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Social Security FAQ with Eddie Holland

Faith And Finance / Rob West
The Truth Network Radio
December 26, 2024 3:00 am

Social Security FAQ with Eddie Holland

Faith And Finance / Rob West

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December 26, 2024 3:00 am

You have to be at least 62 to collect Social Security…maybe because it takes that long to understand the program.

Do you have questions about Social Security? Of course, you do. Who doesn’t? Well, you don’t want to miss today’s program. Eddie Holland is back to answer more of your questions about Social Security.

Eddie Holland is a Senior Private Wealth Advisor and partner of Blue Trust in Greenville, South Carolina. He’s also a CPA, a Certified Financial Planner (CFP®), and a Certified Kingdom Advisor (CKA®).

Can You Claim Benefits Early and Switch Later? 

You can claim Social Security benefits at 62 and switch to spousal benefits later if the spousal benefit is higher than your own. However, if your benefit is higher, you must take that instead. Conversely, you must wait to claim spousal benefits first and then switch to your benefit at full retirement age; you must take the higher of the two benefits available.

Survivor Benefits Exception 

Survivor benefits are an exception where you can take one benefit and let the other grow. For instance, a widow can claim a survivor benefit as early as 60 and then switch to her benefit at 70, which would have grown due to delayed retirement credits.

Taxation of Social Security Benefits 

Social Security benefits can be taxed based on your combined income, including half of your Social Security benefits, adjusted gross income, and any tax-exempt interest. Federal taxes apply progressively, with higher income leading to more taxable benefits.

Roth Conversions and Social Security 

Be cautious with Roth conversions, as they can increase your combined income and make more of your Social Security benefits taxable. This strategy might push you into a higher marginal tax bracket.

Stopping Benefits 

If you decide to stop your Social Security benefits, you can do so within the first 12 months of receiving them if you're under full retirement age. Beyond that, you can pause benefits after reaching full retirement age to earn delayed retirement credits.

Scams and Social Security 

There is an increasing problem of Social Security scams. Legitimate Social Security issues will be communicated via mail, not phone calls, emails, or social media messages. If in doubt, always verify by setting up an appointment with your local Social Security office.

If you have questions about your benefits, consider consulting a Certified Kingdom Advisor (CKA®) who can provide tailored advice for your unique situation. 

On Today’s Program, Rob Answers Listener Questions:
  • I have a substantial amount in an IRA. Should I roll it over to a Roth IRA and pay the taxes upfront, or just leave it in the traditional IRA and pay taxes later when I take distributions?
  • I'm 61 years old and have a car loan with 6.7% interest. I would like to know if I can take money from my 401(k) to pay off this car loan. Would that be a good idea?
Resources Mentioned:

Remember, you can call in to ask your questions most days at (800) 525-7000. Faith & Finance is also available on the Moody Radio Network and American Family Radio. Visit our website at FaithFi.com where you can join the FaithFi Community and give as we expand our outreach.

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You can make your year-end gift by visiting faithfi.com, that's faithfi.com, and clicking Give, that's faithfi.com slash give. Now, let's jump into the podcast. You have to be at least 62 to collect Social Security, maybe because it takes that long to understand the program. Hi, I'm Rob West. Do you have questions about Social Security? Of course you do.

Who doesn't? Well, you don't want to miss today's program. Eddie Holland is back to answer more of your questions about Social Security, and then it's on to your calls at 800-525-7000. That's 800-525-7000. This is Faith and Finance, biblical wisdom for your financial journey. Well, our guest today is Eddie Holland, a senior private wealth advisor and partner of Blue Trust in Greenville, South Carolina.

He's also a CPA, a certified financial planner, and a certified kingdom advisor, but he's also an expert on Social Security, and not many folks can say that. Eddie, great to have you back with us. Thank you, Rob. It's a pleasure. So, Eddie, we'll make this something of a Social Security FAQ or frequently asked questions program.

One we've gotten several times recently goes something like this. Can I claim my Social Security benefits when I'm 62 and then switch to spousal benefits when my spouse claims their retirement benefits a few years from now? Why don't we start there? Sure. And the short answer is yes, you can, Rob, as long as the spousal benefit is higher than your own. If your own benefit is higher than the spousal benefit, you will not be eligible to claim the spousal because you have to take the higher of the two.

