Posted on 04/13/2017 6:51:39 AM PDT by Oshkalaboomboom
Bookmark— Tax question IRA WITHHOLDING
The amount of SS that you give up by delaying retirement is not worth it.
If you retire at age 62 you get about a 20% reduction in benefits for life. However, you get 80% of your benefits for three extra years.
80% X 3 yrs = 240% divided by the 20% increase by waiting and it takes 12 years just to get your money equivalent back with no time value for money included.
Thus if you waited to 65 or 66 to retire you would collect to 65+12 or age 77 or 78 just to get your $$$ you gave up by waiting.
Save your IRA money and collect the Social Security.
Many times I had clients tell me they were retiring early as they had a stroke, heart surgery, hip replacement.... and I advised them to file for disability. They filed for both retirement and disability at the same time, collected the retirement until the disability was approved and then it was switched over to disability pension. There is no reduction for disability like there is for early retirement and Medicare kicks in 2 years after disability even if the person is under 65. Every case the disability was approved for my clients who were age 62+. I asked a Social Security atty in DC and he said they were approving the claims as it was not worth fighting.
If you collect disability, at 65+(depending upon phase in) it automatically becomes a full retirement benefit.
By the way, it is worth looking at the Form 2210 exceptions, especially in the year of/after retirement.
“so why ask?”
I didn’t ask anything.
I’m no expert, but back in the day when I made decent money, I found that as long as you withhold 90% of what you owe every other year, then there was no fine.
Even now, as a part-time, self-employed retiree who withholds nothing, I’ve found the fine to be minuscule, like in the $40.00 range.
At one time, I looked into quarterly withholdings, but that was essentially impossible because my income was so unpredictable, and as I understood it, the penalties were way worse if one attempted quarterly withholding but mis-estimated the amount, rather than simply not doing it at all.
It is still a scam. You know when withholding came into being, W.W. II. Was invented by the CFO of Macy’s to help with the war effort, primarily to not only get taxes before they were really due but also to sell War Bonds. The system worked so well it was kept. It is extortion pure and simple to get tax money before it is actually due. I really don’t care if I pay a penalty, no taxes due till the due date.
You see, we the people, put up with this abuse, along with many others and we shouldn’t.
I can see what you're saying. I calculated my benefits from 62, 66 and 70 to 80 years old. If I delayed to 66 I would have about 15000 more in total benefits than 62 and 25000 less if I waited until 70. I'm pretty healthy so I don't think there is any way I could file for disability even if they didn't fight it.
I am guessing the due date you speak of is the due date for filing your income tax return. If so, then there is some confusion. Your tax return is merely an accounting of income earned and tax paid during the year. It is NOT a twx payment, although a payment may be due with the return.
Generally, if a transaction is taxed, the tax is due at the tome of the transaction. If you live in a state with a sales tax, for example, you pay the tax at the time you purchase an item. If you import goods, you pay import duties at the time the goods are imported. Similarly transactions involving income earned by individuals are taxed, so that tax theoretically is due at the time the transaction occurs. For normal wage earners this is moot; the tax is automatically paid by your employer on your behalf. For some, it would get unwieldy to pay every time you earned income. Business owners, for example would have to pay on daily profits. To alleviate this, the law allows quarterly payments for such taxpayers.
Automatic withholding is not really the issue here. Where I live, it has only been recently that employers have been required to withhold local wage taxes. Prior to that time, these taxes were still due when income was earned, but the law provided for quarterly remittances similar to what the IRS requires.
You may not like or agree with this, but it’s the current law. Do not mislead people into thinking otherwise. If you fail to withhold sufficient taxes to cover your tax liability, the IRS has every roght under current law to impose penalties. That is the reality and your opinion (which I understand and can concur with BTW) is not relevant. Your post could cost someone money if they believe what you wrote and failed to pay quarterly estimated taxes when required to do so.
“If I delayed to 66 I would have about 15000 more in total benefits than 62”
Wrong... you are giving up 4 years or 48 months benefits at 80% If you got $1,000 per month at age 66 and only $800 at 62, you are giving up $800 X 48 months or $38,400 by delaying.
Could you please show me where I am going wrong? I go to the SS.gov website and according to their retirement calculator I would get 1722/month at 62 and 2296/month at 66. Calculating to 80:
1722 x 12 = 20664 x 18 = 371952
2296 x 12 = 27552 x 14 = 385728
I would suggest running scenarios after you do your taxes (if you do them yourself). Try changing the the file name and then messing with the numbers to see what you have to do in your situation to trigger the penalty. I do that every year on several questions. I also “subtract” $1000 from my income to see how much that saves me in federal and state taxes combined, to see what my effective marginal tax rate is for that last $1k earned. That’s just nice to know information.
Just pay your quarterly taxes.
Just pay your quarterly taxes.
As I wrote in my OP I have small distributions from an IRA. I don't run a business or have an accountant to figure out quarterly taxes. I guess I'll run turbotax scenarios to see what I should pay.
1722/2296 = 75% thus a 25% reduction for retiring early.
However, if you retire at 62 you are going to receive that 75% or $1,722 for an extra 48 months.
75% x 4 years is 300%
300% divided by the 25% increase you gave up is 12 or 12 years it will take for you to collect the same total $$$ as if you waited to 66 to retire and collected the higher amount. 66+12 is age 78 for the break even point.
This computation does not consider the income you would be making to continue working. It is merely a collect or not collect decision.
For people who have small businesses I often sell the business to a family member and then rent or sublease the real estate to the new business owner (even if it is your spouse). Rental income does not effect Social Security as it is not “earned income.”
This family transfer should not be done as a sham transfer and should only be done after consulting your CPA as I left many technicalities out that could make it fall apart.
I’ve often done this with corporations and owner retiring. It is one of the reasons that real estate should be held outside the operating corporation.
If you’re less than 71 years old, you don’t have to take any distributions - if over 71 you have to take a Minimum Required Distribution each year according to a formula the IRS provides - Fidelity has a handy MRD calculator on their home page if you need one - you don’t necessarily have to have any tax withheld from your IRS distributions as long as by the time you pay your total taxes in April generally you’ve prepaid somehow (withholding, estimated payments, or even having money withheld from your distributions) at least 80% of what you owe.....
It doesn’t matter where the income comes from. If you have taxable income from any source you have to estimate the tax you owe and pay it quarterly. Maybe you should just let your IRA withhold the tax for you. You pay it either way.
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