Do My Retirement Plan Funds Affect My Social Security Benefits?

By Joe Cicchinelli, IRA Technical Expert

Follow Me on Twitter: @JoeCiccEdSlott

The Slott Report Mailbag returns to answer a question on the benefits of IRA trusts as beneficiaries (we’ve covered the advantages and disadvantages in several articles chronicled here), the details involved when moving money between IRAs and company plans and whether retirement plan funds affect your Social Security benefits. As always, we stress the importance of working with a competent, educated financial advisor to keep your retirement nest egg safe and secure. Find one in your area at this link.

1.

Is there any advantage to leaving my IRA to the family trust vs. using the IRA beneficiary form? My wife is primary 100% and my son is secondary 100%. My CPA said keep it that way via the form. My attorney advised me to make the family revocable trust the beneficiary. I live in Massachusetts. My wife will need the IRA for income.

Answer:
The primary advantage of naming a trust as your IRA beneficiary is that you can control the IRA distributions after your death. You will have to name the trust as beneficiary using the IRA beneficiary form. You cannot have the family trust own your IRA during your lifetime.

The disadvantage to using a trust is that required distributions to the trust beneficiary must be made using the age of the oldest trust beneficiary and they must use the Single Life Table. If your spouse inherits the IRA directly, she can move it to an IRA in her name and use the Uniform Lifetime Table to calculate her required distributions. She can name your son as her primary beneficiary and when he inherits the IRA he can use his own life expectancy instead of continuing to use the balance of his mother’s life expectancy.

You might want to clarify with your attorney the benefits of using the trust as the IRA beneficiary.

2.

Question: If I contribute to a traditional IRA won’t that reduce the amount of my Social Security benefits? Even though FICA stays the same aren’t our benefits based on AGI?

Answer:
Your Social Security benefits are based on your annual earnings. The amount you have in any retirement plan is not factored into that calculation. The taxation of your Social Security benefits is based on a formula that includes your AGI (adjusted gross income). Distributions from retirement plans will increase your AGI.

3.

If I move a rollover IRA back into a company 401(k) and then make a back door Roth conversion how long do I have to wait before I can move the money back out of the company 401(k) and into the rollover IRA?

Answer:
That will depend partly on what the 401(k) plan will allow you to do with the funds you rolled into the plan. On the IRA side, IRS Form 8606 has the pro-rata formula for distributions. You should check that out before moving the funds back to an IRA or check with a tax professional. You can find the form on the IRS website, www.irs.gov.