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Social Security Federal Income Tax

Finishing Well / Hans Scheil
The Truth Network Radio
September 24, 2022 8:30 am

Social Security Federal Income Tax

Finishing Well / Hans Scheil

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September 24, 2022 8:30 am

Hans and Robby are back again this week with a brand new episode! This week, Hans and Robby discuss social security federal income tax, and how you can manage your money to have a low income tax retirement. 

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 Find us on YouTube: Cardinal Advisors.

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Hans Scheil
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Hello this is Matt slick from the match looked like dog in the Christian faith and lay out our foundational truth of God's word Trojan Truth Network podcast starting in just a few seconds of joy or share it, but most of all, thank you for listening and for choosing The Truth Podcast Network. This is the Truth Network welcome to finishing well brought to you by Cardinal certified financial planner longs agile best-selling author and financial planner helping families finish well over 40 years of 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 with finishing well, finishing well is a general discussion and education issues facing retirees partner advisors on trial CFP some insurance this show does not offer investment products or investment advice welcome to finishing well is certified financial planner hand shower and boy do we have a whopper of a show for you today really do. It may not sound like you want to give you the title but I'm a tell you it is Social Security federal income tax is the name of it but I this is so cool I think you're getting it a blessing and look at our lives. It's it's like where refiners right we went where ideas to take something that is complex or whatever and refine it into usable stuff and so when it comes to all this information on taxes. I was thinking as I watched the video that Hans and Tom did on this whole idea I saw how they were refining all this information and then you find these nuggets of gold right and inside those nuggets of gold is where we really see God and when we can find those kind of negatives in a bad situation by taxes should be no then you know you can have peace where you would have anxiety and oak is very tight May seminaries well the reason why you're worried is you don't see God is God's that's got you a skin is not let you down.

Well I will story the relate on their forget it makes me laugh just to think about it.

I worked for Royce Reynolds was wonderful, godly man in Greensboro North Carolina and he ran a bunch of dealerships and he'd gotten us and well gone in to help save this dealership in Raleigh that was losing about $100,000 a month and Royce was really pretty upset about it and then I was talking to him on the phone today and he he exclaims oh I long for the day when I had to pay taxes.

I used to hate paying those taxes. I wish I could pay them again got sick of these losses and never forgot about that. Whatever I look to the tax bill went and I'm really lucky, I get the because the alternative ain't so pretty isn't Hans no, no, I mean it people when they have an income and then they pay income taxes again this is me for a few years. When I open my businesses. I made nothing for several years and I actually had the same thought right. I'm now back pain. Taxes actually enjoying this that make them earn money with this idea.

You know I love the question that you ask people you know is in a question we need to ask ourselves and how much tax do you pay on your Social Security yeah well I mean the thing that I've found with retired people and I really I really learned this after I've been in practice for several years and I'm really helping people with their taxes and I'm looking at their income and people that are retired, relatively speaking, don't pay a lot of taxes coming and they pay many of them pay very little tax on their Social Security and so we really in this video and the show today.

We just want to break that down and then we want to show people how to manage their money in such a way and manage when they start Social Security in such a way that they can have a very low income tax retirement and her son nuggets, and believe me folks and some wonderful examples to yeah no no you cannot go to the examples at the end because you know we got three examples. The example of Barbara and it's in the video and we have the example with Beth and John and then we have the example of Linda and Alex and Barbara is is a widow and she that we talked about her before he and you know now were talking about the taxes she pays under Social Security and she's actually collecting her deceased husband hundred percent of his benefit.

