• 72°

Social Security Matters: Ask Rusty – Can I put my Social Security in a tax-advantaged account?

by AMAC Certified Social Security Advisor Russell Gloor, Association of Mature American Citizens

Dear Rusty: I will be 62 years of age at the end of this year. Can I start drawing my Social Security at age 62 and have it directly deposited into my IRA (arm’s length), not spend it and continue to work without affecting my tax position? I will defer actually using it until a later date Signed: Curious Investor

Dear Curious Investor: Regardless of where you have your Social Security benefits deposited, if you continue to work after claiming early benefits, you’ll be subject to Social Security’s earnings test. The earnings test applies to anyone who collects benefits before they reach their full retirement age (which for you is 66 years and 8 months).

It doesn’t matter if you spend your benefits, save them, or invest them; you’ll still be subject to Social Security’s earnings limit. And, since IRS rules say that only earned income (which excludes Social Security benefits) can be deposited into an individual retirement account (IRA), it is not possible for you to direct-deposit your Social Security benefits into an IRA. In any case, even if you otherwise save your benefits for later use; you will still be subject to Social Security’s earnings limit. For 2020 the annual earnings limit is $18,240 (the limit changes annually) and if that is exceeded, Social Security will take back benefits equal to $1 for every $2 you are over the limit. The earnings limit goes up by about 2.5 times in the year you reach your full retirement age (FRA) and goes away once your FRA is attained.

Social Security gets your earnings information from the IRS when you file your income taxes, and you cannot avoid the earnings test by having the money deposited for later use. The earnings test will still apply, and they will take back some of your benefits if you exceed the limit. For information, by “take back” benefits, I mean they will notify you that they have overpaid you (due to your earnings from working) and will give you the option of either paying them back in full with a lump sum payment, or they will withhold your future benefits until they recover what you owe because you exceeded the earnings limit.

As for your “tax position” on your benefits, that will depend upon your combined income from all other sources (investments, interest, pensions, earnings, etc.), plus 50% of the SS benefits you received during the tax year, plus any non-taxable interest you may have (combined this is known as your Modified Adjusted Gross Income, or “MAGI”). If you file your income taxes as a single and your MAGI is more than $25,000 (or if you file “married-jointly and your MAGI is more than $32,000) then 50% of your SS benefits will become part of your taxable income. And filing single with a MAGI of more than $34,000 (or $44,000 if married-filing jointly), up to 85% of your Social Security benefits will become part of your taxable income (by the IRS). Once again, it doesn’t matter how you dispose of your benefit payments; they will still be taxable if you exceed the clip levels mentioned above, and you will still be subject to Social Security’s earnings test until you reach your full retirement age.

FOR MORE COLUMNS AND LETTERS TO THE EDITOR, CHECK OUT OUR OPINION SECTION HERE.

Lifestyles

Milltail Road reopens on Alligator River Refuge

Business

John Harris of Kitty Hawk Kites honored for contributions to tourism in North Carolina

News

Moratorium on offshore drilling reportedly coming for North Carolina

Lifestyles

Film production resumes in North Carolina

News

Trump taps Barrett for Supreme Court

Lifestyles

Recognized for 20 years of service at Town of Manteo

Hyde

COVID-19 testing event set in Fairfield

Crime

Victim in Camden County shooting in coma

News

Lost woman found at Cape Hatteras National Seashore in Buxton

News

Additional COVID-19 related deaths reported in Currituck and Tyrrell

Currituck

Moyock development vote fails to get approval from Currituck Board of Commissioners

News

State graduation rate continues to climb, local administrators weigh in

News

Feds want to relax protections for woodpecker endangered since 1970

News

Three North Carolina death row inmates to serve life in prison

News

GOP elections board members in NC resign over absentee deal

News

Capital projects for Dare County water system approved

News

Dare occupancy collections set a record for July

News

Manteo annexes vacant lot

News

Belted kingfishers prefer to be near water

Lifestyles

Jennette’s Pier staff members pick peers for excellence awards

News

North Carolina Coastal Federation receives marine debris removal grant from NOAA

Lifestyles

First responders traverse ocean overwash on NC 12 to get child to hospital

News

Sections of NC 12 on Hatteras and Ocracoke islands to reopen Thursday at noon

Lifestyles

Trash collection rescheduled for Buxton, Frisco and Hatteras