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Social Security Tax Savings

Finishing Well / Hans Scheil
The Truth Network Radio
April 3, 2021 8:30 am

Social Security Tax Savings

Finishing Well / Hans Scheil

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April 3, 2021 8:30 am

Do you know what your “other income” is? Hans and Robby go over how your Social Security is taxed, and strategies you can put into place that could lower the taxes paid. 


Don’t forget to get your copy of “The Complete Cardinal Guide to Planning for and Living in Retirement” on Amazon or on for free!


You can contact Hans and Cardinal by emailing or calling 919-535-8261. Learn more at 

Finishing Well
Hans Scheil
Rob West and Steve Moore
Finishing Well
Hans Scheil
Rob West and Steve Moore
Rob West and Steve Moore
Finishing Well
Hans Scheil

Woodrow Kroll here wouldn't train one pastor and some donor friends are standing by to train the second call 833-443-5467 or go online and train a Every gift counts and now every gift is double trained this is Rodney from the masculine journey podcast.

We explored manhood within Jesus Christ your chosen Truth Network podcast starting in just a few seconds. Sit back and enjoy it, share it, most of all, thank you for listening and choosing The Truth Podcast Network. This is the Truth Network finishing well brought to you by Cardinal guy, certified financial planner long shy best-selling author and financial planner helping families finish well for over 40 years finishing well will examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing Medicare IRA long-term care life insurance and investments and taxes. Now let's get started. Finishing well today show on finishing well was planner is Social Security tax savings will tax saving in this well will talk about right from later in the show. I love his things that you I was thinking about this whole topic of tax and somehow or another. It all has to do with percentages and and when I was little kid taken math class and I probably would not like to hear this but you know the person one that invented the whole math system that would be God sure that it doesn't take long to figure out that so much of the world that we live in has to do with numbers and percentages in one of the beautiful things about the Hebrew alphabet, which they used you know to write the original Torah scrolls the Bible, Moses and his that those letters all have numeric values and so the whole concept of tithing which you know was some relationship with tax you can see this but that they would give you 1/10 of their income and you may want to know or may wonder, I wondered how did Abraham know that he was supposed to give 1/10 of the stuff to Mikesell. You know the king of Salem God most high dream I remember after that Internet. He gave him a tie and that's the first meant mention of that word well.

He knew that because the Hebrews they know that the unit which is there letter that means a lot is the smallest letter when when Jesus said I'm I can take one jot or to a lot of the law. Well, that was the job that he was referring to in that number value of that is 10 and that you could make some the first letter of the hand of God okay and so we make financial transactions with her hands and God's hand has everything to do with right providing for us, our income, so if you think about Hans. You know it.

If you are going to God provided you with $500,000 income this year so your tie be significant like $50,000 that you know what an and I could see you know, if you look at it like tax like what horrible thing I gotta get $50,000 of my you know but really if you got to write a $50,000 check to the church only would that be absolutely delightful and in doing so, you see, God has provided and now we provide know I can through our hand. That whole idea of the good. And so as we transition into this part of our life and were now going from Social Security income.

It's pretty cool to know what I think what you hear about in today show that there certain parts of this that are actually in view of your retirement income after you start your Social Security but can be absolutely tax F REE free).

I would like like people to do is learn enough about how their Social Security is taxed so that they can make decisions going forward and how it's tax on your 2020 return.

If you just doing that now is nothing we do about that and learn about how much tax I want you to be able to make decisions about your other income and what it looks like on your tax return so that you pay the least amount of tax you have to pay in your retirement or show you how to save some money so we have most clients coming in the in their 60s. Some of their 70s doing makeup stuff when they can learn about what we do and then they realize all the things that they didn't do when there were 6562 younger and we have many people also coming in their 50s. Those people in their 50s are not Dragon Social Security checks yet but it's never too early to begin planning for this is whenever you start your Social Security check.

If you're married couple. You can have two Social Security checks.

This can be a significant part of your income in retirement and if it's not a significant part of your income. That means that the other income that you have is real significant and just means that first of all you can be pan good amount tax on your Social Security and your pan a good amount of taxes. Anyhow, that's not necessarily a bad thing. That means that you've done very well.

