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Old 01-31-2017, 12:37 PM
 
Location: SoCal
13,229 posts, read 6,331,374 times
Reputation: 9844

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Quote:
Originally Posted by reed303 View Post
ISTM there is a big exception to the bolded above. And that is the effect of taxation of Social Security benefits caused by RMDs from IRAs and 401ks. What some bloggers refer to as the "Tax Torpedo".

Last year was my first RMD year, and I effectively "returned" about 6% or $2000 of my SS checks. This year appears to be about the same. And AFAIK will go on "forever".

Roth IRAs do not have RMDs, and do not add to SS taxation. However, in my career, Roths came along too late for switching from Trad. IRA to make financial sense. IRAs and 401ks were touted on the premise of avoiding a high (say 25%) current income tax bracket, in favor of later withdrawal (at say 15%) tax bracket. Until it was too late, I had not seen any info on the taxation of SS benefits.

So here I am now definitely being penalized for having saved for retirement as one of the so-called "3 legs of the stool". (I also do have small employer pension, and it also adds to the SS taxation).

So I ask, why am I being penalized for saving ?

Oh, BTW, my current AGI puts me in the 15% bracket, so its not like I'm living high off the hog on current "income". And I have no assets other than a car and my "cash" savings.
According to Turbotax, my husband returned 80-90% of his SS. But I think CA doesn't tax SS so it helps somewhat. It's already mean testing.
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Old 01-31-2017, 12:55 PM
 
71,584 posts, read 71,751,865 times
Reputation: 49194
Quote:
Originally Posted by NewbieHere View Post
My kid owns a small business and I cringe when people keep wanting to raise FICA tax.
same here . we have one who owns a car leasing company and one who is a partner in a national law firm .
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Old 01-31-2017, 12:56 PM
 
1,980 posts, read 1,307,003 times
Reputation: 3398
Quote:
Originally Posted by AtlantaNative1968 View Post
If ever there were an argument for privatizing Social Security... I am 55 years old. For over 20 years I have made over six figures a year. My mother, who is still alive at 86 and is getting my deceased father's social security, receives $1200 a month from the government. My father was an uneducated blue collar worker who never made more than 8 bucks an hour base pay. He retired at 62 back in the mid 80s, so he didn't get the full benefit. My mother never worked...a home maker her entire life. So...$1200 a month...which is based on meager increases over the last 15 years. Now me, I have worked constantly since I was 15 years old, the only gap is when I took a year off while going to school when I was in my early 20s. Over 20 years now I have made over $100K a year each year. According to the SSA.gov web site, my benefit if I retire at the same age that my dad did will be $1900 a month. Yes, only $700 more than my mother who never worked and my father who was a low income worker who retired early over 30 years ago.


I am speechless. Where the heck has all our money gone for these decades paying into the government fund? This is a lesson to everyone out there in their 30s and younger. Don't even consider SS as potential income in retirement. Save as much as you possibly can as early as you can and take advantage of as many investment opportunities as you can - like 401K and Roth IRAs. Your government is squandering your social security so do not expect to get anything resembling a return on what you are paying in.
Retire at 67 or even 70. I've run the numbers...... I'm 52, but if I wait till 70, based on tomorrows dollars, my SS income would be almost $6000 a month vs $3300 at 62. Throw in my wife's part, and we are talking $8000 a month.

It pays to wait.
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Old 01-31-2017, 01:08 PM
 
1,980 posts, read 1,307,003 times
Reputation: 3398
Quote:
Originally Posted by markg91359 View Post
Indeed, the reason why a surviving spouse gets to collect their partner's social security is because of a value that society places on the home and on families. Rightly or wrongly, the policy is that marriage and family create a certain stability that is good for society. There is some truth to it. Life insurance companies have statistics indicating married men live longer than unmarried men do. Some people think family doesn't count. I couldn't disagree more. Marriage and family are the central fact in my life.
Exactly- people chiming in to do away with this benefit essentially is driving all families to have both spouses work. The are placing a value on the family structure (a small one at that quite frankly) that I really disagree with getting rid of. It's good for the kids. Being a stay at home mom is still a huge financial sacrifice.

I could just as easily say its a personal choice to work when you could have stayed home. Or got married.
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Old 01-31-2017, 01:23 PM
 
Location: Northern panhandle WV
3,007 posts, read 2,171,440 times
Reputation: 6691
Quote:
Originally Posted by kokonutty View Post
"The maximum monthly Social Security benefit payment for a person retiring in 2016 at full retirement age is $2,639. However, the maximum allowable benefit amount is only payable to those who had the maximum taxable earnings for at least 35 working years." - Investopedia

The OP's full retirement age is 67. If he retires at age 62 he will be eligible for only 70% of the maximum if he otherwise qualified for it. In 2016 that would have been $1873 so it is probably right around $1900 in 2017. I notice he has not been back and did not really ask a question; I wonder what the point of his rant was.
I don't know but in answer to his question where did all that money we all paid in all these years is simple, it went to pay all the retiries over those same years. that is how it was set up to be. It was never a personal account savings or investing plan, which is what the OP seems to believe. I wonder where that idea came from in the first place. A lot of people seem to believe the personal account idea.
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Old 01-31-2017, 01:37 PM
 
Location: RVA
2,165 posts, read 1,266,382 times
Reputation: 4456
Quote:
Originally Posted by reed303 View Post
ISTM there is a big exception to the bolded above. And that is the effect of taxation of Social Security benefits caused by RMDs from IRAs and 401ks. What some bloggers refer to as the "Tax Torpedo".