She's just now just turned 66 and she's been collecting this for about a year and then her benefit is actually frozen in its you know it, increasing because she can switch benefits at 70 so she's actually going to get more benefit Social Security benefit at 70 because she's delaying her benefit while she's collecting the benefit of her deceased husband. But that's not necessarily with the videos about the it's just showing how she's paying no income tax and her Social Security check is about just shorted two grand a month she needs like a little over 3000 a month to live and pay her bills and she's: that extra 1300 a month out of her 401(k), which is not real flush with money so we can't do that. The rest of her life, but we can for now and she's not even pay any income tax anything to speak of on the 1300 a month that she's fallen out of her 401(k) so she's got like 30,000 3100 a month coming in and she's paying no income taxes. Yeah it's pretty cool now and then she needs it right. I mean, that's God is provided for her in any way. I think yeah and the plan here is she had to have a little surgery after she retired about a year ago and the plan here is for her to get a part-time job where she can bring in a little over a thousand a month and then will be able to stop those deductions from her 401(k) and be able to parlay that forward as long as she can work at a part-time job and earn that kind of money and she still will be paying much in taxes at all and the second example is a couple who they get to Social Security checks and which are pretty substantial I believe. And again I just am watch the sunrise meant that there were around four grand a month between the two of them maybe a little short of that and to make their budget. They deduct from their 401(k) and another thousand a month and so they live pretty well on their 5000 a month that they pay almost nothing and you know you say will. How is that and insist Social Security is taxed to the extent of your other income and their other income is only a thousand a month and that's by choice is a deduction from the 401(k) so $12,000 a year and a tiny put in the standard deduction in the Social Security formula and all edited very little income taxes that they're paying on an annual basis and state income taxes for both of these people are both in North Carolina. North Carolina doesn't text Social Security at all. Some states to but that's why the thing is Social Security federal income tax is we don't want to say that the only tax you need to worry about because some states taxes but North Carolina is not one of them in the third example is, which was the most enlightening for me is which Tom really put all the stuff together were Tom can do a mockup tax return is doing that on just about every person that comes and does a financial plan keys after we do our recommendations.

He plugs it all into in a mocked up tax return out 2345 years and shows them the tax effect of what were doing here. And with this couple we really encourage them to delay their Social Security to 70 and by the time they do get on Social Security.

These people have a thousand a month that they're able to spend in their only pay a thousand a month on top of that in taxes and it was really meant thousand a month in taxes is not just when you talk about that is $12,000 a year.

That sounds like a lot, but relative to their income and the money they're spending in their Social Security it it's really not the end.

So we've got people covered from $100,000 a year to couples down to a single individual taken home about $40,000 a year. We got all three of these things very low or no income taxes now and it was kinda cool because I had not realized that there are three different levels of income tax on Social Security so that that question I immediately knew that while there somewhere. I don't know so right. And in those those three kind of fit in all three brackets right yeah well I did it it it it. All three of those yen you know what I can add to that, we've got another guy had a very high income and right now he's retiring the end of the year that were working with right now in. We targeted all his income and receipts and Social Security and all that around an income of $180,000 a year. He had, he doesn't pay that much in income taxes on hundred and 80 grand a year is about 1/4 of it Social Security. Another probably half of it is coming from qualified or IRA money and then the other rest of it is coming out of just savings that he doesn't have to pay taxes on so I mean just the general theme of this is if you plan things properly, your tax bill can be very low in retirement and yet also with that means is that you get to keep more of your money if we've made this a sustainable plan. You not only get to keep more of your money. You can actually spend the money that you get because if this is a repeatable thing which for all three duties examples and people your Social Security checks can keep going on for the rest your life and if you come in and says all three of these people did were going to have you spend your other income and pay it out to yourself over the years. I mean that's sustainable all the way up in your 90s so you can see that some helpful information.

