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  1. #1

    Federal Tax on Social Security Benefit Computation

    I try to maintain a strict budget and am 93.8% successful (one of those SWAG statistics there.) Nonetheless I am trying to employ that ethic as I look at my approaching retiremnet budget. Essentially I can retire from full time employment any time but I am hoping to stick it out until I reach normal retirement age.

    I am having difficulty understanding how much of our Social Security benifit will be taxable. I know the 0/50%/85% rule and where they come into play based on our joint benefit. The hard part is determining what portion of our monthly budget is added to the 50% Socical Security benefit amount to figure adjusted gross income.

    Here are the components of our retirement income:
    • Social Secuirty benefit
    • Military retirement
    • 401(K) distribution(s)
    • Part-time emloyment

    Right off I know that any pay for part-time emoloyment will be considered earned income, no question there. My research to date leads me to believe military retirement is not counted as earned income but I haven't found conclusive statements to that fact when it pertains to this computation. And finally, I am completely in the dark as far as distributions from a traditional 401(k). I am leaning to think that money from a traditional 401(K) since it is pre-tax money it will be considerd earned income.

    Using my assumptions and false numbers for the following examples can anyone tell me how correct this would be?

    Annual amounts counted towared Social Security benefit eligible for taxation:
    Example 1

    • $9,000 Social Security (half of actual joint benefit of $18,000)
    • $0,000 Military retirement (not counted as earned income)
    • $6,000 401(K) distribution(s)
    • $5,000 Part-time employment income

    $20,000 adjusted gross income being less than $32,000 means 0% of the Social Security benefit will be taxable. Example 2
    • $11,000 Social Security (half of actual joint benefit of $22,000)
    • $00,000 Military retirement (not counted as earned income)
    • $10,000 401(K) distribution(s)
    • $15,000 Part-time employment income

    $37,000 adjusted gross income being more than $32,000 means 50% of the Social Security benefit will be taxable.


  2. #2
    My understanding is that is would be the lesser of the following:
    50% of your benefit income OR
    Modified AGI in EXCESS of $32,000.


    So in your Example 2 (which totals $36,000 and not $37,000)
    It would seem that you would only pay taxes on $36,000 - $32,000 = $4,000.



  3. #3
    According to the IRS at http://www.irs.gov/publications/p525...link1000229267 military retirement is taxable like any other pension
    Quote
    "Military retirement pay. If your retirement pay is based on age or length of service, it is taxable and must be included in your income as a pension on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. Do not include in your income the amount of any reduction in retirement or retainer pay to provide a survivor annuity for your spouse or children under the Retired Serviceman's Family Protection Plan or the Survivor Benefit Plan. "

    Re 401k, see https://www.irs.gov/instructions/i10...1.html#d0e3371 Scroll down to "Line 16a" where it says:
    "Lines 16a and 16b
    Pensions and Annuities
    You should receive a Form 1099-R showing the total amount of your pension and annuity payments before income tax or other deductions were withheld. This amount should be shown in box 1 of Form 1099-R. Pension and annuity payments include distributions from 401(k), 403(b), and governmental 457(b) plans."

    BTW, there is an on-line calculator that can show you the effect of taxation on SS benefits at;
    How much of my social security benefit may be taxed? | Calculators by CalcXML



  4. #4
    See papageek.com ( PapaGeek's Journal ) for a good table and spreadsheet on SS taxation.




 

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