I hope to get to your point of comfort. That's my goal.

quote:

Originally posted by 911Boss:
I just retired and will start collecting SS next year when I turn 62.

My understanding is my state pension and personal retirement distributions while considered “income” for tax purposes are not “earnings” that impact the taxation of the SS amount.

Do I have that correct?

Washington state doesn’t have an income tax. (I just googled it.)

But for the Federal income tax, it is how I show it on my spreadsheet. Those income that you report which I listed on the first column plus any tax free interest income you may have minus 50% of your social security, add up to your combined income which determines what percentage of your social security benefit will be taxed at your marginal tax rate as I explained in my post.

Making 15% of your SS benefit tax free isn’t much but I suppose it’s work for tax professionals.

quote:

Originally posted by Fly-Sig:

quote:

Originally posted by konata88:
I'm trying to figure out what my real situation is and how to mitigate things.

1) As I've posted before, converting IRA money to a ROTH is usually a winner. One important consideration is the 5 year rule, that the ROTH has to exist for 5 years. Start the clock now even with just a small initial deposit. The decision matrix for ROTH conversion is both simple and complicated. The simple part is your current tax rate vs future tax rate, which mathematically is the only factor in final value. If you do not convert now, you save taxes now but your future withdrawals are "income" which affects other things such as Medicare, how much of your SS gets taxed, etc. You'd have to make some assumptions and plug them into a bunch of calculations. If you happen to be in an unusually high tax bracket for the current year, conversion may not make sense. If your income is stable and representative of you future lifestyle, conversion may be a good idea.

2) Typically a retiree's income in a general sense does not go down much. That is, if you currently earn $100k then you have a $100k lifestyle. In retirement you'll have a similar lifestyle and need either $100k in taxable earnings (from your 401k or your regular taxable brokerage account), or you'll need something less from non-taxable sources such as ROTH. Those are generalizations but make the point. If all your savings are in a 401k you will have to withdraw $100k to end up with the same spendable money as you have now. If all your money is in a ROTH, you only have to withdraw what you spend. The ROTH bonus is a zero taxable income, which helps save money in other areas.

3) I am a fan of taking SS at 62, which is what I did. If you don't need the money at 62, you can bank it and let it grow. Historically your investments should average at least the 8% difference that SS has per year of delay.

I’m not in any major disagreement with your post as personal situations are different.

But you do have an incorrect understanding of Roth IRA conversions. It does NOT matter when the Roth account was opened. What matters is the calendar year when you converted the funds. For example, I converted $10k on Jan 1, 2024 and another $20k on Dec 31, 2024. Since both deposits were made in 2024, those funds and any growth, dividends, and interest from the $20k converted in 2024 will be available 5 years later in 2029. If you convert another amount in 2025, the clock starts separately for those funds. What’s not clear to me is what the penalty is for withdrawing converted funds within 5 years. So feel free to research and share.

Investopedia article

With regards to taking SS at 62 vs 70, this is definitely personal situations. I’m betting I’ll live past normal age based on my dad dying at 99.

I look at delaying taking SS past Full Retirement Age as buying an annuity with that year’s social security benefits that pays 8%. Annuities that pay 8% in 3, 2, and 1 year maturity at zero cost is pretty good in my view.

Additionally, not having Social Security allows me to make a larger Roth IRA conversion without hitting any threshold limit that incurs cost like IRMAA or the next higher tax bracket.

Did I have everything perfect with SS? Unfortunately, no as I didn’t know enough. We waited for my wife until she was full retirement age to apply for SS. Now, you may think I’m just going to say she should have waited until age 70 but no. Her full SS is exactly half of my full retirement SS. So, the best financial move would have been she start taking SS at 62 then when I get my SS at age 70, she can get half of my SS and all the money she received before then is free money as she will never hit the break even point taking SS early vs SS at full retirement age. But this highlights each situation is different.

