Articles tagged with: tax

Your Social Security Benefits & Your Provisional Income

Earning too much may cause portions of your retirement benefits to be taxed. 

You may be shocked to learn that part of your Social Security income could be taxed. If your provisional income exceeds a certain level, that will happen.

Just what is “provisional income”? The Social Security Administration defines it with a formula.

Provisional income = your modified adjusted gross income + 50% of your total annual Social Security benefits + 100% of tax-exempt interest that your investments generate.1

Income from working, pension income, withdrawals of money from IRAs and other types of retirement plans, and interest earned by certain kinds of fixed-income investment vehicles all figure into this formula.

If you fail to manage your provisional income in retirement, it may top the threshold at which Social Security benefits become taxable. This could drastically affect the amount of spending power you have, and it could force you to withdraw more money than you expect in order to cover taxes.

Where is the provisional income threshold set? The answer to that question depends on your filing status.

If you file your federal income taxes as an individual, then up to 50% of your annual Social Security benefits are subject to taxation once your provisional income surpasses $25,000. Once it exceeds $34,000, as much as 85% of your benefits are exposed to taxation.1,2

The thresholds are set higher for joint filers. If you file jointly, as much as 50% of your Social Security benefits may be taxed when your provisional income rises above $32,000. Above $44,000, up to 85% of your Social Security benefits become taxable.2

The provisional income thresholds have never been adjusted for inflation. Since Social Security needs more money flowing into its coffers rather than less, it is doubtful they will be reset anytime in the future.

When the thresholds were put into place in 1983, just 10% of Social Security recipients had their retirement benefits taxed. By 2015, that had climbed to more than 50%.2

In 2017, the Seniors Center, a nonprofit senior advocacy organization based in Washington, D.C., asked retirees how they felt about their Social Security benefits being taxed. Ninety-one percent felt the practice should end.2

How can you plan to avoid hitting the provisional income thresholds? First, be wary of potential jumps in income, such as the kind that might result from selling a lot of stock, converting a traditional IRA to a Roth IRA, or taking a large lump-sum payout from a retirement account. Second, you could plan to reduce or shelter the amount of income that your investments return. Three, you could try to accelerate income into one tax year or push it off into another tax year.

Consult with a financial professional to explore strategies that might help you reduce your provisional income. You may have more options for doing so than you think.

Mike Moffitt may be reached at Ph# 641-782-5577 or email: mikem@cfgiowa.com

Website: www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

Citations.

1 – kiplinger.com/article/retirement/T051-C032-S014-can-you-cut-taxes-you-pay-on-your-social-security.html [9/13/17]

2 – fool.com/retirement/2017/03/26/91-of-seniors-believe-this-social-security-practic.aspx [3/26/17]

The 60-Day IRA Rollover Rule

Will it apply to your retirement savings distribution?

If you receive a distribution from your IRA or workplace retirement plan, what will you do with it? You will probably want to consider arranging an IRA rollover – a common and useful financial move designed to take these invested assets from one retirement account to another, without tax consequences. The I.R.S. may give you just 60 days to do it, however.

The clock starts ticking on the day you receive the distribution. If assets from your employee retirement plan account or your IRA are paid directly to you, you have 60 calendar days to transfer those funds into an IRA or workplace retirement plan. If you fail to do that, the I.R.S. will characterize the entire distribution as taxable income. (It may also tack on a 10% early withdrawal penalty if you take possession of such funds before age 59½.)1

Your goal is to make this indirect rollover by the deadline. It is called an indirect rollover because its mechanics can be a bit involved. If the assets are coming out of an employee retirement plan, your employer may withhold 20% of them in accordance with tax laws. Unfortunately, you do not have the option of depositing only 80% of the distribution into an IRA or another employee retirement plan – you must deposit 100% of it by the deadline. You have to come up with the remaining 20%, yourself, from your own savings. The withheld 20% should be returned to you at tax time if the rollover completes smoothly.2

Can you make multiple IRA rollovers using funds from a single IRA? You can, but the I.R.S. says the rollovers must occur at least 12 months apart. Additionally, the I.R.S. prohibits you from making a rollover out of the “new” IRA that receives the transferred assets for a year following that transfer.1

This 12-month limit does not apply to every kind of retirement plan rollover. Trustee-to-trustee transfers, where the investment company (acting as custodian of your IRA or retirement plan account) simply sends a check for the assets to the brokerage firm that will eventually receive them, are exempt from the 60-day deadline. So are rollovers between workplace retirement plans, IRA-to-plan rollovers, and plan-to-IRA rollovers. If you are converting a traditional IRA to a Roth IRA, the 60-day rule is also irrelevant.1,2

Some retirement savers simply opt for a trustee-to-trustee transfer – a direct rollover – rather than an indirect one. A direct rollover of retirement assets is routine, and it can be coordinated with the help of a financial professional. If you do prefer to perform an indirect rollover on your own, be mindful of the 60-day rule and the potential ramifications of missing the deadline.

Have you recently retired or been let go at work? If so, what happens to the money you have saved in your employee retirement plan?

A plan participant leaving an employer, has 4 options (and may engage in a combination of these options) when it comes to your retirement plan money:

* Cash it out (and lose part of it to taxes and possible tax penalties)

* Leave the money in the plan (with only a handful of investment options)

* Roll it into a new workplace retirement plan (with limited investment choices)

* Roll it over into an IRA (with no taxable event occurring, and with the ability to direct the money into many different types of investments)

Mike Moffitt may be reached at ph# 641-782-5577 or email:  mikem@cfgiowa.com

Website:  www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

Citations.

1 – irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions [2/8/17]

2 – fool.com/retirement/2017/03/08/what-to-do-with-your-old-401k-when-switching-jobs.aspx [3/8/17]