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Social Security Income Tax

Finishing Well / Hans Scheil
The Truth Network Radio
March 7, 2020 8:30 am

Social Security Income Tax

Finishing Well / Hans Scheil

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March 7, 2020 8:30 am

This week, Hans and Robby discuss plans coming together, specifically, how having a plan for your income in retirement can reduce the tax you pay on your Social Security benefit. While only 13 states charge income tax on Social Security, the federal government will charge everyone who falls into their set threshold. Hans goes over these thresholds. If all you have to live off of is Social Security, you won’t pay taxes. It is when you throw other income in there that it can be complicated.  


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

Rob West and Steve Moore
Rob West and Steve Moore
Rob West and Steve Moore
Rob West and Steve Moore

You're listening to the Truth Network and Welcome to finishing well brought to you by Cardinal certified financial planner belonged to Schild and best-selling author and financial planner helping families finish well over 40 years on 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 welcome to finishing well. Siding on Schild are certified financial planner is going beyond. Pretty simple topic below. The implication Social Security income tax and the little subtitle for you. I love it when a plan comes together and you know as we begin to unfold this show today.

I would ask you think about how much God loves it when I mean if you think the 18 love it when a plan comes together.

Nobody loves it. Like God loved it when the plane came together like it did on the cross and all the things that he was pointing to and picturing all the lives that had to be tweaked just a little bit here little bit there for this exact moment during Passover week. It was by no means an accident, but it just happened to show up on Palm Sunday or no is an active bit you know he was crucified on Good Friday that always interests phenomenally significant in the planning that God had made for our redemption since before you know we can even imagine all the little details that went into the plan and very cool right Hans that as we look at Social Security income tax you know we are made in the image of God. We can be creative in creating a plan and and so I just wanted to offer you one little example you may know in the book of Exodus and Leviticus and Deuteronomy.

Bake they go into the steps in order to clear leprosy that the priest would go through to cleanse leprosy and you may be familiar with this little bit but Isaac is beyond cool that it would take two dives running water, a red cord scarlet thread, some people would call it would take some hyssop and it would take a clay pot. In other words, you don't just come cleanse the leper without having your goods with it and there was a very specific term and God was very specific on how your was to kill the one you don't sprinkle the blood of that dub that you killed. On the other does right and and then you were to to use this hyssop in years post uses scarlet thread overrunning water. By the way, and when you now look at what happened on the cross that that this is substitutionary death that the cause of that red thread which actually means hope runs throughout the Scriptures to explain, in other words, all the little details.

It seems like what what does this mean on the first time I read it on like why would they put such a crazy thing Aaron me to.

I asked you about you, but when you go into all my goodness he there are painting a picture here like you know your your privy to seeing the master artist making a brushstroke and all the genius that went into that little brushstroke of having two pigeons, a clay pot scarlet cord running water.

All these things that that God did so I feel pretty to be sitting here with my friend Chuck is been studying so security into bags for years and years and years and years and he has a plan for you. But in order to get to the plan. We first just got to start some of the basics right well yeah you how we ended up talking about that scripture and that piece was that I think in timelines and when were getting ready for the show as we are doing just a few minutes ago. I'm talking to people that are 58 I'm talking to people that are 64 I'm talking to people that are 70 talking to people that are 80 talking to people in their 40s mean just it, and so and then for each one of those people when they come in and they become clients are the people like you were talking about your situation there, all at different points on the timeline and then this stuff comes at you during different seasons at different times.

Some of that, 65, some of it 66 and two months some of its 77 was back at 59 1/2 and then there's your estate, which we don't know when you're going to die, but it's on a timeline God does and it so were thinking in in in terms of timelines of when all these things come together and then you have some choice in some of these timelines, like the end were to be talking next week about Social Security and Social Security timing were not talking about that this week. It's kind of hard not to. But this week to teach you a lesson about the income taxes that you have to pay when you're collecting your Social Security check subordinate program to try to say is the only vow it only changes by time, but it actually even changes by where people live with state. Will shirt us and there's 13 states that impose the state income tax on the people of the Social Security church.

