Ask Terry Questions Social Security vs. ‘income’

Social Security vs. ‘income’

By Terry Savage on April 17, 2015 | Financial Planning / Retirement

Does taking an IRA distribution count as income that might reduce my monthly social security payment? If so, when should I tell Soc. Sec. that I have ‘made’ this income, now or next April’s tax filing? Should I make some payments to the IRS in anticipation of the future tax liabilities, say quarterly,as if self- employed? Thank you

Terry Says:   The answer is:  It all depends!  First of all, your IRA distributions (unless they are from a Roth IRA, or partially taken from an after-tax IRA) are considered taxable income.   Then, as you know, higher income can impact taxes on the Social Security benefits you receive.  So it all depends on your total income whether your benefits may be diminished by taxes on that money.  IN general, if your total income is below $25,000 you won’t have to worry.  For those who file jointly, a combined income of less than $34,000 means your SS benefits will not be taxed.

But over those levels taxes come in on a sliding scale.  Here’s a link to the IRS webpage describing the taxable amounts.

Now, there is one other thing to consider — the premium you pay for Medicare Part B, and also for Part D (prescription drug benefits).   Below I will cut and paste the chart from the website, explaining how premiums go up when income goes up.

You will note that both Social Security and Medicare base these levels on something they call “combined income.”  Social Security describes this as your Adjusted Gross Income (AGI), plus nontaxable interest, plus half of your Social Security benefits. AGI includes wages, self employment income, interest, dividends, capital gains, pension payments, rental income and a several other items.

Part B premiums by income

If your yearly income in 2013 (for what you pay in 2015) was You pay (in 2015)
File individual tax return File joint tax return File married & separate tax return
$85,000 or less $170,000 or less $85,000 or less $104.90
above $85,000 up to $107,000 above $170,000 up to $214,000 Not applicable $146.90
above $107,000 up to $160,000 above $214,000 up to $320,000 Not applicable $209.80
above $160,000 up to $214,000 above $320,000 up to $428,000 above $85,000 and up to $129,000 $272.70
above $214,000 above $428,000 above $129,000 $335.70

Get more information about your Part B premium from Social Security.



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