But in the case that you just spelled out, if the spousal benefit is higher than your own, then when your spouse starts to claim, you could potentially get an increase in benefit for whatever that spousal amount is. Yeah. Okay. That's really helpful.

Now, sometimes it's the opposite though, Eddie. And the question is, can I claim spousal benefits at 62 and then my own retirement benefits when I reach full retirement age? And as you said in the intro, Rob, this is where things get tricky. So if a person is claiming a spousal benefit, that means that his or her spouse has already started claiming a benefit. So, Rob, the way I like to explain Social Security is think of it as doors. You're only eligible to walk through your spousal door if your spouse has walked through that door first. So in your illustration, there's not really a way to claim only a spousal benefit and delay your own benefit. Social Security Administration forces you to take the higher of the two benefits. So if your own benefit is higher than a spousal, you cannot claim only a spousal.

You have to take your own. On the flip side, if your spousal is higher than your own benefit, but your spouse has not walked through his or her door first, you're not eligible to walk through that door as a spouse. It's only once the spouse walks through that you can walk through and claim a spousal benefit. So the short answer is, can I claim spousal benefits at 62 and then my own benefit when I reach full retirement age? No, you have to take the higher of the two benefits. Okay, now there is a scenario there where you can take one and let the other grow.

So let's be clear, what scenario is that? So really the only scenario where you're letting the benefit grow is regarding a survivor benefit. So a survivor benefit, you can take your own benefit or a survivor benefit off of a deceased spouse's record. If we're talking about your spouse still living and you want to draw your benefit or a spousal benefit, you're not really allowed to pick and choose the higher of the two unless your spouse has not walked through his door. So let's say we've got husband and wife. Husband has started drawing his benefit.

Wife only wants to draw a spousal and let her own grow. Because her husband has walked through his door first, she does not have the ability to pick and choose. She must take the higher of the two, which in this illustration would presumably be the spousal benefit. So she has to take the higher benefit. Okay, yeah, that's really helpful. Well, Eddie, that clears some things up and again, this is why this gets confusing.

We're going to continue to unpack these frequently asked questions after the break. But do you recommend, because this can be so confusing, that folks set an appointment with the Social Security Administration to sit down and review their situation? Or would an advisor be better suited to do that?

What do you recommend there? What I've found, Rob, is the advisor that understands Social Security benefits may be a little more helpful. I've actually attended or visited the Social Security office with several clients. I've found that Social Security agents are a little reluctant to give advice. They're happy to give information, but a lot of times that advice is what people are wanting. So an advisor may be a better option for them.

Okay, yeah, that's really helpful. Well, folks, Eddie Holland is here today. Eddie is the senior private wealth advisor and partner of Blue Trust in Greenville, South Carolina. He's also a Social Security expert. When we come back, we'll tackle a few more questions.

What about taxes when you're collecting Social Security? And can you change your mind? That and more just around the corner. Stay with us. . Are you looking for a financial professional who aligns with your biblical values? Certified Kingdom Advisors are trusted financial, legal or accounting professionals who have completed a rigorous certification program to ensure they provide biblically wise financial advice as part of their practice. You can find a local C.K.A.

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Principal loss is possible. Foresight Fund Services, LLC. You've got questions, we've got answers about Social Security today because joining me is my good friend, Eddie Holland. This is Faith in Finance.

Eddie is the senior private wealth advisor and partner of Blue Trust in Greenville, South Carolina. Now, Eddie, I want to go back to something we talked about before the break specifically related to spousal and survivor's benefits. Let's start with the survivor's benefits. This is essentially the one scenario where you can take one benefit and let the other continue to grow and delay all the way until age 70 and then switch to the higher amount.

Explain that again for us. That is correct, Rob. So survivor benefits, as you stated, is really the only known exception to the rule that you have to take the higher of the two based on Social Security law. So survivor benefits, you're eligible off of a deceased spouse's record as early as age 60. At any point between 60 and your full retirement age, you may start drawing a survivor benefit. Now, you would not want to delay survivor benefit past your full retirement age because a survivor benefit does not receive what's called a delayed retirement credit.