North Carolina is not one of them if you want to give me a call or go on my website. You can see the other 13 states that means there's 37 states that charge no state income tax on your Social Security check. So for the purposes of clarification organ be talking about today is the federal income tax administered by the IRS on your Social Security check and what what I want to add about the so security came out in 1933 and until 1983. There was no income tax on your Social Security and it's also there's income tax on Social Security disability as well. I absolutely since 1983 that you so and I hope to get started right and 83.

That's when the law was passed, but no matter is when they put this law again so previous to this the hand texting is so security, but that's really in the 70s and 80s when they realized they we got a problem here. We promised all these benefits to people and now it's certain amount a lot of money and were specifically were paying Social Security checks to well-to-do people and were given to them tax-free another to say well you not given it to me. I paid into that now I can't stop. Granted any way you shake it you didn't have Social Security real well-funded, other than taxes coming in until the 80s and so they pass this whole law funding Social Security taxes on Social Security and they want to be real careful that they didn't tax the people who really have nothing else but Social Security so that that that's been pretty consistent since the beginning so and it's true to this day is all you have is your Social Security check to live on your neck and pay any federal income taxes kind Now even if you're getting a big check.

So they came up with this formula, which most CPAs when I sit down and drill down they know you have to pay taxes on Social Security but all push some of these people that I'm working with, especially when they're coming into me for financial planning and most of them have a little know it all and I'm you know which excessive businesses, taxes and all that but all kind gently wisdom on some things I just tell me about the taxes on Social Security you know and some are modicum rounds at I don't know I just know that there are taxes but I don't know how their calculator and I want to come out with a simple thing like we had to pay taxes on half your Social Security and that's actually the way it was in the beginning but it's much more complicated than that, but it hasn't been for them because most professionals on this.

They know how to calculate your income taxes that you owe on your Social Security for 2019. You got all the forms in front of the monies Artie come in. It's been paid and so were just going to use a computer now to come up with what your income taxes is in your Social Security subfactor but as a financial planner were doing is we're looking backwards only did just get a sense of where you are working need to look forward and we got a project forward and we can help you make decisions right now regardless of whether Cargile like to point out is beautiful illustration of this in a car but I never thought about it, but most of you driving right now you're at how big is the rearview mirror in your car versus the windshield and and and you know history is important and you need to look back there minute step but man oh man, which got, hatchet and you have a big windshield sure so you know that's the beauty of this now when I go into how we calculate is not worried where you think you do. Through all the formulas but we are to take you into some simple concepts for my perspective on how to look through the windshield. What what will absolutely and we we we will just state the formula once, but the gist here is that the way they're going to calculate the government is going to calculate the taxes that you pay is on your Social Security is through your other income so you get your Social Security over here on the left and you get, however much money you make for use as an example of just did taxes for a lady $18,000.

About 1500 bucks a month. $18,000 is what her Social Security check is annually so that's it's over there on the one side, then you got on the other side or other income, and I remember just the numbers. She's got just about $12,000 in lifetime withdrawals out of her IRA so chalk that up. She could stop by the thousand a month and then she's got last year on her interest from her bank. She got 28 box so rampant on the 28 box and that's on several thousand dollars, which is kind of interesting but so we had 28 box. And besides those two things for other income. She everything else because all her money that she's not spending the interest on his annuities so the end result. This game is she paid no income taxes. She didn't pay any income taxes under Social Security so there's planning things that we can do by structuring your income in such a way, I just mention the simplest of those, but the least effective of those is just putting it in an annuity is just gonna postpone a problem with. There's other things you can do in planning or we can help you do so that that income doesn't show up on your tax return to drive taxes on your social is the driver and fortunately Hans for the whole book on the sent cargo guide to planning for living retirement and which is under the seven worries tab today show Social Security income tax lots actually income taxes. The is the worried tab that you would download in order to get a free PDF of what's in the book and the workbook to different things on the same subjects that we got lots of ways you can get that working to cover that more in the show coming up again today show cells simply Social Security income tax. That's it. And we can get some really cool planning. I really think God allow you to help some. The fruits of Hans and I would love to take our show on the road to your church, 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 cargo and contact to schedule a live recording of finishing well your church Christian or civic contact.