God bless you very, very, is like my friends are southeast on the crown organization when we're losing money for couple years there, he made a statement I've never forgot that I long for the days I was paying all those tax here because if you're paying taxes for your pan. Five. Write a means God's bless you tremendously and and write. There's worse problems that have been so would only get down to most people and many people in retirement arena. If you got married couple to be looking at 40 $50,000 a year and Social Security income is very realistic. Somewhere in that zone, maybe even more.

If you had two people with strong earnings records so you get that amount of money and if you just look at Social Security by itself and you had nothing else or you showed no other income or you had all deferred or something that $40-$50,000 is going to be tax-free. So that means that your net check in most states. You got no state income tax and with the federal government the way they determine your tax on your Social Security is by your other income or the income other than Social Security so is not a bad thing to have a bunch of other income that means you're very well off. You're just going to be paying taxes on that other income and you're going to be paying taxes on your Social Security and now for the good news. When I asked people. Most people know coming into us of another 60s they know they're going to have to pay taxes on their Social Security that they know this is going be some taxes on now when you talk to people that are in their 70s. They definitely know there's taxes because they been paying for a while then you start asking them how they figure that people people come up with all kinds of stuff but I'm always surveying people every new client coming in is certainly not to make fools out of them. But I want to know what they know and I want to know what they think, and sometimes of the things they think are not correct. Just assuming something and so we've got it feel all that back to find out what's actually happening and then we got least understand this stuff well enough to make decisions going forward to see if we can perhaps reduce that taxable.

That's the premise of the thing and so I would tell you how it works is that if you have no other income besides Social Security thing and I can pay any federal income tax not contain any state income taxes.

Most states don't cluck taxes.

Let's go to the other extreme, if you have a lot of other income you just say you have $100,000 a year of other income and then you have your Social Security I got news for you going to pay taxes on your Social Security and your hundred thousand dollars of other income now better good news is, nobody is gonna pay tax on more than 85% of the Social Security or another way to put it is 15% of your Social Security check is always tax-free tax F REE free free write 7015% of his personal attachment hundred thousand dollars. So this was a couple and they made 100 grand from things other than Social Security. There still knocking me and that have a tax bracket married couple at that number.

Maybe like 20% or something like that. So is there a 20% that will be on all the mind Make it simple and be $20,000 now that with Social Security.

If they had, let's say $50,000 in Social Security income. We want to be sure, is that 9000 right 7500 that Social Security or 15% is always tax-free with the other 42,500 of their Social Security income there to pay taxes that 20% greater than the pay waiting 8500 bucks or so and tax so you know what I've just gone to both extremes are gone over just Social Security and no other income, no tax and then I'm going to the other extreme, a lot of other income and Social Security tax on the other income and then 85% of that Social Security check being taxed 85% of it being taxed so that's kind of an oversimplification will what happens in between and between let's put it this way is you can make some other income and still pay no tax in your Social Security and you can also also if you just have some other income and I'll just use a simple number like $1000 a month or $12,000 a year as some other income if that's what you have. In addition, Social Security not to pay tax are much tax on the $12,000 as deduction standard deduction that sort of thing so there's an amount of Social Security and some other income that is going to really be all tax-free now have to finish this after we take a break here so we want to type it today show. Obviously talk about income tax. So it's one of those seven worries and Hans's book the complete cardinal guide to planning for living in retirement.

So income tax on the being one of those chapters, you can download it for free or just as cons for the entire go to his email address and as for the complete cardinal guide to planning for and living in retirement and in alignment.

An owl in this next segment is really cool thing. Ideas visit to Michelle was again tax savings we had to explain the attacks of the later next section of finishing well. Hans and I would love to take our show on the road to your church and Sunday school Christian or civic group. Here's a chance for you to advance the kingdom through financial resources and leveraging Hans expertise and qualified charitable contributions veterans aid and attendance IRA Social Security care and long-term care. Just go to cardinal and contact Tom to schedule a live recording of finishing well your church, civic group, contact Tom to cardinal that's cardinal welcome back to finishing well today show income tax Social Security income tax savings right it's all about tax savings here today.

