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Old 02-17-2015, 09:53 AM
 
12,705 posts, read 9,975,776 times
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If the portion of Social Security income which is taxable depends on other income, this means the other income is effectively taxed at a very high rate. If your total income is, say, $1 below the threshold for 85% of SS being taxable, then the next dollar of non-SS income will set you back by quite a lot - an effective tax rate on that dollar well in excess of 100%.

Why does no one mention this when discussing the tradeoff between traditional and Roth IRA accounts?
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Old 02-17-2015, 12:22 PM
 
Location: OH>IL>CO>CT
5,237 posts, read 8,406,103 times
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Here is a link to such a discussion in JoeTaxpayer's blog:

Welcome to JoeTaxpayer.com
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Old 02-17-2015, 05:02 PM
 
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here too it is discussed

https://www.kitces.com/blog/the-taxa...rate-increase/
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Old 02-18-2015, 10:24 AM
 
Location: WA
5,395 posts, read 21,398,752 times
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Quote:
Originally Posted by mathjak107 View Post
Thanks, that article really helps me fully understand this tax coming to me next...

I have friends that throw a fit about the taxation of SS benefits and rave that SS contributions were mandatory and thus a tax and the taxation of benefits is nothing more than a tax on a tax. Of course they are some of the many that rave about taxes.

As I am living on IRA withdrawals, and paying a substantial (for me) tax payment every quarter, this discussion does get me wondering if my decision to take SS at 70 was fully comprehended by the evaluation software I used to chose a SS strategy.

I had looked at IRA distributions as simple taxable income but once I start SS benefits there is a real calculation that must be accounted for, triggering the tax from 50% to 85% of benefits.
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Old 02-18-2015, 04:56 PM
 
Location: OH>IL>CO>CT
5,237 posts, read 8,406,103 times
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Thumbs down As if the current SS taxation isn't bad enough....

An article posted yesterday at Bankrate.com
More taxes on Social Security? Bankrate, Inc.
claims that someone thinks SS benefits are not currently taxed enough.

They are considering an idea to tax our total SS benefits as ordinary income ( like IRA w/d and other pensions). There may be some consideration for a basis derived from previous payroll taxes. Not clear to me how that would work, or how much it would offset the hit.

Yikes, what next ?
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Old 02-19-2015, 03:51 AM
 
6,353 posts, read 5,161,362 times
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Quote:
Originally Posted by cdelena View Post
Thanks, that article really helps me fully understand this tax coming to me next...

I have friends that throw a fit about the taxation of SS benefits and rave that SS contributions were mandatory and thus a tax and the taxation of benefits is nothing more than a tax on a tax. Of course they are some of the many that rave about taxes.

As I am living on IRA withdrawals, and paying a substantial (for me) tax payment every quarter, this discussion does get me wondering if my decision to take SS at 70 was fully comprehended by the evaluation software I used to chose a SS strategy.

I had looked at IRA distributions as simple taxable income but once I start SS benefits there is a real calculation that must be accounted for, triggering the tax from 50% to 85% of benefits.
What was the software? If there is a bug or misinformation in https://www.maximizemysocialsecurity.com, I would like to know, because (1) I use it and (2) it was written by a friend of mine.
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Old 02-19-2015, 07:30 AM
 
Location: Los Angeles area
14,018 posts, read 17,740,386 times
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Quote:
Originally Posted by reed303 View Post
An article posted yesterday at Bankrate.com
More taxes on Social Security? Bankrate, Inc.
claims that someone thinks SS benefits are not currently taxed enough.

They are considering an idea to tax our total SS benefits as ordinary income ( like IRA w/d and other pensions). There may be some consideration for a basis derived from previous payroll taxes. Not clear to me how that would work, or how much it would offset the hit.

Yikes, what next ?
I read the article and the "someone" is apparently the Congressional Joint Committee on Taxation. However, it is far from clear that the committee is in favor of the idea, which was proposed as an "idea" (i.e., a possibility), presumably among other ideas, to ease the coming crunch on Social Security.

It's good to keep informed about potential proposals, but as yet no legislation along those lines has been introduced in Congress. Nor is that likely anytime soon, as it would be a hot potato and politicians don't like hot potatoes. Talk is cheap.
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Old 02-19-2015, 08:32 AM
 
29,782 posts, read 34,871,258 times
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Quote:
Originally Posted by reed303 View Post
An article posted yesterday at Bankrate.com
More taxes on Social Security? Bankrate, Inc.
claims that someone thinks SS benefits are not currently taxed enough.

They are considering an idea to tax our total SS benefits as ordinary income ( like IRA w/d and other pensions). There may be some consideration for a basis derived from previous payroll taxes. Not clear to me how that would work, or how much it would offset the hit.

Yikes, what next ?
For many elected officials and advocates of certain tax positions this is a fair and consistent application of advocated tax reform. There are those who argue all income should be taxed the same. That argument is frequently heard most often regarding the lower rates for capital gains and dividends vs earned income. If that is reasonable than why should SS be given a different tax status? Many folks need to be careful of what they advocate for because it could come back and bite them in the rear end. We use the word fair so often in our society without any shared definition of what fair is. If SS is exempt from SS below a certain income then why not capital gains and dividends?
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Old 02-19-2015, 09:51 AM
 
Location: WA
5,395 posts, read 21,398,752 times
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Quote:
Originally Posted by TuborgP View Post
...
a fair and consistent
...
This is the government we are talking about... fair and consistent is a point of view as far as they are concerned and not always a consideration.

Tax laws are developed to fund the government, sustain programs (both good and bad), and many times attempt to change behavior of the citizens. This is done by people that got their job by selling a story to the voters.

I simply try to deal with the punches as they come and try not to worry about 'fair'.
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Old 05-03-2015, 11:11 PM
 
Location: RVA
2,167 posts, read 1,266,787 times
Reputation: 4460
Because SS is an insurance to which we pay premiums. There are no dividends or interest income derived. Totally different.

The decision to wait until 70 to collect SS is really based on how much other income you have and the type of savings you invest in. The lower your income, the more sense it makes to delay to 70. If you have less than enough to trigger the 50% of SS, then delaying if you can affordmit or are still working is a no brainer. You will have much more spendable income for the same gross amount. When you start hitting $110-120k/year it is much greyer. Delaying will still reduce your taxes, but then you have to look at RMDs and what your desired income is. Often, taking at FRA makes more sense as you income goes up especially if you have a sizeable Roth or low tax dividends, wher you actually have more income earlier when you have a use for it, but still have enough assets to cover late in life issues. My objective has never been to die rich, but to live well. I dont want $2mm at 90 if I had to sacrifice from 67-80!
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