Delayed retirement credit, most of your listeners probably know is equal to 8 percent per year from your full retirement age until age 70. Survivor benefits do not receive that. So just as an illustration, say we have husband and wife, husband passes away, has never drawn his Social Security benefit. Wife can start taking a survivor benefit as long as she qualifies.

She's age appropriate. Let's say she's 61. She can start drawing a survivor benefit early prior to full retirement age.

She's subject to an early draw reduction. Then she can switch to her own benefit possibly all the way out to age 70. Keep in mind that her own benefit receives those delayed retirement credits of 8 percent per year. So in this illustration, she could take a survivor benefit at 61, draw that until age 70. At age 70, she could switch to her own, which has received those delayed retirement credits. And she would only really do that if her own benefit is more than the survivor benefit. Yes. And the distinction here is that the survivor benefit is the only one that allows that to continue to grow because of that delayed retirement credit because the spousal benefit requires that you take the higher of the two as soon as it's available, correct?

That is correct. So in the previous segment, we talked about doors. So in that illustration, you can only walk through a spousal door if your spouse has walked through that door first. Survivor benefits are different. You can walk through a survivor door without necessarily your spouse having walked through it. So you can pick and choose which door to go through as a survivor.

You do not have that luxury as a spouse. You have to take the higher of the two benefits if you're eligible for that benefit. Okay, very good.

That helps to clear that up. All right, let's talk taxes. Sometimes people think that at a certain age, they won't have to pay taxes anymore. That would be nice, of course, but it's not true. So how are Social Security benefits taxed, Eddie?

I'll make a disclaimer first, Rob. We'll talk about federal taxes. Many states do not tax Social Security benefits. So the next section, we're talking federal taxes only, and it's going to depend on your combined income, which includes 50 percent of your Social Security benefit, plus your adjusted gross income, plus any tax exempt interest income that you may have. Okay, so if you are a single taxpayer and your combined income is twenty five thousand dollars or less, there's no federal tax owed on that Social Security benefit. Now, that amount is thirty two thousand if you're a married filing joint taxpayer.

All right. Now, if you're over twenty five thousand as a single, but you're under thirty four thousand. So if your combined income is between twenty five and thirty four thousand per year, up to 50 percent of the Social Security benefits are subject to federal income tax. And then and I'll mention, if you're married filing joint, that amount is thirty two to forty four thousand dollars of combined income. Then if you're single and your combined income is over thirty four thousand dollars, up to eighty five percent of Social Security benefits are subject to federal tax. And that amount for a married filing joint taxpayer is over forty four thousand dollars.

So it's a progressive scale, Rob. As your income increases, more of your Social Security benefits are taxed. Now, I will point out that just means they're taxed at your marginal rate. And one of the more growing financial topics over the last several years has been this conversation around Roth conversions. So it's taking money out of your IRA, paying tax on that amount, putting it into a Roth. The benefit of that is that the Roth grows tax free for your lifetime, potentially a spouse's lifetime, and then for children's lifetimes.

Now, the kids have to take it out over 10 years once they inherit it. But it's a pretty creative tax strategy. The reason I'm mentioning this when we're talking about Social Security benefits, if your combined income is in a lower range, but you convert money from an IRA to a Roth that increases your combined income, it could make more of your Social Security benefits taxable. It essentially acts as if you're in a higher marginal tax rate. Several clients that we serve are in the 12 percent bracket. But even a one dollar Roth conversion potentially exposes more of their Social Security benefits to tax. And it acts as if they're in the 22 percent marginal rate bracket. So it's very important to understand that a Roth conversion in conjunction with Social Security could result in a higher marginal bracket. Yeah, that's great advice.

So be sure to work with your CPA and or advisor before you do that Roth conversion because there may be bigger implications there. Now, Andy, another question we've gotten lately is about changing your mind. Can I stop my benefits? That person may have gotten a well-paying job suddenly and doesn't need the money.

How would that work? So if the person is younger than full retirement age and they are within the first 12 months of having submitted or drawn a benefit, they can withdraw that application that's only available for somebody under full retirement age and within the first 12 months of drawing. Now, they'll need to keep in mind, Rob, that any benefit that they've or any application that they've withdrawn, any benefits that they've received up to that point, they will have to pay back.

So that will be something that they'll have to pay back at a future date. They can withdraw but only within the first 12 months younger than full retirement age. If they are past full retirement age, they can quote unquote pause a benefit. They can stop that benefit.

