Unlock a bigger Social Security check—but beware of this tax surprise!
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Attention, retirees and future beneficiaries!
A significant change in Social Security legislation could mean a boost in your benefits.
But it's not all sunshine and rainbows—there's a potential tax cloud looming on the horizon.
Here at The GrayVine, we're committed to helping you navigate these changes with ease and confidence.
The Social Security Fairness Act has been a long-awaited piece of legislation for many public-sector retirees.
It eliminates two provisions that have historically reduced Social Security benefits for those who also receive a public pension.
These provisions are the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).
Approximately 3.2 million retirees are affected by these provisions.
The change could mean a significant increase in their Social Security checks.
The law, retroactive to January 2024, promises not only higher monthly benefits starting this year but also a one-time retroactive payment.
For many, this could be a financial windfall.
"Some people's benefits will increase very little while others may be eligible for over $1,000 more each month," the Social Security Administration announced in January.
While the prospect of additional funds is exciting, it's crucial to understand the tax implications that come with this increase.
Jaime Eckels, a certified financial planner and Wealth Management Partner with Plante Moran Financial Advisors, reminds us of an important detail.
"The good news is, this isn’t urgent, and people have time to prepare."
The tax bill for these benefits won't come due until 2025.
This is because income is recorded when cash is received.
Mark Kohler, a certified public accountant and author, explains how timing plays a role in taxation.
"You should have gotten (the money) last year but didn’t get it until now, so it’s reflected on the SSA-1099 for 2025."
How much tax you'll owe depends on your total income.
This includes tax-exempt interest and half of your Social Security benefits.
Up to 85% of your Social Security benefits could be taxed.
This happens if your combined income exceeds certain thresholds based on your filing status.
Fortunately, there are strategies to potentially reduce the tax burden from this Social Security boost.
This legislative change is a testament to the evolving nature of Social Security.
It highlights the importance of staying informed.
As you anticipate a larger check, it's essential to plan for the tax implications to avoid any surprises.
At The GrayVine, we encourage you to review your financial situation.
Consult with a tax professional and consider the strategies mentioned above.
While the extra funds can provide a comfortable cushion, it's the careful planning that ensures a secure and enjoyable retirement.
Stay informed about the latest Social Security updates.
Find out what changes are happening at the Social Security Administration.
See if you could be at risk of losing benefits due to this immediate policy shift.
We'd love to hear your thoughts on this change. Are you planning for the potential tax impact? Do you have other strategies in mind to optimize your benefits?
Share your insights and join the conversation below. Together, we can empower each other to make the most of our golden years—even when faced with a surprising tax twist!
A significant change in Social Security legislation could mean a boost in your benefits.
But it's not all sunshine and rainbows—there's a potential tax cloud looming on the horizon.
Here at The GrayVine, we're committed to helping you navigate these changes with ease and confidence.
The Social Security Fairness Act has been a long-awaited piece of legislation for many public-sector retirees.
It eliminates two provisions that have historically reduced Social Security benefits for those who also receive a public pension.
These provisions are the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).
Approximately 3.2 million retirees are affected by these provisions.
The change could mean a significant increase in their Social Security checks.
The law, retroactive to January 2024, promises not only higher monthly benefits starting this year but also a one-time retroactive payment.
For many, this could be a financial windfall.
"Some people's benefits will increase very little while others may be eligible for over $1,000 more each month," the Social Security Administration announced in January.
While the prospect of additional funds is exciting, it's crucial to understand the tax implications that come with this increase.
Jaime Eckels, a certified financial planner and Wealth Management Partner with Plante Moran Financial Advisors, reminds us of an important detail.
"The good news is, this isn’t urgent, and people have time to prepare."
The tax bill for these benefits won't come due until 2025.
This is because income is recorded when cash is received.
Mark Kohler, a certified public accountant and author, explains how timing plays a role in taxation.
"You should have gotten (the money) last year but didn’t get it until now, so it’s reflected on the SSA-1099 for 2025."
How much tax you'll owe depends on your total income.
This includes tax-exempt interest and half of your Social Security benefits.
Up to 85% of your Social Security benefits could be taxed.
This happens if your combined income exceeds certain thresholds based on your filing status.
Fortunately, there are strategies to potentially reduce the tax burden from this Social Security boost.
- Allocate the Lump-Sum Retroactively: The IRS allows you to allocate the lump-sum retroactive payment to the year it should have been received.
This could lower the taxable portion of your benefits. - Qualified Charitable Distributions (QCDs): If you're taking required minimum distributions (RMDs) from your IRAs, consider making QCDs.
These can reduce your modified adjusted gross income (MAGI), which also affects Medicare Part B and D premiums. - Adjust Retirement Account Withdrawals: With higher Social Security payments, you might be able to reduce withdrawals from retirement accounts.
You could also harvest tax losses to manage taxable income. - Invest in Your Small Business: Kohler suggests investing your retroactive Social Security check into a small business.
This can offer more effective tax write-offs and generate future income. - Balance Enjoyment with Financial Prudence: It's okay to treat yourself with a portion of the extra funds.
Perhaps that dream trip to Tahiti is now within reach.
Kohler recommends allocating a percentage for enjoyment, paying down high-interest debt, and investing in a Roth IRA or a new business venture.
This legislative change is a testament to the evolving nature of Social Security.
It highlights the importance of staying informed.
As you anticipate a larger check, it's essential to plan for the tax implications to avoid any surprises.
At The GrayVine, we encourage you to review your financial situation.
Consult with a tax professional and consider the strategies mentioned above.
While the extra funds can provide a comfortable cushion, it's the careful planning that ensures a secure and enjoyable retirement.
Stay informed about the latest Social Security updates.
Find out what changes are happening at the Social Security Administration.
See if you could be at risk of losing benefits due to this immediate policy shift.
Share your insights and join the conversation below. Together, we can empower each other to make the most of our golden years—even when faced with a surprising tax twist!
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