Contact Cardinal that's Cardinal welcome back to finishing well with certified financial show Social Security income tax sounds a little drive that is been anything but as we can see the opportunities here you that God has given us to build the kingdom to the furtive of our labor and then just simply a plan coming together at and you know it's kinda cool you got this individual that's that's come to you to work on her taxes and we are talk about that right before the break on how her plan is come together you know in her life will she inherited $400,000 through four years ago in before this she was already my client.

She had Medicare supplement insurance with us.

She had purchased a small amount of life insurance and then I had taken her what was her 401(k) from work and put it into an annuity that produces a thousand a month for her.

It's guaranteed for life's in the matter how elastic backup for second and what you just said. For those were following what we heard. The first segment she's not paying any income tax on her Social Security around or text it what you said, right. So she has at 400 and that's what investment she has an annuity from an IRA for that to happen prior to inheriting all this money and she currently met with the basic of the planning is is pay no income tax yeah Susan, we didn't know she was getting here the money when she first came to shoot.

She also owns real estate in the house were housesitting and sex. Ultimately, when I was doing the initial planning for her.

Sure, I was thinking about taxes on Social Security but I was just trying to get enough money to live in order so security checks. About 1500 bucks a month and then we were able to take the lump of money and she was spending it down in a just the way she was when I found her. She would've gotten to about 80. She's been out of money so we set her up to get a guarantee from an insurance company as you thousand bucks a month that's coming in every month.

It's now like I don't know for five years later, she got that $12,000 last year and she's going to get every year as long as she's alive, so that's taxable income because it's coming out of an IRA but that's all she showing other than the fact she made 38 box from the interest from the interest on the bank and we had a confidence using money up so that an acid you go show every nickel of the stock so what I want everybody to understand.

Is she paid no taxes on her Social Security because if you took her Social Security check, or half of it.

Plus, or other income which was $12,038 or whatever that was, under all the thresholds both for income taxes. Because she's she's able to take the standard deduction which happens to be $13,000 so she can pay income tax on the $12,000 and she also doesn't pay tax under Social Security because she's under the thresholds Jesus without boring on the formula, and then you got this other 400 grand, but I didn't put all that 400 grand and annuity. What I did. I advised her to do and she did.

She paid off for home mortgage with a good bit of it. Mere interest rate at the time was about four and half percent on her home mortgage making payments every month and we paid that baby off, we took 160 grand of the 400 grand is paid off her mortgage and that was the best investment better than annuity better than anything because if she would've put it in something to generate the income to pay the mortgage payment. She would've beginner tax on Social Security so we put about hundred and 60 grand paid off. The house that left 240 we got rid of her house payment and then she spent about 40 grand on some things and I got down to 200 grand. And then we took the 200 grand and we split that in half would put 100 grand one annuity and 100 grand in another and both of those are gaining interest and have for several years and is tax-deferred so it doesn't show up on the tax return so that both but you use the term baking) rowing and pick a girl not interested in them and so she could turn on a lot income if she wanted to turn it on. But what what's her long-term plan. What water line from one of those hundred thousand dollars annuities is specifically set up for long-term care, then the other hundred thousand dollars annuity is just there accumulating in case she needs more income later in life and right now she did need that and she might she's even thinking about selling her home and moving to an independent living or place for older folks. That is a nice place wanted to keep it up and it has assisted living right on site she get home healthcare in there so that'll bring in some more capital.

