Can I Receive Social Security Benefits While I'm Still Working?
The short answer is "Yes". But you may not want to depending on when you plan to turn on your social security benefits and how much you plan to earn each year from working.
can i receive social security while I'm still working
The short answer is "Yes". But you may not want to depending on when you plan to turn on your social security benefits and how much you plan to earn each year from working.
Electing social security benefits AFTER your Normal Retirement Age
For social security, your Normal Retirement Age (NRA), is the age you are eligible to receive full retirement benefits. Your NRA is based on your date of birth and the table is listed below:
delaying social security
Once you reach your NRA, you are allowed to begin receiving social security benefits without having to worry about the social security "earnings test". Meaning that you can earn as much as you want working and they will not reduce your social security benefit. You are free and clear.
Electing social security benefits BEFORE your Normal Retirement Age
If you turn on your social security benefits prior to reaching your Normal Retirement Age, you will be subject to the "earnings test" each year. For social security recipients who will not reach full retirement age in the 2016 calendar year, the first $15,720 in earnings is exempt. Beyond that amount, every $2 in earnings will reduce your social security benefits by $1. It's a fairly steep penalty. The general rule is if you plan to earn over the $15,720 threshold and you will not hit your normal retirement age for social security in 2016, do not elect to begin taking social security early because you will lose most of it from the "earned income penalty".
Electing social security benefits in the year your reach "Normal Retirement Age"
For social security recipients who will attain full retirement age during 2016, the first $41,880 is exempt, and the reduction is just $1 for every $3 in earnings beyond that point. Plus, only the months before your birthday count toward the total.
We advise our clients in this situation to keep their pay stub from the payroll period prior to reaching Normal Retirement Age because the IRS may contact them the following year to prove the amount of income that they earned prior to receiving their first social security payment.
Michael Ruger
About Michael.........
Hi, I'm Michael Ruger. I'm the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
Inherited IRA's: How Do They Work?
An Inherited IRA is a retirement account that is left to a beneficiary after the owner’s death. It is important to have a general knowledge of how Inherited IRA’s work because a minor error in how the account is set up could lead to major tax consequences.
how do inherited ira's work
An Inherited IRA is a retirement account that is left to a beneficiary after the owner’s death. It is important to have a general knowledge of how Inherited IRA’s work because a minor error in how the account is set up could lead to major tax consequences.
Before going into the different kinds of Inherited IRA’s, if you are the sole beneficiary of your spouse’s IRA, you are able to transfer the assets to your own existing IRA or to a new IRA through what is called a “Spousal Transfer”. This account is not treated as an Inherited IRA and therefore is subject to all the rules a Traditional IRA would be subject to as if it was always held in your name. If the spouse needs to have access to the money before age 59 ½, it would probably make sense to set up an Inherited IRA because this would give the spouse options to access the money without incurring a 10% early withdrawal penalty.
Withdrawal Rules for Spouse & Non-Spouse Beneficiaries
The SECURE Act that passed in December 2019 dramatically changed the distribution options that are available to non-spouse beneficiaries. If you are spousal beneficiary please reference the following article:
10 Year Method
All the assets must be distributed by the 10th year after the year in which the account holder died. This option may make sense compared to the Lump Sum option explained next to spread out the tax liability over a longer period.
Lump Sum Distribution
You may take a lump sum distribution when the account is inherited. It is recommended that you consult your tax preparer to discuss the tax consequences of this method since you may move up into a different tax bracket.
Additional Takeaways
If the decedent was required to take a distribution in the year of death, it is important to determine whether or not the decedent took the distribution. If the decedent was required to take a RMD but did not do so in the year they passed, the inheritor must take the distribution based on the life expectancy of the decedent or the distribution will be subject to a 50% penalty. Distributions going forward will be based on the life expectancy of the inheritor.
It is important to be sure a beneficiary form is completed for the Inherited IRA. If there is no beneficiary and the account goes to an estate then the inheritor will have limited choices on which distribution method to choose among other tax consequences.
You are only able to combine Inherited IRA’s if they were inherited from the same individual. If you have multiple Inherited IRA’s from different individuals, you cannot commingle the assets because of the distributions that must be taken.