I'm finishing well normally lift her hero, explaining essentially how the tax itself works yeah so so this this whole issue of the formula for this. I want to spend as little time as we need to get through this. Then talk about what you can do to manipulate the forms are to make the formula working your favorite so the way Social Security does taxes is that the first thing we got come up with your combined income.

That's just another term accounting term invented by Social Security and the IRS, so combined income is half of your Social Security that you earned during the year. So if you're couple extra checks whenever they are for the year and then you divide by two. Cut in half, so we took this couple in the example earlier if they had $50,000 worth of Social Security income. They divide that by two $25,000 and then we can add our adjusted gross income and actually add another letter to that modified adjusted gross income, but I'm a try to make the show simple as then they add to that half your Social Security to add just your income, what, whatever that is before deductions you know in that case, those people have hundred thousand dollars added to $25,000. They had $125,000 of combined income and they were way over the exemption amount that would make all of their Social Security taxable for a 5% tax, which again is confusing because it makes you think I'm paying 85% tax now none an amount that just means if you took the whole $10,000. That means $8500 would be subject to the tax rate that you're paying on your other so they were paying taxes is a 20% rate on 85% of their sins. So it makes it more like 16% tax of 17% or something like that/pay attention in math class.

I don't know whether it's a gift or a pro I can do a lot of the stuff in my head and it always stops me from short circuit shortcut the computer most of you don't fall in either of these categories, you're not. These people with a lot of income other than Social Security and then you're not these people with no other income just a little bit somewhere in between.

And that's where the formula comes. So you're either single member discount one Social Security check in one person's other income or your married filing jointly.

If your married filing jointly since two Social Security checks if you're both of age and getting it in its two incomes all put together in one pot and the threshold for the combined income for the single person to restart paying tax is $25,000 in the threshold for the married couple is $34,000.

So if you take that earlier formula with the combined income. You plug all that in which is half your Social Security plus your adjusted gross income and if that equals more than 25,000 for a single or 34,000 for a couple so it's a pretty low threshold. Now you going to get into how much of your Social Security is taxable and goes pretty quickly to 50%. So 50%. Your Social Security is taxable at your corresponding tax rate.

And then it climbs up again pretty quickly to the 85%. So you know, if you fall in this tweeter zone, which is probably most of you. You're gonna be paying income taxes which are normal tax rates on from either half your Social Security up to as much as 85% of the taxable so I could go over that five times for a lot of you and you to you and change the dial so that's the formula, and so just understand no other income just Social Security, no income tax some other income and Social Security. Probably no taxing you get some significant other income may be significant to you not to Mr. Mrs. big bucks but it's significant to you like a couple thousand 3000 a month and your Social Security, then you're going to be paying taxes on probably half your Social Security may be up to as much as 85% of and then know that you're never going to pay taxes on that last 15% of your Social Security. This house can be tax-free. Now the real key to this story, and I can just tell people what I've done is I've transferred most of my traditional IRA money into a Roth converted most of my pay the taxes that a younger age. Even though that was painful. So I now have an account that's accumulating that's going to generate for me tax-free income if I needed to be tax-free. It's also not account in this form. If I do my math right. If I'm able to live until 70 and then they will hold office Social Security and work till 70 and then I start my Social Security check and I start my wife starts hers under the spousal benefit were to be getting about 70 $75,000 a year, and Social Security payments so that's pretty nice. And then the money that we have in addition to that, to live off of. That's not that's gonna come from tax-free sources like a Roth IRA like life insurance cash values that are making loans on password a big portion of my savings is put in base, have a tax-free retirement so the amount of money that I need to live on is a lot less than it is now well I'm paying a lot of federal and state taxes and Social Security rising from for me. His brain is taken. If couple years to get his head wrapped around this concept is that if I have money sitting in a regular IRA or 401(k) and I'm making distributions relevance taking money out of that IRA or that 401(k) that that money that you take increases your income where you had money in a Roth IRA or savings account or life insurance. That money doesn't change your income. It's money you needed and was income that would might even came a come out of an annuity that you've Artie paid tax on the money going into the military. If you got the money, now it feels like income but since you've Artie tax its contacts when you originally made that income, it no longer affects what your tax is drug formula. So what's the strategy here will appear in your 50s. Try to work on your Roth IRA menu systems.