Worked for SSA for 43 years prior to retirement. Here are a few items I can contribute:

1. This link is directly from the SSA website. It's easy to understand. It covers how work after filing for SSA affects your benefits. It also makes clear that pension, investment and other income does not affect your benefits.
https://www.ssa.gov/benefits/r...er/whileworking.html

2. This link covers taxes and SS benefits. It's also from the SSA website. It's also clear and easy to understand. As the link says, SS benefits are not taxed at an 85% rate. Rather, up to 85% of your benefits may be taxed, but the rate of taxation depends on your income.
https://www-origin.ssa.gov/ben...t/planner/taxes.html

3. Here is a link that explains IRMAA. That's the adjustment (translation - increase) that you are going to pay for medicare if your income exceeds the threshold amounts.
https://www.ssa.gov/benefits/m...dicare-premiums.html.

4. A few of my own random thoughts. Obviously when to begin collecting SSA benefits is a personal choice. I can recall a fellow who was a widower. He was retired, but chose to wait to collect his benefits to get delayed retirement benefits and otherwise get a higher benefit. Before the filed, he had a heart attack and died. So his daughter comes and asks if she can get anything since her father never collected. Answer - No.

Minor item. SSI is a public assistance program and is not Social Security. When you saw SSI in this thread, replace SSI with Social Security. Otherwise the post was fine.

quote:

Originally posted by sjtill:
California does not tax Social Security income.

Nor do 39 other states nor DC.

quote:

Originally posted by Rey HRH:

But you do have an incorrect understanding of Roth IRA conversions. It does NOT matter when the Roth account was opened. What matters is the calendar year when you converted the funds.

There are several parts of the 5 yr rule, plus whether one is over or under 59.5 yrs old. The first step is to establish a ROTH to start the clock. That was the point I was trying to make, establish a ROTH asap if he doesn't yet have one. But then, yes there are details regarding conversions which is different than regular contributions. And how old the person is at each step.

Conversions after 59.5 do not have a 5 yr clock iirc.

quote:

Originally posted by Fly-Sig:

quote:

Originally posted by Rey HRH:

But you do have an incorrect understanding of Roth IRA conversions. It does NOT matter when the Roth account was opened. What matters is the calendar year when you converted the funds.

There are several parts of the 5 yr rule, plus whether one is over or under 59.5 yrs old. The first step is to establish a ROTH to start the clock. That was the point I was trying to make, establish a ROTH asap if he doesn't yet have one. But then, yes there are details regarding conversions which is different than regular contributions. And how old the person is at each step.

Conversions after 59.5 do not have a 5 yr clock iirc.

The investopedia article which I posted in my reply says the 5-year rule applies to converting a traditional IRA to a Roth IRA. And I guess if you were talking about just a regular Roth IRA then your first sentence confused me because you led off with "converting IRA money to a Roth is usually a winner. One important consideration is the 5 year rule, that the ROTH has to exist for 5 years."

Thanks to all contributing to the SS Thread!!

A non secuitur: due to disabilities, my wife and I employ caregivers. I give them a choice of being on my payroll or on 1099. I encourage them to be on payroll because I pay half of SS and have Workman Comp insurance as well.

Do all concur that being on payroll is to their advantage?

I'm no expert. I recall a guy on YouTube (now on Rumble I think) that used to talk about this and other retirement stuff. Even if you pay taxes it doesn't come out to all that much.

I know Chat GPT can be wrong, but this scenario seems accurate and less than 5K taxes on 50K earnings with 2200 Social Security per month.
Married couple wife age 62, husband 58. Wife takes social security of $2200/month. Couple has wages totalling $50,000. What will they pay taxes on and how much is below. It showed all the calculations but pasting with formatting is not working.

ChatGPT
To determine the taxable amount and the taxes for the married couple, we need to follow these steps:


Summary
Combined Income: $63,200
Taxable Social Security Benefits: $22,440
Total Taxable Income: $72,440
Taxable Income after Standard Deduction: $44,740
Total Federal Income Tax: $4,928.80
Therefore, the couple will pay approximately $4,928.80 in federal income taxes.

quote:

Originally posted by Rey HRH:
your first sentence confused me because you led off with "converting IRA money to a Roth is usually a winner. One important consideration is the 5 year rule, that the ROTH has to exist for 5 years."

I was too cryptic. A ROTH must exist for 5 years to withdraw money without penalties. It does not have to exist for 5 years before a conversion can be made into it. Even if one doesn't have a specific plan yet for what to do with it, starting a ROTH just to get that first 5 year clock started makes sense.

A lot of people are probably surprised by there even being a 5 year rule. I was.