Author Topic: A quick tax question re: Social Security benefits  (Read 1320 times)

WootWoot

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A quick tax question re: Social Security benefits
« on: April 09, 2018, 12:07:57 PM »
My spouse will be able to start collecting about $700 in Soc. Sec. benefits this fall. Our Adjusted Gross Income means up to 50% of these benefits will be taxable.

Is there any way around this? Like, say, can we deposit the $700 in an IRA, or can I increase my 403(b) contributions by $700 a month, thereby lowering my AGI, and use the $700 for living expenses?

Thanks!

ontheway2

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Re: A quick tax question re: Social Security benefits
« Reply #1 on: April 09, 2018, 01:27:23 PM »
The taxable % of SS is not just AGI; it is AGI plus nontaxable income PLUS HALF OF YOUR SS benefits.

Reducing your AGI through retirement contributions will reduce your tax owed both as a percentage of your SS benefits and the taxes that would be owed on the contributions if not contributed.

MDM

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Re: A quick tax question re: Social Security benefits
« Reply #2 on: April 09, 2018, 01:42:09 PM »
My spouse will be able to start collecting about $700 in Soc. Sec. benefits this fall. Our Adjusted Gross Income means up to 50% of these benefits will be taxable.

Is there any way around this? Like, say, can we deposit the $700 in an IRA, or can I increase my 403(b) contributions by $700 a month, thereby lowering my AGI, and use the $700 for living expenses?
The 403b will definitely work.  The IRA may work, depending on whether your income allows it to be deductible.

If you don't need the SS now, deferring it in return for higher monthly payments later is worth considering.

Marginal rates for various strategies can be seen in the case study spreadsheet if you enter your information there.

ontheway2

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Re: A quick tax question re: Social Security benefits
« Reply #3 on: April 09, 2018, 02:35:34 PM »
My spouse will be able to start collecting about $700 in Soc. Sec. benefits this fall. Our Adjusted Gross Income means up to 50% of these benefits will be taxable.

Is there any way around this? Like, say, can we deposit the $700 in an IRA, or can I increase my 403(b) contributions by $700 a month, thereby lowering my AGI, and use the $700 for living expenses?
The 403b will definitely work.  The IRA may work, depending on whether your income allows it to be deductible.

If you don't need the SS now, deferring it in return for higher monthly payments later is worth considering.

Marginal rates for various strategies can be seen in the case study spreadsheet if you enter your information there.

If contributed to the IRA as a spousal IRA, would it not be deductible no matter the income since the spouse collecting SS does not have access to a plan through work?

MDM

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Re: A quick tax question re: Social Security benefits
« Reply #4 on: April 09, 2018, 02:52:22 PM »
If contributed to the IRA as a spousal IRA, would it not be deductible no matter the income since the spouse collecting SS does not have access to a plan through work?
Maybe, but not necessarily, for two reasons:
1) A not-covered-by-retirement-plan-at-work spousal IRA still has a deductibility limit, just a higher one than if covered.
2) Collecting SS does not preclude one from working.

If only 50% of the SS will be taxable, #1 above probably doesn't hold.  Can't tell from the OP whether #2 does or not.

IRA Deduction Limits | Internal Revenue Service is a good source to answer all the above questions.

ontheway2

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Re: A quick tax question re: Social Security benefits
« Reply #5 on: April 09, 2018, 02:58:17 PM »
If contributed to the IRA as a spousal IRA, would it not be deductible no matter the income since the spouse collecting SS does not have access to a plan through work?
Maybe, but not necessarily, for two reasons:
1) A not-covered-by-retirement-plan-at-work spousal IRA still has a deductibility limit, just a higher one than if covered.
2) Collecting SS does not preclude one from working.

If only 50% of the SS will be taxable, #1 above probably doesn't hold.  Can't tell from the OP whether #2 does or not.

IRA Deduction Limits | Internal Revenue Service is a good source to answer all the above questions.

Good point re #1.  For #2, I may be assuming wrong that she does not work since OP mentions only contributing towards HIS 403b or lowering HIS AGI

MDM

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Re: A quick tax question re: Social Security benefits
« Reply #6 on: April 09, 2018, 03:36:48 PM »
For #2, I may be assuming wrong that she does not work since OP mentions only contributing towards HIS 403b or lowering HIS AGI
Or you may be assuming correctly. :)

WootWoot

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Re: A quick tax question re: Social Security benefits
« Reply #7 on: April 09, 2018, 03:42:50 PM »
Sorry--should have given you more to go on than the above.

1. I am the working spouse. He does not work. I have the 403(b). I make about $34,500 gross per annum.

2. We both have Vanguard IRAs.

3.  I don't know if he'll be returning to work.

4.  We file jointly.

Hopefully this will help a bit.

MDM

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Re: A quick tax question re: Social Security benefits
« Reply #8 on: April 09, 2018, 04:20:11 PM »
1. I am the working spouse. He does not work. I have the 403(b). I make about $34,500 gross per annum.
2. We both have Vanguard IRAs.
3.  I don't know if he'll be returning to work.
4.  We file jointly.
Based on that exact situation (i.e., exactly $34,500 W-2 gross income with no other income or deductions), and assuming you are both under 65 for 2018, there would be no federal tax at all on $9,000 in SS benefits if each of you contributes $1400 to Roth IRAs.

You could absorb even more SS income by switching to traditional IRAs (or traditional 403b) but with $700 * 12 = $8400/yr SS benefits, Roth would suffice for this year and shelter that amount from all future taxes as well.

See the case study spreadsheet if you would like to do "what if...?" with your actual numbers.