social security benefits

Tax

Are Your Social Security Benefits Taxable?

All Social Security recipients should receive a Form SSA-1099 from the Social Security Administration which shows the total amount of their benefits.

But many people may not realize the Social Security benefits they received in 2012 may be taxable. The information outlined below should help you determine whether those benefits you receive in 2012 are taxable or not.

1. How much, if any, of your Social Security benefits are taxable depends on your total income and marital status.

2. Generally, if Social Security benefits were your only income for 2012, your benefits are not taxable and you probably do not need to file a federal income tax return.

3. If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status (see below).

4. Your taxable benefits and modified adjusted gross income are figured on a worksheet in the Form 1040A or Form 1040 Instruction booklet. Your tax software program will also figure this for you.

5. You can do the following quick computation to determine whether some of your benefits may be taxable:

  • First, add one-half of the total Social Security benefits you received to all your other income, including any tax-exempt interest and other exclusions from income.
  • Then, compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.

6. The 2012 base amounts are:

    • $32,000 for married couples filing jointly.
    • $25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouse at any time during the year.
    • $0 for married persons filing separately who lived together during the year.

Confused? Give us a call. We’ll make sure you receive all of the Social Security benefits you’re entitled to.

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How to Prepare for a Successful Retirement

As you approach retirement, it’s vital that you pay attention to key financial matters. Here are some of the items that you should check:

Health Insurance.
Are you among the lucky few who will continue to be covered after retirement? If not, then you’ll need to replace your health coverage.

If you will be eligible for Medicare at the time of your retirement, then you may want to start checking into “Medigap” coverage. Medigap insurance is a supplemental health insurance sold to individuals age 65 and older that covers medical expenses not covered or only partially covered by Medicare.

Tip: Before you retire, take care of any non-emergency medical, dental, or optical needs (if your employee plan coverage is broader than Medicare).

Other Types of Insurance.
Once you retire, you may need to replace employer-provided life insurance with extra coverage. You should also consider purchasing long-term health care insurance in case of a lengthy nursing home stay in the future.

Social Security.
Decide whether you want to take early Social Security benefits if you’re retiring before your full retirement age, which is currently 66 years of age for people born between 1943 and 1954. You can get 75% of your benefits at age 62.

Tip: For most people, taking Social Security benefits at their full retirement age makes the most financial sense. If you think you might need to take early benefits, give us a call. We’d be happy to discuss this with you.

Company Plan Payout.
You should plan well in advance how you’ll take the payout from your pension plan or 401(k) plan. For example, will you transfer the funds to an conventional or Roth IRA? How will the funds be invested?

Relocation.
If you’re planning a move to another state, make sure that you fully explore the financial ramifications of living there–before you move. Cost of living rates can vary significantly from one region of the country to another.

We Can Help. Retirement is an exciting time and planning in advance can make it a much smoother transition. Please contact us if you have any questions, need assistance or just want some additional guidance.

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