Posts Tagged ‘Social Security’

File and Suspend Strategy Suspended

Wednesday, November 18th, 2015
File Suspend Strategy - Ohio CPA Firm

President Barack Obama signed legislation on Nov. 2 to put an end to the file and suspend strategy. But, that doesn’t necessarily mean it’s too late to act. There is a six-month window of opportunity, as long as both spouses were born on or before April 30, 1950. Keep in mind that you are up against a May 1, 2016, deadline.

Deciding when to claim your Social Security benefits is often one of the most significant financial decisions older Americans must make today because, for many, Social Security benefits make up a substantial portion of their retirement income. Unfortunately, Congress recently passed legislation that will put an end to two popular strategies being used to maximize benefits married couples receive in their golden years.

Read Also: Retirement Is Knocking … Are You Ready To Answer The Door?

The strategies that are scheduled to be phased out are commonly known as “File and Suspend” and the Restricted Application for Spousal Benefits. These strategies have made it possible for couples to delay laying claim to their individual benefits based on their earnings while still claiming a spousal benefit based on the other’s earnings – as long as both are 66 or older.

How Does File And Suspend Work?

To receive the spousal benefit, one individual would file for their Social Security benefits – then immediately suspend them. The other spouse would then file a restricted application to collect only the spousal benefit rather than the benefit they earned as an individual, even if their individual would have been higher. By employing this strategy, both could increase their earned benefits by taking advantage of the option to delay retirement credits, which would increase their earned benefit by up to 8 percent for each year the benefit is delayed until the individual reaches 70 years of age.

Is It Too Late To Take Advantage Of This Strategy?

President Barack Obama signed legislation on Nov. 2 to put an end to the file and suspend strategy. But, that doesn’t necessarily mean it’s too late to act. There is a six-month window of opportunity, as long as both spouses were born on or before April 30, 1950. Keep in mind that you are up against a May 1, 2016, deadline.

What About The Couples Who Are Already Receiving Benefits?

Fortunately, the couples already using these strategies will be grandfathered in under the new law and will not be asked to pay back any of the benefits they have received to date. Furthermore, they will continue to receive the benefits they have already been granted. The new law will not impact their current Social Security income, which is why it’s so important for eligible couples to take advantage of this 6-month window.

What Happens After The 6-Month Window Closes?

Moving forward, under the new law, individuals will still have the ability to suspend their benefits, but the Social Security Administration will not allow spousal or dependent child benefits based on the earnings of someone who has suspended their own benefits. In other words, to claim a spousal benefit, the earned benefits have to be paid out as well.

When filing for retirement benefits (other than with a restricted application), spouses will effectively claim their earned benefit and their spousal benefit. They will then receive the greater amount.

Fortunately, there are still opportunities to maximize your Social Security benefits. A financial advisor can you help navigate the terrain. There are also free tools available to help you find out how much you can expect to collect from Social Security when you finally decide to claim the benefit. The Social Security calculator is located here. You can also visit the Social Security website to view your Social Security Account Statement. To discover more retirement strategies, check out one of the articles below or email Rea & Associates and ask to speak with a retirement planning expert.

By David Shallenberger, CPA (Wooster office)

Check out these articles to learn more about the importance of planning for your retirement:

Planning For Uncertainty In Retirement

Five Financial Considerations For Every Age Group

How Can I Make The Most Of My Retirement?

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Retirement Roulette

Wednesday, April 22nd, 2015
Retirement Roulette - Rea & Associates - Ohio CPA Firm

The retirement savings provision outlined in the 2016 Budget Proposal not only provides individual Americans with an opportunity to save, it seeks to provide financial incentives to eligible companies that establish their own 401(k), auto-IRA or that offer another similar retirement plan to their employees by expanding the small business tax credit.

It’s difficult to paint a picture that adequately portrays the retirement readiness of the American people. How prepared the average person is for this phase of their life greatly depends on which report you are reading today. As a whole, however, credible sources indicate that as a population we are simply not prepared to take on the financial responsibility of supporting ourselves later in life, which is a problem that has received a lot of attention from our nation’s leaders.