That's all Cardinal where they have courses seven ways tablets. They were talking about income tax and so that's there as well as show notes and actually got all these different tax forms that Tom has there in the show notes as well as the video that you can watch on the same subject. And of course it's all in the Hans's book the complete Cardinal guide to planning for and living in retirement and for sleeping in on the more important things you want a note from my standpoint how to get up with Tom so that he forgot his plan for you is going to Cardinal all his contact information is available so will be right back with a whole lot more on so security federal income tax. Hans and I would love to take our show on the road to your church and Sunday school Christian or civic room. Here's a chance for you to advance the kingdom through financial resources and leveraging harms expertise and qualified charitable contributions veterans aid and attendance, IRA, Social Security, Medicare, and long-term care. Just go to Cardinal and contact Tom to schedule a live recording of finishing well, your church, Sunday school or civic contact time to Cardinal guy.that's Cardinal will welcome back to finishing well with your financial planner Honshu Island today show is Social Security federal income tax in one of the really helpful things in the Hans's videos as they have a board to show you all these numbers and so that again is that the show notes and and there under the income tax worry Varitek Cardinal but Hans some of the information on the board is really important it is to be graded. Some of the folks could watch the video and we know it's concise but the general theme of the show is that your Social Security income or your Social Security check every month and if you are a couple and you got to love them, in and of itself is not taxed okay. I mean, part of it is going accounted income. If you make enough Go with a simple rule of thumb is as if the only income that a person has a Social Security do not contain income okay and that's encouraging because there's some people that they live off of only their Social Security some unfortunate things have happened to them whenever they're retired, they can't work anymore and I got a check coming in at the very least all that there they don't really have to pay any taxes.

The feds and the state now. If you have your Social Security and some other income you're probably still lycopene compaction are examples that we talked about earlier prove that she now has an example of the lady that has about $20,000 a year in Social Security income 23,000 something like at 24,000 and then she takes out of her 401(k) like 1200 a month 1100 a month she doesn't pay any income tax coming. By the time you plug all and end of the system of 1100 a month of other income.

That's 12, $13,000 a year and then the percentage of her Social Security. She pays nothing in federal tax in North Carolina shows North Carolina tax Social Security so she's got no income taxes to in other words, she can keep all her money and she needs it now diets. It's a beautiful formula you know and not the neat thing is, and again in the video and Tom puts all the numbers writing a tax return and you can see what you're talking about here and you know it's really helpful to know, you know, in every situation there's there's really ideas that that would help like in her case. As you talked about going on her husband's Social Security so that hers could begin to and obey because you cite and grow so that when she reaches 70 know she'll be able to get more benefit right yeah and more nontaxable because her income is never going to be high enough that they're going to be taxing you the income that other income or the Social Security manages that the beautiful thing and you know I'm doing the video for people that are yet retired and they are now.

You know in a situation where they they are there going to be where they are currently collecting Social Security and Dan, whatever that produces for them.

