so "why can't I just TELL them I will make $1k/month, then, and then at the end of the year they'll see I only made $15k so it won't matter what I TOLD them, the fact is I made less than the $15,720."

"No!"
Why?
Because they'll look at the figures and see I made more than $15,720 divided by 12 or $1310/mo for those 5 months and they will disqualify me for benefits and make me pay back benefits I received because I was over the limit - even though I really wasn't.

Now, I said "That sounds crazy! I can't believe they do it that way!" But she says they do.

I now have to call Social Security and confirm that this is correct but this was someone who is paid for social security info so I believe they are right. Yet the Social Security web site does not have - or at least I cannot find - that info. And I can't even accept what the Social Security person says unless they can show me where it says that in the law.

Nowhere do I see that info on the soc. sec. web site. I believe the expert because that is her business, but I would like to find official confirmation at the ssa site but cannot find it. It SHOULD be on the above page, but it is not.

This is the mess we have to deal with and why forums like this are great because you may learn something here that you cannot find anywhere else. Now, am I 100% sure the above is true? No. But at least I can use it to do further research.

But when the SSA site itself is lacking info and has old documents linked to, and many SS workers are, shall I say, "less than fully informed", then what is a future retiree to do??

Now I have to find documented proof of the above, true or false, because otherwise who knows? One expert says one thing and another says something else; the ssa site does not clearly explain it in detail so who knows what the reality of it is??

Anyone know where I can verify the above info re the Earnings Test, is true? Or false? (A link or manual/document # from SSA would be the only absolute proof, but I'll accept your authoritative statement as a start.)
SSA tries to explain the "special first year rule" on page 6 of this SSA publication :
http://www.socialsecurity.gov/pubs/EN-05-10069.pdf It is a 2014 document.

It is convoluted. ISTM if you asked 5 people, you could get 6 interpretations, all of which could be correct, just explained different.
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Old 01-10-2015, 12:58 AM
 
Location: Wisconsin
21,546 posts, read 44,085,236 times
Reputation: 15160
Quote:
Originally Posted by mathjak107 View Post
when deciding early on whether to go roth or tradional a big factor down the road going traditional may be getting ss taxed for ever vs no taxes.
Well, I was completely traditional - at two firms - Schwab and TRowePrice until 2014 - when I began Roth conversions on the Schwab account - 25% of the account (tax consequence virtually nil). Three more years and it should be all Roth. My plan is never to touch this account and pass it on to son/dil tax-free - hopefully for not another 20 years - when it should amount to a decent chunk of change. Once I'm done w/Schwab, then I'll start converting the TRP account. Also, the day may come in the next ten years I'll want to pay off the mortgage on this house - or do some major remodelng or buy a car (or whatever)- and I don't need to be withdrawing taxable money nor taking on debt to do it. You'll note I plan never to get old and infirm.

I still agree with your earlier comments on this board - tax-deferred while you work. At least for me that was certainly the wisest move. No regrets, whatsoever.
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Old 01-10-2015, 03:07 AM
 
71,811 posts, read 71,919,037 times
Reputation: 49380
it is only recently with a new study and view that t.rowe did ,that we are actually looking at roths vs traditional in a new light and i switched camps in my thinking..


what folks tended to do, and i was guilty of it as well is look at their final upper years income and decide that they will be in lower tax brackets at retirement when the pay checks stop.

makes sense because your retirement budget and income tends to be within 20% or so of your working income.

but t.rowe looked at the fact most of us who are not professionals who start their careers near the highest tax brackets, we the working stiffs typically spend decades ramping up in income and tax brackets.

you may have spent the first 25 years of a 40 year career at much lower brackets and income than those later years.

taking the deduction in traditional ira's and 401k's all along may be quite harmful since your long term average tax bracket will be alot less than your retirement bracket which is close to your final years income.


doctors ,lawyers and other careers that have you entering near peak incomes would likely do better deferring taxes as well as those with jobs that will see little pay changes ever, mostly those on the low end of things.

the rest of us working stiffs will have a much lower average tax rate over our 40 years working and will likely be in a higher tax bracket at retirement than that long term average spanning decades at far lower pay .

the study concluded even if tax brackets were no higher by retirement you could have as much as 20% more spendable money by doing that roth day 1 early on. .


throw in the fact that after 70-1/2 any of the rmd money you reinvest from a deferred account has gains , interest and dividends taxed forever . the roth stays tax free for life.

if the roths prevent your ss from being taxed then again even if no bracket change at the end the roths win by a landslide.


we always think we will be in a lower tax bracket when the pay checks stop , but we were only looking at the final years income . the other decades of your working history may have a far lower average tax rate than you will in retirement based on the higher income days.

taking that deduction at those lower levels may bite you in the end. we didn't have roths when i started out but if we did my working history would have followed that path and roths would have been the better deal now knowing what i do about this average lifetime tax bracket stuff.

i ramped up from 189 bucks a week to a 6 figure income spanning 40 years with most of the jump in the later years.

Last edited by mathjak107; 01-10-2015 at 03:47 AM..
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