Last year marked the introduction of myRA, a retirement account program that encourages individuals without access to an employer-sponsored retirement plan to save for their retirement. Developed by the United States Department of the Treasury, myRA seeks to offer a solution to those who “face barriers to saving for retirement.” But that’s not the only chatter heard on Capitol Hill these days, with regard to the retirement savings habits of Americans. Members of Congress have proposed other solutions that they hope will make the retirement picture a little bit brighter.

Read:  Retirement Is Knocking … Are You Ready To Answer The Door?

2016 Budget Proposal Addresses Retirement Savings

The U.S. government’s 2016 Budget Proposal includes provisions that target the promotion of retirement goals.

“Millions of working Americans lack access to a retirement savings plan at work. Fewer than 10 percent of those without plans at work save in a retirement account on their own. In 2015, retirement security will be one of the key topics of the White House Conference on Aging. The Budget would make it easy and automatic for workers to save for retirement through their employer – giving 30 million more workers access to a workplace savings opportunity. The Budget also ensures that long-term part-time employees can participate in their employers’ retirement plans and provides tax incentives to offset administrative expenses for small businesses that adopt retirement plans.”

What is important to note is that, in addition to retirement security, the Proposal focuses on generating government revenue, which would (in part) go toward the creation of new tax benefit programs. The impact, according to the Whitehouse, would result in savings for as many as 30 million American taxpayers.

Today, nearly 78 million working Americans are unable to save for retirement simply because they are not eligible to enroll or because their employer doesn’t offer the opportunity to save for retirement. This Proposal introduces a solution for those who would like to begin saving for their golden years.

For example, one possible scenario outlined within the budget calls for all part time workers (those who have worked for their current employer at least 3 consecutive years and who have worked at least 500 hours during each year of their employment), who are not currently contributing to a retirement plan, to be allowed to contribute to the company’s existing retirement plan without requiring the plan sponsor to add matching contributions for such individuals.

Another is for those who do not have access to an employer-based retirement plan, however, would be automatically enrolled in a separate IRA program, which would be funded by payroll withholdings. Of course, the taxpayer would have the option to opt out of the program.

What’s In It for the Employer?

The retirement savings provision outlined in the 2016 Budget Proposal not only provides individual Americans with an opportunity to save, it seeks to provide financial incentives to eligible companies that establish their own 401(k), auto-IRA or that offer another similar retirement plan to their employees by expanding the small business tax credit.

This provision would also include an additional credit for small businesses that currently offer retirement plans to include an automatic enrollment feature within their plans.

Employees who are still unable to save for retirement will have a third option available. The Budget Proposal calls for the allocation of $6.5 million to the Department of Labor, which would allow a limited number of states to implement state-based auto enroll IRAs or 401(K)-type programs.

Mind the Cap

President Barack Obama’s 2016 Budget Proposal, while ambitious in its initiative to strengthen Social Security and incentivize retirement savings programs for Americans, also includes a provision that had been proposed (and rejected) before. The additional provision seeks to cap (prohibit additional contributions) on IRAs and other tax-preferred retirement plans once they reach a balance of $3.4 million.

According to the president, this step ensures that the individual secures sufficient annual income in retirement while preventing the “overuse” of existing tax advantages by those who are able to contribute additional funds, creating higher balance accounts. The cap would also help the government generate additional revenue because the funds that exceed the $3.4 million cap would now be taxable under this provision.

As always, when it comes to the future of Social Security and the overall retirement readiness of the American people a lot can change in a short amount of time. The 2016 Budget Proposal still has a long way to go before any of the provisions outlined within become reality. It’s important for you to be aware of these provisions and how they could change our current retirement plan landscape.

In the meantime, don’t just wait for changes to happen. Take steps today that will maintain the flexibility of your existing benefit plan while optimizing your company’s current and future ROI. Email the Benefit Plan Audit team at Rea & Associates to learn more.

By Darlene Finzer, CPA, QKA, CSA (New Philadelphia office)

 

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Retirees Get Cranky Over Tax Returns

Tuesday, November 4th, 2014

Tax preparation and tax payments often become MORE complicated in retirement. Why? Because retirement taxation is new for a retiree so there’s a learning curve. Here are a few cliff notes to help new retirees navigate these uncharted waters:

Social Security

The money you receive from Social Security will likely be taxable. Fifteen percent of your Social Security benefit is a return on your lifetime payroll deductions and your employer’s match. Eighty-five percent of your Social Security is the excess benefit payment, or “growth,” in your benefit account and, thus, your untaxed benefit. That 85 percent may be taxable depending on the amount of your other income. This calculation is complex and the tax is difficult to avoid, but it is possible.