They're gonna get to keep most of it and then if they need other income. In addition to their Social Security which many people do, and they're going to make reductions from their 401(k) or IRA or money they haven't paid taxes on yet the event of people in income out of there and if that's a smallish income, you know, like, a thousand a month or 2000 a month there still knocking to pay much taxes at all because it's the other income that gets taxed. The amount of the other income combined with a portion of the Social Security to create their overall taxable income and by the time you plug everything in there with a smallish income separate from Social Security, the tax effect is almost not pretty cool actually and just right on the top of my board I'm showing is that if you're at the low end of other income you rent a 0% income tax 0% your Social Security can count toward income tax and if you're Middle-of-the-road you're going to have half of your Social Security check. It can account for his income and your tax calculation and if you're at the top of the thing that you have a lot of other income of an 85% of your Social Security is going accounted income, but we figured out a guy that a client that doesn't need a lot of monthly income to live. He has a lot of money but he doesn't need to access a lot of it to live. You know we base it on $180,000 a year and with about 50,000 of that being Social Security. He didn't pan much taxes. He now because you know it sounds when you say that 85% of the of your Social Security. If you have other income that's over what 40 some thousand right that 85% of its taxable income, but for somebody it's in that taxable income bracket may only pay my 12% tax anyway right south 12% of the 85% you a whole lot of tax right well yeah I did it in there. 10% on development and drug percent of the rest of it and they're getting the standard deduction for a couple over 65/20 $8000 so by the time you plug all that stuff in and you live in a state without state income tax. Your tax bill is just going to be low. In retirement, which means you keep more your money and it's very important that we plan things for you so that you don't have some years where you pay a lot of taxes on retail that happens is something to go along and don't really get any planning most of their money is in an IRA or no 401(k) and they don't want to touch it because the lawyer pay taxes so that is their savings and then lo and behold something happens or they have to go get some money to help other kids or they've had some need to buy a new car or they need to fund or a new roof for air-conditioning or just something happens where they need money and they go to their savings which is there IRA and they pull out a bunch of money then they got pull out a bunch of other money to pay the taxes on what they just pulled out and then what that does is make more their Social Security taxable which they been living off so that's what you really want to avoid is one of these big bulge years where you had to make a reduction so how do you think you prepare for that you reduce the IRA left didn't get a permit yeah what what what what we want to do for just about everybody is we want to start winding down there IRA and little bit, bit by bit by bit by year because all three of these examples we could pull another 10, $20,000 a year out of there IRA may be as much as 30 or 40 and have still pay very little income taxes. So just makes sense to do a little bit every year and actually voluntarily pay some tax and then save the money, don't go blow the money and then save the money so that if you do have a problem that a savings account is therefore you don't blow your whole retirement income tax plan. As you can just take it out of out of the savings account with our taxes and I loved I loved what you what you said on the last group, which they had a high income and a large IRA balance and and yet you're able to do a whole lot with them not just with what your switch number from the IRA to him to a Roth IRA, but then also you know with with the change of income without increase their tax that much. But then you also talked about they had a another investment account that you switched over to an annuity and so it was all these things that happened in like wow much money was going around and yet they still had a really limited in amount of taxes that were due. Oh yeah, I mean and there we sat down with the tax return that we sat down with all their money and they were fortunate enough that they have resizable money divided pay taxes on. So this guy's been a really smart saber couple has their whole career and they've made a big income.

Another face in retirement. They don't need that big income anymore.

I mean they need they need. What can you look like a big income to a lot of people but we we literally have the choice of how much taxes you want to pay year-by-year and so we just structured things that we made their income just under hundred and 80 grants that were to stay away from Medicare, he actually started his Social Security. Starting in early because he can so he started fixed because relative to his whole situation that extra money just doesn't mean much time so they have between the two of them about $50,000 a year and so security company and we were able to put that in there, put in some other sources of income that are not taxable and just put together the income they need and still keep your tax bill relatively low, which is really cool right in that also, I will. I loved what you talked about with the investment account that was taxable income that was really high, but your restriction into an annuity for tax reasons as well. Right well yeah because there's the annuities that can be set up that you know where like for him. We did a five year payout annuity that just stopped making payments at the end of five years and we just took a small portion of his money, stuck it in there.

He gets a big check every month which only about 10% of that is interest. The other 90% is just getting back his own money to live which is nontaxable. Full complicated that we weep easily through the money in there and then he gets a check every month and by the time we get after adding it up at the end of the year that the taxable income shows up on his tax return is very small and then we got a bunch of other money just in annuities that were not taken income from imagistic accumulating tax-deferred is no point in paying taxes on interest, which are not spending the just stuff that money in an annuity and then it accrues tax-deferred so slow complicated explain on the radio but we sit down, put the numbers in front of you. He's just amazed but how little taxes each Day for several years and so you know at the end of this. I hope everybody's hearing that this is you know, a lot of times I want to think about taxes is bad news, but actually when it comes to your retirement planning. This is really good news and some it's worth doing some planning around thinking about it on my opinion in Collin Hans in and get him involved with your plan because every one of these is so different and there's so many different cool options. Every time I hear one of the stories they did some else that was like man I and all that and and so they can do that for you. You go to Cardinal right and get get in contact with Hans and again wonderful show. Hans people can go there, get all those resources including your book. Thank you for great shout.

Thank you God bless you finishing well is a general discussion and education of the issues facing retirees Cardinal Cardinal advisors and Hans Schild, CFP some insurance this show does not offer investment products or investment advice. We hope you enjoyed finishing well brought 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 constant 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 you get Hans both 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.

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