USA Social Security Reduced Benefits Then Taxation Features

[gk10002000]

So I think I am getting close to my confusion and ignorance about two facets of Social Security.  For years I always thought I read that earned income, AKA wages was the only thing used when calculating your final tax return and how much of your social security is taxed.  There is a work sheet in the 1040 and it is pretty clear that MAGI is used when doing the taxes, and not just earned income.  Then I am reading other articles and facts from the SSA site and it clearly talks about REDUCED benefits if you are working and getting earned income.  I think I finally got the two sorted out and I had not understood things.

 

 Seems to be two separate things going on:  1: benefits may be reduced if one has earned income AKA wages.  I guess the SSA administration figures that out and reduces your benefits, something like  $1 from your benefit payments for every $2 you earn above the annual limit.   Then after you get the benefits, at the end of the tax year: 2: How much of social security benefit you actually get is then taxed when one files taxes and you deal with MAGI which includes investment income. 

 

So am I getting in the ballpark?  Separating the two features, reduced benefits, then taxation

 

Comments appreciate,

 

GK

[tonray]

Yes...that is a good summary of how it works.

[Pib]

Yeap, how much your social security may be reduced because you are still working and how much of your benefit is taxed are two different animals.  A reduction in benefits when working only applies while you are "below" you full retirement age.   More info below.

 

Income Taxes and Your Social Security Benefits

https://www.ssa.gov/planners/taxes.html

 

Getting Benefits While Working  

https://www.ssa.gov/planners/retire/whileworking.html

 

 

[gk10002000]

10 minutes ago, Pib said:

Yeap, how much your social security may be reduced because you are still working and how much of your benefit is taxed are two different animals.  A reduction in benefits when working only applies while you are "below" you full retirement age.   More info below.

 

Income Taxes and Your Social Security Benefits

https://www.ssa.gov/planners/taxes.html

 

Getting Benefits While Working  

https://www.ssa.gov/planners/retire/whileworking.html

 

 

Yep.  I got it now.  Great forum.  Just turned 60 and have so many options ahead for retiring, punching out, taking early benefits, all my IRAs both Roth and Traditional are all doshed up.  Just passed the 1 Mil mark, and got a free and fully paid relo back to Florida.  So now juggling how much to buy on a house, or not, use my VA no down or not, how much to keep putting in my regular brokerage mostly tax free muni investments (still would count for MAGI), etc.  I am working in Melbourne FL and I just am not enamored with the place so buying here as a retirement home is iffy,  Looks like it could be a fantastic rental investment since properties are in short supply here.

[Rhys]

On 4/29/2017 at 10:03 PM, gk10002000 said:

Yep.  I got it now.  Great forum.  Just turned 60 and have so many options ahead for retiring, punching out, taking early benefits, all my IRAs both Roth and Traditional are all doshed up.  Just passed the 1 Mil mark, and got a free and fully paid relo back to Florida.  So now juggling how much to buy on a house, or not, use my VA no down or not, how much to keep putting in my regular brokerage mostly tax free muni investments (still would count for MAGI), etc.  I am working in Melbourne FL and I just am not enamored with the place so buying here as a retirement home is iffy,  Looks like it could be a fantastic rental investment since properties are in short supply here.

 

 

 

Nice plan, but you need to research all this before setting up rental properties out here, they tend to have plenty of red tape and fees...

 

Enjoy your retirement, but you sound like you will get bored.

 

 

[gk10002000]

4 hours ago, Rhys said:

 

 

Nice plan, but you need to research all this before setting up rental properties out here, they tend to have plenty of red tape and fees...

 

Enjoy your retirement, but you sound like you will get bored.

 

 

Yep. I plan to ignore the rental thing.  I don't need the people issues.  I will let others follow the old Tom Vu real estate plans

[Langsuan Man]

On 4/29/2017 at 7:31 PM, gk10002000 said:

So am I getting in the ballpark?  Separating the two features, reduced benefits, then taxation

Only thing you are forgetting are  the MAGI penalties for Medicare Part B (and D) coverage

These penalties are technically are not a tax but do reduce the amount you receive from Social Security so you must factor them in for retirement planning

 

Here is the "schedule" just for this year (2017)

 

 

for a full discussion see this: https://q1medicare.com/q1group/MedicareAdvantagePartDQA/FAQ.php?faq=What-is-the-Income-Related-Monthly-Adjustment-Amount--or-IRMAA--&faq_id=538&category_id=133

[gk10002000]

On ‎5‎/‎2‎/‎2017 at 9:55 PM, Langsuan Man said:

Only thing you are forgetting are  the MAGI penalties for Medicare Part B (and D) coverage

These penalties are technically are not a tax but do reduce the amount you receive from Social Security so you must factor them in for retirement planning

 

Here is the "schedule" just for this year (2017)

 

 

for a full discussion see this: https://q1medicare.com/q1group/MedicareAdvantagePartDQA/FAQ.php?faq=What-is-the-Income-Related-Monthly-Adjustment-Amount--or-IRMAA--&faq_id=538&category_id=133

Thanks.  Yeah, I was aware of that but I didn't worry about that too much since I will be sure to keep my MAGI below 85,000 and I was going to have most of my traditional IRA converted over into my ROTH IRA by the time I access Medicare (thanks to Skatewash's explanations) or I will be sure my IRA withdrawals will keep me below that 85K number.   

[Langsuan Man]

Good idea, but make sure you do your conversions before you are eligible for Medicare, since conversions are considered as regular income. A fact that a US CPA failed to mention when I paid for "professional advice" on limiting my tax exposure prior to RMD age

Ergo; my wanting to spread the word

Sent from my Nexus 5X using Thailand Forum - Thaivisa mobile app

[gk10002000]

13 hours ago, Langsuan Man said:

Good idea, but make sure you do your conversions before you are eligible for Medicare, since conversions are considered as regular income. A fact that a US CPA failed to mention when I paid for "professional advice" on limiting my tax exposure prior to RMD age

Ergo; my wanting to spread the word

Sent from my Nexus 5X using Thailand Forum - Thaivisa mobile app
 

Yep.  I got it.  The plan is to retire soon, convert my Traditional IRA monies over to Roth IRA. While burning that down, I will delay my social security a little bit.  Those benefits increase roughly 8% a year.  Then when I hit 65, start medicare and most of my monies will come from social security or payouts from my Roth IRA. And yes, I believe the first year on Medicare they use the previous year's income for the first year's payment estimates I think, so I will try to hit all the sweet spots.