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social security in retirement year.

Technical topics regarding tax preparation.
#1
zl28  
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have a client who will be of full retirement age on 5/4/20

you are allowed to earn $48,600 in the year of retirement prior to 5/4

so from 1/1 to 5/4 she can earn $48,600...and after 5/4 she can earn whatever she wants and receive social security
since she'll be at full retirement age?

my main question is what if from 1/1/ - 5/4 client earned over $48,600 but the taxable portion of that b/c of 401k contribution
was only $38,600
 

#2
JR1  
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I believe you have it right...
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
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#3
taxcpa  
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Check with an expert, but I don't see the logic here.

There is no earnings limit unless you have taken early social security. There is no earnings limit once you reach full retirement.

Assuming your client has taken early social security, its the social security wages that matter, not the income taxable amount. 401 K doesn't reduce social security wages.
 

#4
zl28  
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good pt taxcpa - ty...i think actually she could start getting social security right now even though full retirement age isn't until 5/4/20..bc she is able to earn $48,600 in the yera she qualifies for social security -
 

#5
JR1  
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I seem to recall they go by the month...so perhaps I misunderstood your op...and I don't get this high limit you're speaking about. I assumed you were talking about taking benefits prior to full RA and having to repay them if your earned income is too high. Perhaps you're talking about taxability?
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
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#6
taxcpa  
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There is a monthly test for those who draw before full retirement age. It only applies to the first year, and is designed to ensure that the person is actually "retired" under SS rules.
 

#7
Joan TB  
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All this "hoo-hah" about how much to earn in the "year of full retirement age" and I am still working full-time well over the max is why I delayed my SS benefits from Aug 2019 to Jan 2020. Didn't wanna deal with it!!

From SSA.gov:
In the year you reach full retirement age, we deduct $1 in benefits for every $3 you earn above a different limit. In 2020, the limit on your earnings is $48,600 but we only count earnings before the month you reach your full retirement age.

If your earnings will be over the limit for the year but you will be retired for part of the year, we have a special rule that applies to earnings for one year. The special rule lets us pay a full Social Security check for any whole month we consider you retired, regardless of your yearly earnings.

Some people who retire in mid-year have already earned more than their yearly earnings limit. That is why we have a special rule that applies to earnings for one year, usually the first year of retirement. The special rule lets us pay a full Social Security check for any whole month we consider you retired, regardless of your yearly earnings.

If you will:
Be under full retirement age for all of 2020, you are considered retired in any month that your earnings are $1,520 or less and you did not perform substantial services in self-employment.

Reach full retirement age in 2020, you are considered retired in any month that your earnings are $4,050 or less and you did not perform substantial services in self-employment.
(NOTE: $4,050 x 12 = $48,600)

The SSA.gov website had some examples that may help explain it all.

NOTE that this calculation appears to actually be MONTHLY, not annually.
Last edited by Joan TB on 16-Jan-2020 8:01pm, edited 1 time in total.
 

#8
makbo  
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zl28 wrote:my main question is what if from 1/1/ - 5/4 client earned over $48,600 but the taxable portion of that b/c of 401k contribution was only $38,600

Let me try to answer your main question. When you mention 401(k), you are talking about Form W-2 Box 1 income. For SSA purposes (coming and going) I believe all reference should be to Form W-2 Box 3 income.

Take gross wage income, subtract medical insurance employee deduction, HSA employee contributions, Sec 125 spending plans, and maybe a few other obscure things I might be am forgetting, to get Box 3 income. I don't think 401(k) contributions factor in at all.
 

#9
Jake  
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taxcpa correctly states that if you wait until full retirement age (what is it now, 67?) no worry about how much you made monthly before that date, or after. If Jamie Dimon makes $1 billion a month the entire year, but applies for ss in the month he turns 67 he still gets his ss benefit. Now of course he is going to delay taking his ss until age 70 to get that 30% higher benefit starting then as who knows what private jets are going to cost when he is 70.

zl28 says your client could retire right now - but don't forget he would take a slight haircut on his benefit amount from the get go.

The so called experts seem to advise waiting to 70 to get the 30% bonus, but (a) you have lost 36 months of benefits, and (b) unless you live past the break even point you are not ahead. (Also consider the present value of $1 vs a future $1). As a practical matter, those wo need that 30% added future $$ probably need their ss $$ at age 67. Those who can forgo their ss until age 70 probably don't need that extra 30%.

For all of these reasons I am "a bird in the hand" kind of guy.
 

#10
zl28  
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Seems my client should not do social secrurity.....she is going to be over the 4050 per month between 1/1/ - 5/4....she won't earn over $48,600 - but she'll earn over $4,050 per mo when i include her 401k amounts......so based on this i'm going to tell her not take the social security otherwise she'll be penalized.
 

#11
Jake  
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Is there something I, or you, are missing? I strongly recommend that your client visit the local Social Security Office. They will be able to verify my view that she can start her Soc Dec benefits in May if that is her full retirement age without any fear of an earnings offset. And they can set it up so it starts in May..
 

#12
Doug M  
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As per the SSA reference provided by JoanTB, don't count any payroll May 1 to May 4.

Yes, add back the elective deferrals.

The best way to determine FICA wages is to estimate the last paystub up to 4/30 and divide the FICA deduction by 6.2%. That should get you the amount of FICA wages. Above or below $48,600? If over, you will have to deal with the $1 repaid for $3 over.
 


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