Comments on: Early Social Security Retirement: Good Idea? http://www.joecobb.com/blog/2006/12/09/early-social-security-retirement-good-idea/ Judge, Libertarian Party National Judicial Committee Wed, 20 Aug 2008 16:23:22 +0000 http://wordpress.org/?v=2.6 By: Joe Cobb http://www.joecobb.com/blog/2006/12/09/early-social-security-retirement-good-idea/#comment-4163 Joe Cobb Wed, 17 Oct 2007 01:40:05 +0000 http://www.joecobb.com/blog/2006/12/09/early-social-security-retirement-good-idea/#comment-4163 I agree that reducing tax deferred savings, 401(k) plans, traditional IRAs, to zero might be the extreme, corner solution. There might well be a moderate, middle way. The Line 20 tax is just a formula that includes other income from savings (DB pensions, capital gains, dividends, and IRA distributions) a second time, on Line 20. The amount is measured by the size of your SS benefit multiplied by your total other income: 85% or 50%). Therefore, if you know the formula, <em>you can get outside it.</em> For example, the Line 20 tax is capped at a total equal to 85% of your SS benefits. That much is added to your Adjusted Gross Income total. During that range of income calculations, your gross income is higher by 85%. After you pay up to that full level in the of tax bracket, then it disappears. The tax rate becomes Zero for weathier individuals. I agree that reducing tax deferred savings, 401(k) plans, traditional IRAs, to zero might be the extreme, corner solution. There might well be a moderate, middle way.

The Line 20 tax is just a formula that includes other income from savings (DB pensions, capital gains, dividends, and IRA distributions) a second time, on Line 20. The amount is measured by the size of your SS benefit multiplied by your total other income: 85% or 50%). Therefore, if you know the formula, you can get outside it.

For example, the Line 20 tax is capped at a total equal to 85% of your SS benefits. That much is added to your Adjusted Gross Income total. During that range of income calculations, your gross income is higher by 85%.

After you pay up to that full level in the of tax bracket, then it disappears.

The tax rate becomes Zero for weathier individuals.

]]> By: EMF http://www.joecobb.com/blog/2006/12/09/early-social-security-retirement-good-idea/#comment-2180 EMF Tue, 17 Jul 2007 02:34:48 +0000 http://www.joecobb.com/blog/2006/12/09/early-social-security-retirement-good-idea/#comment-2180 Joe, I agree with you, and disagree with your correspondent from Phoenix. In fact I recently blogged as to the downside of going through retirement with absolutely _no_ tax-deferred income. http://engineeringmyfinances.blogspot.com/2007/07/should-you-convert-all-of-your.html Yes, I realize the "Line 20" issue of taxation of Social Security benefits. But with some planning you can reduce the taxes you pay in the long run. Even if inflation pushes my Social Security benefit to $50,000/year so that as a single person the first $1.00 of taxable distributions results in $1.50 showing up as $1.50 of AGI on my tax return, I will not pay any taxes at all on that amount. I would not pay any taxes until the AGI income exceeds standard deduction and personal exemptions, which total $9800 for a single person this year. So why would I want to drain my tax-deferred savings to zero paying taxes at my marginal rate in the process, when if I instead spread part of it out over a number of years of retirement I would pay _no_ taxes? My own tax-deferred savings are on the high side. What I'm doing (in my 50's right now) is to convert some of my tax-deferred savings to Roth, before the income tax rates go back up. I'm planning to retire at 66, and depending on the situation may wait until the age of 70 to start Social Security. Between retirement and age 70, I would convert additional tax-deferred savings to Roth, but would not drive the tax-deferred savings to zero. By doing the conversion while not drawing Social Security while doing the conversion, I side step the "Line 20" effect. Depending on your particular circumstance, that approach may be to your benefit as well. Joe, I agree with you, and disagree with your correspondent from Phoenix. In fact I recently blogged as to the downside of going through retirement with absolutely _no_ tax-deferred income. http://engineeringmyfinances.blogspot.com/2007/07/should-you-convert-all-of-your.html
Yes, I realize the “Line 20″ issue of taxation of Social Security benefits. But with some planning you can reduce the taxes you pay in the long run.

Even if inflation pushes my Social Security benefit to $50,000/year so that as a single person the first $1.00 of taxable distributions results in $1.50 showing up as $1.50 of AGI on my tax return, I will not pay any taxes at all on that amount. I would not pay any taxes until the AGI income exceeds standard deduction and personal exemptions, which total $9800 for a single person this year. So why would I want to drain my tax-deferred savings to zero paying taxes at my marginal rate in the process, when if I instead spread part of it out over a number of years of retirement I would pay _no_ taxes?

My own tax-deferred savings are on the high side. What I’m doing (in my 50’s right now) is to convert some of my tax-deferred savings to Roth, before the income tax rates go back up. I’m planning to retire at 66, and depending on the situation may wait until the age of 70 to start Social Security. Between retirement and age 70, I would convert additional tax-deferred savings to Roth, but would not drive the tax-deferred savings to zero. By doing the conversion while not drawing Social Security while doing the conversion, I side step the “Line 20″ effect. Depending on your particular circumstance, that approach may be to your benefit as well.

]]> By: Joe Cobb http://www.joecobb.com/blog/2006/12/09/early-social-security-retirement-good-idea/#comment-20 Joe Cobb Wed, 13 Dec 2006 02:06:00 +0000 http://www.joecobb.com/blog/2006/12/09/early-social-security-retirement-good-idea/#comment-20 Today I went to the Social Security office and sat for two hours in its crowded waiting room. I turned in the form to rescind my Early Retirement decision, and I repaid six months of benefits, which I had received since June. My decision was based on a focus to distribute funds from taxable IRA accounts before taking Social Security, in order to avoid the extra income tax on Form 1040, line 20 next April 15. This would have been $850. The only negative aspect is that I might die before I get all my original tax payments, plus compound interest, out of the system. Today I went to the Social Security office and sat for two hours in its crowded waiting room. I turned in the form to rescind my Early Retirement decision, and I repaid six months of benefits, which I had received since June.

My decision was based on a focus to distribute funds from taxable IRA accounts before taking Social Security, in order to avoid the extra income tax on Form 1040, line 20 next April 15. This would have been $850.

The only negative aspect is that I might die before I get all my original tax payments, plus compound interest, out of the system.

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