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[quote=”DavidCMurray”][quote=”sprite”]Which is the “taxable part” of social security?[/quote]
…> but what I know is that if your total taxable income falls above some limit or another, then part of your Social Security becomes taxable under the IRS Code. And the higher that other taxable income is the more tax liability you’ll have for your Social Security.<[/quote]Currently, for a single person, if your total income exceeds 25000 some of your social security can (and usually does) become taxable. If you are married then total income can go up to 32000. It is true that the more you total income you have, the more of your Social Security is taxable – up to 85% of it. And because it becomes taxable you can jump up a tax rate and pay even more! I do taxes and boy does it make people mad!! It is worse when it is a surprise. When I start to collect SS in a few years in addition to a small retirement check, I should total 27,000 and will have to pay some additional taxes due to the Soc Security, and if I wait until I get more income from SS, I will pay even more taxes.
Also – if you will be taking money out of a traditional IRA or 401K (as opposed to a Roth), that adds to your tax bite again. So yes, the money will be there for you but you will be paying taxes on it and that makes more of your Social Security taxable. So if you are not yet collecting Social Security (even if you are still working), you might want to consider converting it to a Roth where the contribution (and after 5 years, any earnings) become non-taxable. Check with your tax person to see how much you can convert each year without paying too much more in taxes.
With a traditional IRA you save money the year on your taxes the year that you contribute, but it becomes taxable (including any money it may have earned) when you take it out. It is a tax-[i]deferred[/i] account, [i]not tax-free[/i]. This will make more of your Social Security taxable. A Roth IRA is not deductible – it does not help you when you make the contribution. BUT when you take the money out, it is not taxable. Because you did not get a benefit when you put the money into the account, you don't pay taxes when you take it out. There are also other benefits. Talk to your tax person.
HOWEVER, you need to remember that the conversion of a Traditional IRA to a Roth IRA is a taxable event. You will have to pay the taxes as if you had taken the money to spend. Converting to a Roth allows the interest/dividends to accrue tax free and after a 5 year waiting period, the earnings are as tax free as the contributions. But at least when you are taking Social Security and you withdraw funds from your Roth, you will pay on less of that Social Security.
One last note: For some people who are making good incomes right now, it may not pay to convert the IRAs because your tax rate right now is considerably higher than it will be when you start collecting Social Security. It may be more beneficial for these taxpayers to put more in their IRA (or a Roth IRA if the deduction won't help you much) and just resign yourself to paying more taxes in your golden years.
Hope this helps. I am going down to the office this week to double check my figures for this year (collecting small retirement with almost half taken out for Health Insurance and working at HR Block seasonally) to see how much I should convert to a Roth so that when I can collect SS and get out of here, I can minimize my taxes.
Well, for some of us, we can not do some of these things now. At present my health insurance is taking up 29% of my gross, and I am working part of the year in my retirement. With deductibles and copays, I ended up spending 34% of my gross (including some unemployment) which is ridiculous.
I probably go “out” at a low cost restaurant maybe 10 times a year, haven’t been to the movies in years and have not had TV since it broke 4 years ago.
I gross about 1700 a month now, working part time post-retirement. I will feel rich when I can start collecting Social Security! But there is no way that I can continue paying this outrageous cost for health services. I am in an HMO right now and often wait for appointments, so CAJA and INS sound pretty good to me.
I know I will make sacrifices, but I make them now… water heater broken for 5 months now due to no money to pay for a new one, no AC even though we run between 90 and 110 all summer, old car, … When I can sell my house without taking a loss, I will be out of here!
After a lifetime of working, I can not afford to live in the US at this point in my life. I know I will live in a modest place, but I live in one now. I have no illusions about living in one of the palaces shown on most websites – why should I? I don’t live like that now!