If your 401(k) allows you to make contributions directly into the raw side is some serious consideration to making your contribution start next week into the raw side of things.

So you just speak accumulating money right from the beginning, you will lose a tax benefit now but you will be gaining a lot. So that would be something to do in your 50s. If you're in your 60s, and you've got money accumulated into a regular traditional IRA or 401(k).

Think about doing some Roth conversions. Think about moving some of this money before you're even on Social Security over to the raw side into the bad news is you have to pay the tax. Now so that's going to hurt that stops a lot of people so I don't want to run out and do that with. I get some professional help. Make sure it makes sense, but you also may need somebody to talk you through this. Just because that is the law stop signs of you doing this yourself so well it still might be in your best interest so that would be one strategy we have a lot of clients doing what I've done is accumulating a bunch of money in a whole life policy and whole life is a long-term proposition served during the pan into that for a minimum of 10 years so you know, but you can start some like that in your 60s and then as long as you have the money to pay the premiums and you know we would make sure that your stuff and money into an account where you can later when you're on Social Security start drawing out money that doesn't show up in your tax return because once you're on Social Security and once you're on significant Social Security to if you specially I mean it's almost like your other income is double tax because you can pay tax on it just for earning it like you do on any income, and then it's going to cause you tax on your Social Security death.

It's like is double taxed so you really want to get a strategy together to still have the income but not have it be taxed later in retirement and a place for those of you that haven't done any planning like this and you're taken a big hit on Social Security taxes now in your over 70. There's a thing called Q CDs qualified charitable distributions, and so we can take those minimum distributions that you're now making and direct them to the charity directly knows bunch of rules with this.

So do only going to run out and do this but if you want to bone up on Q CDs just give me a call.

You can just send money straight from your IRA to the charity to the church to whatever qualified charity that you want you can send it to several, and that money never shows up in your tax return, nor does it drive up the taxes on national security and so in that strategy right so I somebody normally is getting already 10% of the rent from the church and are doing that out of their social security check, or they're doing it out of whatever income but now in list see the idea which by the way has to be your first distribution of the year and so were still in the first quarter for week or so I hope good time.

Think about that before you make any other distribution to know that part that strategies get Alejandra Summit help you with it quickly now I take and I make my distribution of the church early on, like Beaumont, given the whole years of what I know is gonna be my income. Some people use their able to give more than they do right because there is like a straight tax deduction and it comes back to you if it lowers the tax you're paying on the Social Security right so you make the distribution of the beginning the year.

Now you've made your time for the year.

The church course. Now if you want to make regular offerings. Whatever you want to do tricks up to you but you know that other income is not being taxed. We have a lot of blinds who they're not old enough yet to learn about listening to the show ring our stuff. We end up doing it for the parent or parents can make this whole equation.

We also have a lot of people within churches where you're too young to do this, but there's older people in the church sit not IRA money just taken the minimum, and they're complaining about it because I gotta pay taxes their living off the Social Security and they have them influencing that some of that money can just be given directly to the church and the taxes are completely avoided any idea.

Again, this is great thing to pay taxes and I like right right set to bring me back to the day of Frederick almost as God blesses you get a chance to give more, give more the government and get more of the church and in in its own way. I mean is there's lots of ways to look at things that I love the way to look at it like I thought that ever since I heard Roy say give me the days right up a lot in Qubec but again planning and and being the best possible steward of your stuff calls for wisdom. And in people that work in the stuff all the time and it's a simple phone call away. Or maybe a click from your computer to go to Cardinal guide. That's don't forget the guide.

After again. Hans's book the complete cargo guide to planning for living retirements all available there, as well as a chapter on what we talk to today but how is the arch run out of time before we run out of stuff on this, but it's been a great show. Thanks again his hands.

Thank you.

We hope you enjoyed finishing well with you by Cardinal visit Cardinal for free downloads of the show previous shows on topics such as Social Security, Medicare and IRAs, long-term care and life insurance, investments and taxes as well as ponds best-selling book the complete Cardinal guide to planning for and living in retirement and the workbook once again for dozens of free resources past shows when you get Hans book go to Cardinal if you have a question, comment or suggestion for future shows. Click on the finishing well radio show on the website and send us a word again that's Cardinal Cardinal this is the Truth Network

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