Things You Should Know About Social Security...
Got a couple of IRS e-mails today that involve Social Security and retirement, which is what inspired this post. So first from the IRS:
Seven Facts About Social Security Benefits
If you received Social Security benefits in 2009, you need to know whether or not these benefits are taxable. Here are seven facts the Internal Revenue Service wants you to know about Social Security benefits so you can determine whether or not they are taxable to you.
1. How much - if any - of your Social Security benefits are taxable depends on your total income and marital status.
2. Generally, if Social Security benefits were your only income for 2009, your benefits are not taxable and you probably do not need to file a federal income tax return.
3. If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status.
4. Your taxable benefits and modified adjusted gross income are figured on a worksheet in the Form 1040A or Form 1040 Instruction booklet.
5. You can do the following quick computation to determine whether some of your benefits may be taxable:
Links:
Top Ten Facts about Taking Early Distributions from Retirement Plans
Some taxpayers may have needed to take an early distribution from their retirement plan last year. The IRS wants individuals who took an early distribution to know that there can be a tax impact to tapping your retirement fund. Here are ten facts about early distributions.
Links:
According to the SS Statement that I got this year, "Without changes, by 2037 the Social Security Trust Fund will be exhausted" and there will only be enough to pay 76 cents on the dollar of scheduled retirement benefits.
I never expected to get Social Security benefits at retirement, so no great shock for me. What I think this will probably translate into is another raise in the retirement age for receiving full benefits. Instead of 65, it'll go up to 70 sometime in the next decade. Philosophically, I don't think SS should be used as a retirement plan, so this doesn't bother me too much. Practically, I'm extremely grateful for SS payments, cause otherwise my parents would be in trouble right now (they did squat to save for retirement).
This blog doesn't post much on retirement, because our focus is managing day to day expenses. However it is something to keep in mind, particularly as you do get your finances under control and your savings built up. Because as shown above, there are often stiff penalties for early withdrawal from a retirement plan, I think most people should focus on building up an Emergency Fund, before saving aggressively for retirement. But once the Emergency Fund is in place, it's time to give retirement funds some serious thought.
Seven Facts About Social Security Benefits
If you received Social Security benefits in 2009, you need to know whether or not these benefits are taxable. Here are seven facts the Internal Revenue Service wants you to know about Social Security benefits so you can determine whether or not they are taxable to you.
1. How much - if any - of your Social Security benefits are taxable depends on your total income and marital status.
2. Generally, if Social Security benefits were your only income for 2009, your benefits are not taxable and you probably do not need to file a federal income tax return.
3. If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status.
4. Your taxable benefits and modified adjusted gross income are figured on a worksheet in the Form 1040A or Form 1040 Instruction booklet.
5. You can do the following quick computation to determine whether some of your benefits may be taxable:
- First, add one-half of the total Social Security benefits you received to all your other income, including any tax exempt interest and other exclusions from income.
- Then, compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.
- $32,000 for married couples filing jointly.
- $25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouses at any time during the year.
- $0 for married persons filing separately who lived together during the year.
Links:
- Publication 915, Social Security and Equivalent Railroad Retirement Benefits (994.0KB)
Top Ten Facts about Taking Early Distributions from Retirement Plans
Some taxpayers may have needed to take an early distribution from their retirement plan last year. The IRS wants individuals who took an early distribution to know that there can be a tax impact to tapping your retirement fund. Here are ten facts about early distributions.
- Payments you receive from your Individual Retirement Arrangement before you reach age 59 ½ are generally considered early or premature distributions.
- Early distributions are usually subject to an additional 10 percent tax.
- Early distributions must also be reported to the IRS.
- Distributions you rollover to another IRA or qualified retirement plan are not subject to the additional 10 percent tax. You must complete the rollover within 60 days after the day you received the distribution.
- The amount you roll over is generally taxed when the new plan makes a distribution to you or your beneficiary.
- If you made nondeductible contributions to an IRA and later take early distributions from your IRA, the portion of the distribution attributable to those nondeductible contributions is not taxed.
- If you received an early distribution from a Roth IRA, the distribution attributable to your prior contributions is not taxed.
- If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan.
- There are several exceptions to the additional 10 percent early distribution tax, such as when the distributions are used for the purchase of a first home, for certain medical or educational expenses, or if you are disabled.
- For more information about early distributions from retirement plans, the additional 10 percent tax and all the exceptions see IRS Publication 575, Pension and Annuity Income and Publication 590, Individual Retirement Arrangements (IRAs). Both publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Links:
- Publication 575, Pensions and Annuities (PDF 227K)
- Publication 590, Individual Retirement Arrangements (IRAs) (PDF 449K)
- Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax Favored Accounts (PDF 72K)
- Form 5329 Instructions (PDF 40K)
According to the SS Statement that I got this year, "Without changes, by 2037 the Social Security Trust Fund will be exhausted" and there will only be enough to pay 76 cents on the dollar of scheduled retirement benefits.
I never expected to get Social Security benefits at retirement, so no great shock for me. What I think this will probably translate into is another raise in the retirement age for receiving full benefits. Instead of 65, it'll go up to 70 sometime in the next decade. Philosophically, I don't think SS should be used as a retirement plan, so this doesn't bother me too much. Practically, I'm extremely grateful for SS payments, cause otherwise my parents would be in trouble right now (they did squat to save for retirement).
This blog doesn't post much on retirement, because our focus is managing day to day expenses. However it is something to keep in mind, particularly as you do get your finances under control and your savings built up. Because as shown above, there are often stiff penalties for early withdrawal from a retirement plan, I think most people should focus on building up an Emergency Fund, before saving aggressively for retirement. But once the Emergency Fund is in place, it's time to give retirement funds some serious thought.