There is no 60 day rule with Inherited IRA’s like there is with other Traditional IRA’s. The 60 day rule allows someone to withdraw money from an IRA and as long as it’s replenished within 60 days there is no tax consequence. This is not available with Inherited IRA’s, all non-Roth distributions are taxable.
The charts below are from insurancenewsnet.com publication titled “Extended IRA Quick Reference Guide” give another look at the details of Inherited IRA’s.
inherited ira options
inherited ira distribution options
About Rob……...
Hi, I’m Rob Mangold. I’m the Chief Operating Officer at Greenbush Financial Group and a contributor to the Money Smart Board blog. We created the blog to provide strategies that will help our readers personally , professionally, and financially. Our blog is meant to be a resource. If there are questions that you need answered, pleas feel free to join in on the discussion or contact me directly.
Backdoor Roth IRA Contribution Strategy
This strategy is for high income earners that make too much to contribute directly to a Roth IRA. In recent years, some of these high income earners have been implementing a “backdoor Roth IRA conversion strategy” to get around the Roth IRA contribution limitations and make contributions to Roth IRA’s via “conversions”. For the 2020 tax year, your
backdoor roth ira strategy
This strategy is for high income earners that make too much to contribute directly to a Roth IRA. In recent years, some of these high income earners have been implementing a “backdoor Roth IRA conversion strategy” to get around the Roth IRA contribution limitations and make contributions to Roth IRA’s via “conversions”. For the 2021 tax year, your ability to make contributions to a Roth IRA begins to phase out at the following AGI thresholds based on your filing status:
Single: $125,000
Married Filing Jointly: $198,000
Married Filing Separately: $0
However, in 2010 the IRS removed the income limits on “IRA Conversions” which open up an opportunity……if executed correctly…….for high income earners to make “backdoor” contributions to a Roth IRA.
Why would a high income earning want to contribute to a Roth IRA? Once high income earners have maxed out their contributions to their employer sponsored retirement plans, they usually begin to fund plain vanilla investment management accounts or whole life insurance policies. When assets accumulate in an investment management account, once liquidated, the account owner typically has to pay either short-term or long term capital gains on the appreciation. For whole life insurance, even though the accumulation is tax deferred, if the policy is surrendered, the policy owner pays ordinary income tax on the gain in the policy.
With a Roth IRA, after tax contributions are made to the account and the gains in the account are withdrawn TAX FREE if the account owner at the time of withdrawal is over the age of 59½ and the Roth IRA has been in existence for 5 years. A huge tax benefit for high income earners who are typically in a medium to higher tax bracket even in retirement.
Here is how the strategy works
Rollover all existing pre-tax IRA’s into your employer sponsored retirement plan
Make a non-deductible contribution to a Traditional IRA
Convert the Traditional IRA to a Roth IRA
Here are the pitfalls in the execution process
Over the years, more and more individuals have become aware of this wealth accumulation strategy. However, there are risks associated with executing this strategy and if not executed correctly could result in adverse tax consequences.
Here are the top pitfalls:
Forget to aggregate Pre-Tax IRA’s
Do not understand that SEP IRA’s and Simple IRA’s are included in the Aggregation Rule
They create a “step transaction”
Pitfall #1: IRS Aggregation Rule
The IRA aggregate rule stipulates that when an individual has multiple IRAs, they will allbe treated as one account when determining the tax consequences of any distributions (including a distribution out of the account for a Roth conversion).
This creates a significant challenge for those who wish to do the backdoor Roth strategy, but have otherexisting IRA accounts already in place (e.g., from prior years’ deductible IRA contributions, or rollovers from prior 401(k) and other employer retirement plans). Because the standard rule for IRA distributions (and Roth conversions) is that any after-tax contributions come out along with any pre-tax assets (whether from contributions or growth) on a pro-rata basis, when all the accounts are aggregated together, it becomes impossible to justconvert the non-deductible IRA.
picture
If an individual has pre-tax IRA’s we typically recommend that they rollover those IRA’s into their employer sponsored retirement plans which eliminates all of their pre-tax IRA balance and then open the opportunity to execute this backdoor Roth IRA contribution strategy.
