Retirement is one of the big questions Boomers are facing and keep these thoughts in mind when planning.

The Social Security payment a person receives depends on:

• The lifetime amount of earnings subject to Social Security;
• The age at which the individual starts receiving Social Security; i.e., whether they retire before, at, or after full retirement age;
• Whether the recipient also receives a government pension;
• Whether they continue working after receiving benefits;
• Whether they are receiving benefits as a surviving spouse or child of a beneficiary; and
• Whether they are receiving Social Security disability.

Taxes play an important role when receiving Social Security benefits. Although the benefits are commonly thought of as tax-free (and are tax-free for many), they are taxable if the recipient’s income is above certain levels. In fact, after passing over the threshold income amount, 50 cents of Social Security benefits are added to taxable income for each additional dollar of income, making Social Security benefits effectively taxed at 1½ times what would otherwise be the taxpayer’s tax rate.

Clients avoid paying tax on some or all of their Social Security income and reduce inheritance tax by using one or more of these plans:

·         As income permits, convert traditional IRAs to Roth IRAs. Income tax will be paid on the amount converted, but the subsequent distributions will be tax-free once the five-year holding period is met (this holding period needs to be met only once). Some or all of Social Security may now be non-taxable when distributions are taken from the Roth IRA. This method may reduce inheritance tax because the amount paid in income tax is no longer part of the estate, but makes little difference in income tax;

·         Bunch non-required taxable distributions into alternate years. This may reduce or eliminate tax on Social Security income in the years with no distributions. This method has little effect on inheritance tax, but may be structured to reduce income tax; and

·         Distribute all the retirement funds allowed and invest the money in rental real estate. The artificial accounting loss of depreciation may shelter some or all of the positive cash flow, reduce amount of tax on Social Security, and reduce inheritance tax.

Source: Spidell’s Elder Planner – Special Report