The reason they would do that is they would receive delayed retirement credits from that date that it was paused until they resume again all the way up to age 70. Very good. Eddie, just about a minute left. Let's finish with scammers. This is a big problem in this season of life. Someone asks, what should I do if I get a call that there's something wrong with my Social Security number? Kudos to you for addressing this, Rob.

This is a growing trend. Scammers may call, email, text, write or even message on social media. They may pretend to be from an agency or an organization that you know or they're really trying to gain your trust. They're going to create urgency, make there appear to be a problem, and they're going to pressure you to act immediately. A lot of times with a very specific way to resolve the issue. What the listeners need to understand is if there is genuinely a problem with your Social Security benefit or your Social Security number, Social Security will mail a letter.

Social Security is not going to call or email. They're going to mail. And then if you have additional questions, you can always set up an appointment with your local Social Security office. That's really helpful, Andy. We covered a lot of ground today. We always appreciate your time, my friend. Thanks for stopping by. My pleasure, Rob. Thanks for having me.

That was Eddie Holland, a senior private wealth advisor and partner of Blue Trust in Greenville, South Carolina. Your calls are next. 800-525-7000.

That's 800-525-7000. This is Faith and Finance, biblical wisdom for your financial decisions. We'll be right back. Faith and Finance is grateful for support from Soundmind Investing. If you have money in an investment account, you know sometimes the stock market can seem like a roller coaster, but it's possible to enjoy both profit and peace of mind as a do-it-yourself investor, no matter what's happening in the market. A short video webinar about that is available at soundmindinvesting.org. Financial wisdom for living well.

Soundmindinvesting.org. Great to have you with us today on Faith and Finance. We're taking your calls and questions today. 800-525-7000.

That's 800-525-7000. We'd love to hear from you today. It looks like we've got two lines open.

Let's go to Ohio. Larry, you're next up, sir. Go ahead.

Hi, Rob. You've been able to help me in the past, and my IRA, I rolled everything in that retirement, rolled it into an IRA, okay? And I get 5% on that money for living expenses. And my question would be, should I and could I roll that over pre-tax, or am I going to have to pay the heavy tax of 30 or 40%? So is it still in the 401k today? It is.

Okay. Yeah, and so you're wondering about rolling it to an IRA, is that right? No, it is in an IRA.

It gets rolled into a Roth. Oh, I see. Got it.

Okay. Well, you have access to it now. The question is just, you know, you're going to have to pay the tax. The only way you're going to avoid paying the tax is through a qualified charitable distribution and out of the IRA, the traditional, and you can't do that until you're 70 and a half.

Apart from that, there is no other way to get that money out of the IRA, whether you convert it to a Roth or you just take a straight distribution without it being added to your taxable income. So the question is just, at what point do you pay the tax? So the unknowns are, you know, the primary unknown is, what are the tax rates going to be in the future?

We know what they are today. You know, some of the pressure has been taken off just because if we had had a different outcome on the election, we would have perhaps expected the Tax Guts and Jobs Act of 2017 from President Trump to expire in 25 or at the end of 2025, and we would have expected the tax rates were going higher. That's probably, we don't know for sure, but probably off the table for the time being. So there's less urgency to do something right now. So then the question is, well, what are the tax rates going to be in the future, like 10 plus years down the road?

We just don't know. We know we're in a relatively low tax environment right now. So is it a bad idea to convert it? No, as long as you have the money to pay the tax without taking additional money out. I'd love for you to preserve 100% of what you have in the retirement account, which means you'd need to be able to cash flow the tax payments, and you'd want to time it strategically to be able to do it in a way that doesn't push any portion of it.