The whole point. I want people to get with Social Security income tax is, we were able to shelter her money in such a way that she's not obtaining income taxes right now and she's got every month coming in about 2500 a month tax-free. She can live on. So getting into a immuno human centered on mention the formula and so just briefly and I'm not going into a lot of stuff, take your Social Security check government and make anything easy you take 50% of her case it be 18,000 is her Social Security income half that is 9000 and you take the 9000 which is half the Social Security check and added to the other income which for her $12,038, 12,000 she has 21,000 for what is called the combined income formula and as long as that's under 25,000 she pays no income tax. We could actually have her take a little more income had annuity up to about $4000 and still pay no taxes on the Social Security but I don't like to shave these things right down to the nickel especially. She didn't need the money coming, and we could even go over that. Let's just say she needs the money and we pulled out 10 grand out of the annuity will then if it was all interest which it might well be then she's going to be about 6000 over the threshold, so she's going to pay some income tax on her other income and she's gonna pay some tax on your Social Security list. I can be a huge amount and there something this kind of give me the warm fuzzy feeling inside of that taxes in my case I looks like I will be still employed and paying tax on my Social Security just based on the way my income abates is kinda nice to know that that money is going back into the Social Security trust fund in securing Social Security for all of us.

If somebody ends up paying tax on their souls. Emmett income it it it helps. In short, the fund and makes me feel better. Well if you had all this money available to her right when I did her initial planning I might've done a few things a little bit differently okay and so I want to give a little bit of the story for somebody look, let's say we got somebody with for a married couple that has 4000 a month in Social Security company. Okay, so that's $48,000 a year and let's say that they've got $500,000 in assets, mostly sitting in IRAs and maybe 100,000 of it is sitting over in a savings or CD or something. Get their hands on and in retirement. There just having to take minimum distributions are taken out distributions to live on or get with. In other words there running their income up. Maybe the dudes working part-time like you're talking about doing her working full-time so there in a taxable on your Social Security situation and there are some things we can do for them.

One of which is a Roth IRA conversion. So sometimes it makes more sense to pay the taxes now so that you avoid taxes later because Roth IRA distributions do not count against the formula to create your Social Security that one thing is a Roth Social Security income taxes. Simple thing is if you can get your money over into a Roth and then make withdrawals from the Roth you can have tax-free withdrawals from the Roth and you can have tax-free Social Security income coming now. If you're fortunate enough to be listed to us in your 60, 62, 64, 65, somewhere in that zone.

You haven't started your Social Security check yet now we can do some planning to have you wait till your 70 to get your Social Security check. And we can do all these Roth conversions before you even get your Social Security check so that you may become conceivably pay zero tax.

That's my plan that I want to add to that is that life insurance is a long-term proposition.

By that I mean that you need to pay into it for several years, several I could mean is, as few as five, six or seven, but you know if you if you still have money left over that you want to shelter a life insurance policy where you're dumping in an annual premium every year is going to create where you have a lump of money when you're getting your Social Security check that again is going to be tax-deferred, tax-free. If you want to get at it.

So the whole game here is to get your money moved over into the tax-free side before you're getting a Social Security check so that your granite be able to pay no taxes in your retirement. Hasn't Sentry I and it comes with the concept of energy want to look through the rear view mirror and see how much tax I would just based on the way things fell this year or or do you want to take a good look through the windshield of the savings and and and and plan as God for immuno fruit. But here's the good news in the windshield. The Social Security income taxes optional in you know, in the rearview mirror. It's not me you just you dilemma this.

You owe it you the end, but you can do planning in such a way that you don't owe any taxes then what makes my planning easier is all of a sudden a $5000 a month income that's tax-free is equivalent to an $8000 a month taxable, maybe even 93 start looking at. That way if you have net spendable money in retirement. Again today show is been Social Security income tax you can go to the income tax Chris also brought you by Cardinal There you can actually the easiest thing to do is just email Hans A1 Joe book.

Why does get a chapter the time that you write on the website, you can just go on the thing the chat thing and McKenzie's my assistant shield should get the book right out. You want a book or you want the workbook.

We want both, and if it were me, and I've read both that I would.

I would go with both. Because there's nothing like being able to apply what it is that you've learned and now that was kind of a what causes idea was his for sharing this information again Cardinal guide. Forget the guide. After it's always a blast to share this time with you, Hans, and once again the plans come together. 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. Once again that's Cardinal Cardinal

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