Last year was my first RMD year, and I effectively "returned" about 6% or $2000 of my SS checks. This year appears to be about the same......

So here I am now definitely being penalized for having saved for retirement as one of the so-called "3 legs of the stool". (I also do have small employer pension, and it also adds to the SS taxation).

So I ask, why am I being penalized for saving ?

Oh, BTW, my current AGI puts me in the 15% bracket,.......
You aren't being penalized for saving. You are being penalized for thinking that saving and sources of income in retirement are the same thing. You realize NOW, that if you could do it over, you would put way less in to a 401k or tIRA, and instead invested after tax in munis or other LTCG dividends that are taxed at a much lower rate, provide income, and are not subject to RMDs that suddenly force your MAGI in to an area where you now pay tax on 80% of your SS. You could have the exact same income, and not pay an extra $2000 in taxes on your SS. In essence, you are being taxed later at an effectively higher rate to make up for paying no taxes when you earned that money. Once the bulk of your savings is stuck in deferred tax accounts, it's impossible to get any significant sums out without paying regular income tax rates on both earnings and appreciation, where it drags the rest of your income in to a taxed state as well. It is far better to have $75k in a Roth than $100k in a tIRA, if you are in the 25% bracket when married, and even more so if you find yourself single in retirement after being married your whole life. You would not have thought, back in 2000, when Roths came about, and you were 55, that to open one made any sense. I thought the same thing and delayed opening my Roth until 2008 at age 50, when I FINALLY read enough to realize that regardless of the so called "tax wash", it could be worth way more. When the back door Roth rollover became law, I switched almost everything to after tax 401k and roll it in to the Roth once a year.

I have been trying to explain this exact same phenomenon to people that keep spouting the same "delay paying taxes as long as possible" logic as the smartest thing to do. Above a certain income range, it makes no sense to save everything tax deferred. You WILL pay more later, even if you are at the same rate. Because I still have SOME time, and we both will get pensions that total over $60k, I put almost everthing in to after tax savings, after tax 401k to roll in to Roths, and Roth direct. I will use my pre tax IRA accounts to fund delaying my SS as long as possible.

Last edited by Perryinva; 01-31-2017 at 01:58 PM..
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Old 01-31-2017, 01:43 PM
 
Location: Florida and New England
1,233 posts, read 1,418,186 times
Reputation: 1681
Quote:
Originally Posted by reed303 View Post
ISTM there is a big exception to the bolded above. And that is the effect of taxation of Social Security benefits caused by RMDs from IRAs and 401ks. What some bloggers refer to as the "Tax Torpedo".

Last year was my first RMD year, and I effectively "returned" about 6% or $2000 of my SS checks. This year appears to be about the same. And AFAIK will go on "forever".

Roth IRAs do not have RMDs, and do not add to SS taxation. However, in my career, Roths came along too late for switching from Trad. IRA to make financial sense. IRAs and 401ks were touted on the premise of avoiding a high (say 25%) current income tax bracket, in favor of later withdrawal (at say 15%) tax bracket. Until it was too late, I had not seen any info on the taxation of SS benefits.

So here I am now definitely being penalized for having saved for retirement as one of the so-called "3 legs of the stool". (I also do have small employer pension, and it also adds to the SS taxation).

Oh, BTW, my current AGI puts me in the 15% bracket, so its not like I'm living high off the hog on current "income". And I have no assets other than a car and my "cash" savings.
Good point. This was debated several years ago when Ted Kennedy proposed the taxation of Social Security benefits (they used to be untaxed).

I agree for tax consistency reasons that RMDs should be excluded from income for social security taxability calculations. But they are not excluded under current law.
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Old 01-31-2017, 01:44 PM
 
Location: SoCal
13,229 posts, read 6,331,374 times
Reputation: 9844
Quote:
Originally Posted by dbsteel View Post
Exactly- people chiming in to do away with this benefit essentially is driving all families to have both spouses work. The are placing a value on the family structure (a small one at that quite frankly) that I really disagree with getting rid of. It's good for the kids. Being a stay at home mom is still a huge financial sacrifice.

I could just as easily say its a personal choice to work when you could have stayed home. Or got married.
The U.K. has gotten rid of spousal benefits. Everybody qualifies on their own benefits. Even for the unemployed, parents who stay home with young kids, or students in college.
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Old 01-31-2017, 01:44 PM
 
Location: Ohio
19,916 posts, read 14,235,190 times
Reputation: 16096
Quote:
Originally Posted by foundapeanut View Post
To privatize it would be a disaster.
Not if you privatized it as insurance.

Quote:
Originally Posted by NewbieHere View Post
My kid owns a small business and I cringe when people keep wanting to raise FICA tax.
Even if you eliminate the cap, you still have to raise the FICA payroll tax. Every Generation suffered a FICA payroll tax increase to ensure the program was solvent.
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Old 01-31-2017, 02:09 PM
 
Location: Silicon Valley
3,617 posts, read 1,629,175 times
Reputation: 6138
Quote:
Originally Posted by NewbieHere View Post
My kid owns a small business and I cringe when people keep wanting to raise FICA tax.
Sadly, the most effective savings can be achieved by starting from cash based pieces and moving portions of cash through a supply chain, even down to the minimum wage employee whose paid the remainder of his/her wage in cash. Once learned, it is very difficult for an economy to unlearn this. Once learned, it is very difficult for anyone not doing this to compete. Once commonly accepted, a population becomes ungovernable.

I didn't vote Trump, but I do hope he stops wasting political capital to build some wall and deregulates some things first. Doesn't he realize people loved Reagan for telling Gorbechev to tear down a wall, not build one up?
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