50+ Lifestyles

OMG – Even Social Security Subject to Taxes – up to 85%!!

By Richard J. Schillig, CLU, ChFC, LUTCF
Independent Insurance and Financial Advisor

Lots to share with you this month! First we are in the middle of health insurance enrollment periods. Medicare Annual Enrollment Period began Oct 15 and continues to Dec 7. This period allows current Medicare folks the option of changing their Medicare choice. Satisfied with your Medicare choice? Renewal is automatic without having to take any action. Unhappy with your Medicare choice? Now is the time to make changes to be effective January 1, 2017. Everyone else not yet on Medicare – under age 65 – the Annual Enrollment Period initiated with the Affordable Care Act (Obamacare) began November 1 and continues to February. The same applies here; satisfied with your current choice for major medical insurance? No action is required. The plan renews automatically UNLESS you received other correspondence from the insurance company. An important item connected with the under 65 (Obamacare) folks is the premium subsidy available for qualifying individuals. There are some income tax reporting responsibilities connected with those subsidies. We encourage all to check with their tax preparers to make sure of compliance.

Our firm – RJS and Associates Inc – is all about helping our clients protect valued assets especially retirement money from the risks we face in life and enhanced in retirement. Risks include the health care cost including the premium for major medical insurance for persons under age 65 and for Medicare for the over 65 age group.

In addition to health care costs, other risks we often reference are stock market volatility, inflation, longevity, taxation.

Since this article was recently publish in an AARP newsletter, it caught my attention and I thought it well worth sharing with readers this month. The article references taxation on one of the most cherished American traditions and entitlements, and that is our social security income. The question asked in the newsletter – “Is Social Security Taxable?” AARP response to that question:

“For better or worse, it’s true. And if you do have to pay, you won’t be alone. According to the Social Security Administration, about 40 percent who receive benefits have to fork out federal income taxes on a portion of those benefits. The good news, sort of, is that you’ll never have to pay taxes on all your benefits. The taxable amount tops out at 85 percent. To determine that figure, take your adjusted gross income (that’s Line 37 on a Form 1040 tax return, or Line 4 on a 1040EZ) and add any tax-free interest that you have, such as interest from a municipal bond. Then add 50 percent of your annual social security benefit. You’ve now got your combined income.

If you file your federal tax return as an individual and your combined income is below $25,000, all your benefits will be tax-free. But if the number is between $25,000 and $34,000, you may have to pay tax on up to 50 percent of your benefits. There’s a sliding scale that determines the exact portion.

And if your combined income is more than $34,000, up to 85 percent of your benefits may be taxable.

If you file a joint return and you and your spouse have a combined income below $32,000, none of your benefits will be taxed. But at levels between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits. And, if your joint income is more than $44,000, up to 85 percent of your benefits can be taxable.

As for the tax rate, the taxable portion of your benefit is simply added to your total taxable income and taxed at the same rate as such things as wages and pensions.”

Use of our annuity strategies helps to substantially reduce these taxable numbers. Annuities both qualified and non-qualified annuities are income tax deferred. AND the non-qualified immediate annuity provides for that special income tax exclusion ratio. We are available to discuss these details.

Richard J. Schillig, CLU, ChFC, LUTCF is an Independent Insurance and Financial Advisor with RJS and Associates, Inc. He can be reached at (563) 332-2200.