Up into a higher tax bracket, and your CPA could help with that. With regard to the inheritance, if your son receives it in a Roth, the tax has already been paid, and then he can take it out tax free, and there's no inheritance tax that he would pay. The only taxes would be estate taxes, and currently that means you have to have at least a $13 million estate before you'd have any of those. If you don't convert it, then he would have to pay the tax, and as a non-spouse beneficiary, he would receive it as an inherited IRA, and based on the current laws, and this could change, secure act 2.0 says he'd have to take it out within 10 years. And if you had already started taking an RMD, he'd have to continue that at a minimum, and the account would have to be completely exhausted within 10 years, and he'd pay the tax based on his own tax rates and federal income tax return and state as he pulls the money out. I think the question is just, do you want to pay the tax now, or do you want to pay it later, and if you have the ability to cash flow it now in this low tax rate environment, probably not a bad idea, but I'd be strategic about how and when you do it. And don't over-convert in the sense that if you could leave at least enough for your charitable giving throughout the rest of your life in the traditional IRA, you could take that out as a QCD at 70 and a half and never pay any tax on that, which is a great benefit because you're essentially double-dipping.

You got the deduction when it went in, and then you don't pay on it coming out because it's going straight to a charity. But give me your thoughts on all that. Okay.

Well, I guess what I'm looking at is having access to something because I've got a substantial amount, and we have some things we'd like to do, like say if I took a chunk out of $25,000, I would just pay the full tax on that, and I'd just get my $25,000, do what I want with it, and go on down the road. Exactly. Yeah, so there's really no difference here. You have complete access to the money once you're 59 and a half without any penalties, whether it's the traditional or the Roth. You can pull it out at any time. The question is just the timing on paying the tax. Do you want to pay it at conversion time to put it in the Roth and then take it out tax-free, or do you want to leave it where it is and just pay the tax when you take the withdrawal?

But it's really the same. Yeah, so I've done it before, and I didn't know for sure that I was doing the right thing, and I just paid the tax up front and maybe put a new roof on the house or something of that nature. And I've made that money back threefold or fourfold, basically, doing what it's been doing. So that helps a lot. We're trying to get ourselves set up. We just consulted a lawyer about our future years. As far as our son's concerned, how he's going to get everything sent over to him, he would be eligible for all that.

So we have that all secure. Everything's going to go to him in case of an accident or based on death. And if I go into a home or my wife goes into a home, I understand that they would only take about half of what we have in there, and then they would leave her or the other half to maintain until her death. And then what's left after that would go to our son. Yeah, well, your assets would be spent down. I mean, you're responsible for paying for your care with your own funds, but the amount taken would depend on your financial situation and whether you qualify for Medicaid. So you would have to spend all those assets down to below $2,000 before Medicaid would kick in. So if you need to pay for care, that's going to come out of those accounts. But I think you're doing all the right things. I think the only other thing would just be how do you continue to prepare your son to be the next steward of this money?

I think getting him involved in some charitable giving with you might be great. Here's the risk. When wealth grows faster than wisdom, we've got a danger zone there, and that often happens with an inheritance.

So just make sure we're passing spiritual and character capital first before the financial capital. Hey, God bless you, Larry. Let's go to Boston. Hi, Maria.

How can I help? Oh, hi. Thank you, Mr. West.

Thanks so much. I talked to you, I think, about two and a half years ago, but I don't expect you to do that. Yeah, you said check in.

I used to work overseas full time, and so I've been home ten years. Anyway, my question is, I wondered if I could not take a loan, but I'm 61, if I could take out money from my 401k to pay off my car loan, because I guess I believe it might be a good idea. But I have, you know, the numbers for my budget and income and everything.

I would probably not do that. You know, I see here in my notes, your car loan is at six point seven percent. You know, here's the thing. You know, that money is you're not going to pay a penalty on it because you're over fifty nine and a half. But it is all going to be taxable to you. But more than that is that's no longer there to continue growing and to be able to be converted to an income stream.

So there's an opportunity cost to that. And as much as I don't love you paying six point seven percent on that car loan, I would rather you leave that 401k money right where it is and then at the appropriate time, have you convert that to an income stream to supplement Social Security. So unless you just have a real conviction to be debt free as soon as possible, I would leave the 401k money right there and just try to pare back your spending as much as possible and free up as much as you can to pay toward surplus.

Just out of your current cash flow as opposed to the 401k. That would be my best advice, just because I'd like for you to preserve that account if at all possible. Thanks for your call. Big thanks to my team today. Peter, Dan, Amy, Jim, Taylor and everybody here at Faith. We'll see you next time. Faith and Finance is provided by Faith Buy and listeners like you.
Whisper: medium.en / 2024-12-26 04:19:13 / 2024-12-26 04:29:24 / 10

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