Pitfall #2: SEP IRA & Simple IRA's count
Many smaller companies and self-employed individuals sponsor SEP IRA’s or Simple IRA Plans. Many individuals just assume that these are “employer sponsored retirement plans” not subject to the aggregation rules. Wrong. In the eyes of the IRS these are “pre-tax IRA’s” and are subject to the aggregation rules. If you have a Simple IRA or SEP IRA, make sure you take this common pitfall into account.
Pitfall #3: Beware IRS Step Transaction Rule
This is probably the most common pitfall that we see when executing this strategy. Individuals and investment advisors alike will make deposits to the non-deductible traditional IRA and then the next day process the conversion to the Roth IRA. In doing this, you run the risk of creating a “step transaction”.
There is a very long explanation tied to “step transactions” and how to avoid a “step transactions” but I will provide you with a brief summary of the concept.
Here it is, if you use legal loop holes in the tax system in an obvious effort to side step other IRS limitations (like the Roth IRA income limit) it could be considered a “step transaction” by the IRS and the IRS may disallow the conversion and assess tax penalties.
Disclosure: Backdoor Roth IRA Conversion Strategy
It is highly recommend that you work closely with your financial advisor and tax advisor to determine whether or not this is a viable wealth accumulation strategy based on your personal financial situation.
Michael Ruger
About Michael……...
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
Paying Down Debt: What is the Best Strategy?
Living with debt is not easy. It can be a constant burden and easily disrupt day-to-day life. Having debt will also ruin your credit score too. The worse your credit score gets, the less likely you will be accepted for any type of loan. One of the fastest ways to get rid of your debt is to pay your debt off in the correct order.
strategies for paying off debt
Living with debt is not easy. It can be a constant burden and easily disrupt day-to-day life. Having debt will also ruin your credit score too. The worse your credit score gets, the less likely you will be accepted for any type of loan. One of the fastest ways to get rid of your debt is to pay your debt off in the correct order.
STEP 1: Create a list of all your current debts
The first step is understanding what you owe. To start, make a master list of all your monthly credit card and loan statements. For each bill, include:
The creditor's name
The total amount you owe on that bill
The minimum required monthly payment
The interest rate (also known as APR)
The payment due date
STEP 2: List all of your monthly expenses
Add up all your monthly expenses: rent, car, food, utilities, health insurance and the minimum payments on your debts; as well as regular spending on things such as entertainment and clothing. Subtract that figure from your monthly after-tax income. The remaining amount is what you could put toward debt repayment each month-though it may make sense for you to save some.
STEP 3: Call your lenders
Call your lenders and explain your situation. They may be willing to lower your interest rate temporarily or waive late fees. You may also be able to lower your interest rate by transferring some high-interest credit card debt onto a new credit card with a lower rate (though that's not a long-term solution).
STEP 4: Payoff high interest rate or small balances first
You can start with the bill carrying the highest interest, or the one with the smallest balance. Prioritizing the highest-rate debt can save you more money: You pay off your most expensive debt sooner. Paying off the smallest debt can eliminate a bill faster, providing a motivating boost. Whichever you choose, make sure to pay at least the minimum on all your debts.
credit card debt
Pay the monthly minimum on each debt. The exception: your target bill. Put more money toward this one to pay it down faster. Once you pay off that bill, choose another to pay down aggressively. Your monthly debt repayment total shouldn't change, even when you eliminate bills. This way you gain momentum as you go, putting more and more money toward each remaining bill.
STEP 5: Get creative
You can use your annual tax refund or holiday bonus to pay down debt. Look for small ways to save money every day, such as riding your bike to work, or eating in instead of dining out. Another way to make a dent quickly is to sell unused or unnecessary belongings-maybe downgrading your car to a more affordable model with lower monthly payments.
STEP 6: Break the cycle
As you start to escape debt, it can be tempting to reward yourself by splurging on a new smartphone or an expensive dinner but just a few purchases can erase all your hard work. Instead, buy things with cash or your debit card, and think long and hard before taking on any new debt.
Read this book
If you want to live a debt free life, I strongly recommend you read the book "Total Money Makeover" by Dave Ramsey. Ramsey's book really paves the way to get out of debt and stay out of debt.
dave ramsey book
Michael Ruger
About Michael.........
Hi, I'm Michael Ruger. I'm the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