IRA Distributions

You must take your IRA distributions when you have reached the age of 70-½. The Required Minimum Distribution (RMD) can be managed and will impact your taxable Social Security. Planning is essential.

Capital Gains

As your lifetime investments are sold to help pay for retirement, capital gains is another obstacle to overcome. Here are a few tips to make them more manageable:

  • It may take a little time, but document when you bought those investments and what you paid for them. Once your record is complete, give the information to your broker to record in your investment account statement.
  • If you own your investments directly, gather them up and put them into an investment account to simplify your tracking, cost barriers, tax preparation and estate administration.

Itemized deductions

The good news is that you have likely paid off your mortgage. The bad news is that you may no longer exceed the standard deduction to itemize. So then why do you keep tracking medical bills if you can’t itemize? “Bunching” deductions may be a planning option. For example, every OTHER year, I have my Mom pay her real estate taxes, Ohio tax estimates and charitable contributions she made during the year. Then I have her prepay next year’s real estate taxes, charitable contributions and Ohio estimated taxes in December. That doubles her itemized expenses and raises her total above the standard deduction. Then, I have her take an additional IRA distribution equal to the excess itemized deductions. That excess distribution equates to a tax-free payment because it is offset by the excess itemized expenses! This option is available to you too!

Estimated tax

You are required to calculate and pay your income tax by managing your social security and IRA retirement tax withholding, along with quarterly tax estimate payments. You must project and declare your taxable income by April 15 in the new-year. And remember, there are NO excuses for not paying them on time.

Complexities You Can Avoid

  1. Watch those managed stock accounts. The amount of programmed buying and selling creates more work for your CPA and will raise your tax preparation fee. Ask yourself if that activity really did make you more money after the incurred income tax and preparation fee. If it didn’t, revisit your managed stock accounts.
  2. Understand the publicly-traded LLCs recommended by your broker and know that you may need to extend your tax return because of the K-1 you will receive to report the income. Your preparation fee will be raised as well. Again, if you didn’t make any money after the incurred taxes and preparation fee, is it really worth it to continue?

The transition into retirement is not easy. Unfortunately, your money management and tax filing won’t be easier either. Our tax experts are always happy to answer any question you may have. Email Rea & Associates to learn more about your options for managing your retirement.

Author: Lee Beall, CPA (Dublin office)

 

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How Can Retirement Provisions in the President’s 2014 Budget Proposal Affect You?

Thursday, April 25th, 2013

The past few weeks have been full of high visibility news stories ranging from the tragic Boston Marathon bombing to the devastating plant explosion in West, Texas. Amidst these stories and others, there was one important story you may have missed that could affect you and your retirement in a very significant way. President Obama recently unveiled his 2014 budget proposal that resulted in varied opinions over the retirement-related provisions that could greatly impact the retirement industry. (more…)

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How Do You Get Your Social Security Statement?

Thursday, May 10th, 2012

If you’re not yet nearing retirement age, Social Security probably means two things to you: the amount of money that disappears from your pay checks and the annual statements that you get in the mail. If you’ve ever taken the time to read these statements, you’ve probably learned some neat things about your finances – like your lifelong earning history and the amount of Social Security benefits that you’d receive if you were to need them right now. (more…)

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Did you send a wedding announcement to Social Security?

Tuesday, April 3rd, 2012

When you’re newly married, there’s so much to think about.  Did you remember to thank Aunt Joan for that silver tray?  Did you remember to have your mail forwarded to your new address?  One thing that may not make the list: Did you remember to notify the Social Security Administration of your name change? (more…)

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Doing Your Own Payroll? Deadline to Reimburse Social Security Overwithholding Nears

Friday, March 25th, 2011

If your company does its own payroll, make sure you have reimbursed any 2011 Social Security taxes that may have been overwithheld to your employees by March 31. (more…)

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Recently Married, Divorced or Adopted? Remember to Notify Social Security

Friday, July 9th, 2010

Since we’ve just completed the month known for weddings in June, it’s a good time to make sure the name on your tax return matches the name registered with the Social Security Administration. Here’s what to do. (more…)

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