Ed Slott September Newsletter
On page three an advisor Mark Lumia suggests reversing course and actually paying less taxy by tapping into IRAs while a client is in his or her 60s, and waiting until 70 to start Social Security.
In his second scenario he says just over $21,000 of their Social Security benefits will be taxable.
For the life of me I can not get to the $21,000 figure.
Could someone please show me the dumb guy math behind the calculation? Is a sentence missing that might help me make sense of it all?
Permalink Submitted by Bruce Steiner on Tue, 2013-09-24 16:22
If you ignore spouse benefits, it’s hard to understand his position. Ignoring spouse benefits, and assuming average health and family longevity, the value of social security benefits is about the same regardless of when you begin collecting benefits. If you begin at 66, you’ll get a smaller amount each month, but for 4 additional years. If you wait until 70, you’ll get a larger amount each month, but for 4 fewer years. However, there’s a benefit to keeping as much money in an IRA as long as possible.
Permalink Submitted by Peggy Fisher on Tue, 2013-09-24 18:12
Can you support his number of $21,000?
Permalink Submitted by Peggy Fisher on Tue, 2013-09-24 18:12
Can you support his number of $21,000?
Permalink Submitted by Alan - IRA critic on Tue, 2013-09-24 19:32
For 2013, the max SS benefit at age 70 is 40,200 annual for a single person, and 85% of it would be taxable with little other income. That’s 34,170, so I don’t see where he gets 21,000.There are scenarios where tapping the IRA early can even out the taxable income by increasing it prior to 70 and reducing it after 70 due to reduced RMDs. If you need the money for expenses you would tap the IRA instead of taxable savings and if you did not need the funds for expenses, you could convert to a Roth IRA for a lower tax rate than after SS and RMDs begin. All income sources need to be considered, but this approach works best for those who are very pre tax retirement heavy and therefore face large RMDs. It also works best for those who can stay under the 25% bracket in all these years, since the jump from 15 to 25 is the largest incremental increase. Newsletter audience probably has a top bracket of 25 and up.