Here’s a news flash. Workers at the Social Security Administration sometimes make mistakes. It turns out that Social Security is actually pretty complex and even they have a hard time understanding all of the rules. Today I want to discuss a client situation that occurred recently with an SSN advisor.
Advisor Tax Tips
When you are preparing a retirement plan for a client, you may plug the Social Security information into your planning software and get information as to how Social Security will work within the entire plan.
You probably do great work on very complex client situations but the materials that prospective clients use to evaluate you may be so generic that they are almost worthless.
Let’s discuss how you can help married couples through different life transitions, starting in pre-retirement, with a focus on the Roth conversion as a way to strategically pay taxes now and avoid them later. Keep in mind that Roth distributions* avoid Federal taxes and are not included in the Social Security tax calculation.
In 1983, Congress passed a rule that made Social Security distributions taxable for the first time since it began. Up to 50% of Social Security could become taxable under a quirky formula if “combined income exceeds a threshold amount” which, at the time, was $25,000 for an individual and $32,000 for a married couple. These threshold amounts were never set to include an adjustment for cost of living increases.
The first Social Security tip I want to discuss relates to the bigger financial planning picture. It's easy for clients to think that Social Security is just a switch that can be flipped on when they are ready to retire, but we really need to convince them that this...