For the Earnings Test, there is a limit to the amount of income that can be earned if you’re under Full Retirement Age (FRA). The limits for 2012 were recently released: For years in which the recipient of Social Security retirement benefits is younger than FRA, Social Security benefits will be reduced by $1 for every $2 greater than $14,640, or $1,220 per month. For the year in which the recipient reaches FRA (but prior to reaching FRA), Social Security retirement benefits will be reduced by $1 for every $3 over the limit of $38,880 or $3,240 per month. After reaching FRA, there is no limit on earnings.
October, 2011:
2012 Retirement Plan Limits
Image via Wikipedia The new limits for retirement plans in 2012 have just recently been published. The details of these new limits are below: IRA The contribution limit (and therefore the deductible contribution limit) for a traditional IRA remains the same in 2012 as in 2011 – at $5,000. The catch up provision, available to taxpayers age 50 or better, also remains the same at $1,000. If you’re a Single filer and covered by a retirement plan via an employer, the deductibility phases out when your Adjusted Gross Income (AGI) is over $58,000 and phases out completely at an AGI of $68,000. This is an increase of $2,000 over the 2011 phase-out range. If you’re Married and filing jointly and the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is between $92,000 and $112,000, also up from 2011 by $2,000. If you’re not […]
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2012 Income Tax by the Numbers
Recently, the IRS released the updated figures as they apply to 2012 income tax rates and schedules, via Revenue Procedure 2011-52. Below is a summary of the key information from this procedure document. Adoption Assistance The credit for adoption expenses was changed by the Patient Protection and Affordable Care Act of 2010 (and others) such that this credit was increased to $13,170, and the credit became refundable. This provision will expire at the end of calendar year 2011, which will cause the credit to fall back to an amount of $10,000. This amount is then adjusted for inflation, such that the limit for 2012 is $12,650, and remains non-refundable. The limit for adopting a special needs child is the same at $12,650 for 2012. We’ll see if any changes come through to make any changes to the refundability. The modified AGI limits for the phase-out of adoption credit assistance is […]
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Social Security Benefit Increase for 2012
For the first time in two years, Social Security benefits will increase in January 2012. The increase in benefits is set at 3.6%. The 3.6 percent cost-of-living adjustment (COLA) will begin with benefits that nearly 55 million Social Security beneficiaries receive in January 2012. Increased payments to more than 8 million SSI beneficiaries will begin on December 30, 2011. Some other changes that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $110,100 from $106,800. Of the estimated 161 million workers who will pay Social Security taxes in 2012, about 10 million will pay higher taxes as a result of the increase in the taxable maximum.
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Using the Prohibited Transaction Rules to Your Advantage
Image by chris_wilson via Flickr I’ve written in the past about the types of transactions that are prohibited in your IRA, and how these transactions are generally quite onerous if you happen to use one of them. In fact what happens is that your entire IRA becomes disqualified as of the first of the year in which the transaction occurred. So – if you’re inquisitive you might wonder: How could I use this to my advantage? It is possible to work this rule in your favor – but I don’t necessarily recommend it. I present this option here as an exercise of what could be done according to the rules. I learned this one from Natalie Choate, by the way, who you may recall I regard as a rock star in the world of IRA law. Working in your favor So, given that the rule against prohibited transactions requires that […]
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Earned Income Credit and Due Diligence
Image via Wikipedia For those familiar with the Earned Income Tax Credit (EITC), you (hopefully) are familiar with the preparer’s due diligence checklist. This is a checklist that the preparer uses to help determine if the taxpayer’s circumstances are in keeping with the conditions that are required to be met in order to be eligible for the credit. In the past, this checklist has been filled out by the preparer and kept in the preparer’s files. Recently this fact has changed a bit – the IRS changed the requirements, such that now the due diligence checklist must be filed along with the return. This filing requirement is the only thing that has changed, the due diligence is the same as before. The checklist Here’s what the checklist asks: Is the taxpayer’s status Married Filing Separately? (if this question is answered “Yes”, the taxpayer is not allowed to file for EITC) […]
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The Mystery of Social Security
Social Security has become a significant part of many retirees’ sustenance, ever since it was first introduced back in the 1930’s. As the traditional pension plan goes the way of the buggy-whip and common investor behavior leads to poor results in savings plans (if there are any savings at all!), the Social Security benefit becomes more and more important. Unfortunately, the way Social Security works is a mystery for most folks. There’s really not much in the way of guidance for using the system, and relying solely on the phone representatives from the Social Security Administration is bound to lead you to a less-than-optimal result. As with most financial activities, it pays to learn as much as you can about your options, possible strategies, and the pluses and minuses of various choices that you make. A Social Security Owner’s Manual is an attempt at providing you with the groundwork to […]
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A Beneficiary Designation Dilemma
Image by Ben Saren via Flickr Since families today are different and more complicated from the traditional situation, with ex-spouses, children from first and subsequent marriages, and children from unions where a marriage didn’t take place, designating beneficiaries for IRA accounts can be very complex. For example, it’s not out of the question for an individual to have re-married later in life and have children from an earlier marriage. In addition, the new spouse could have children from his or her previous marriage. And then possibly children resulting from the current marriage. So, this individual might wish to leave the proceeds of his IRA to his or her current spouse first and foremost at his or her passing – but then to split the remainder of the account among his or her children from the first marriage and the children from the second marriage equally. If you know anything about […]
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What to Expect If You Owe Money to the IRS
Image via Wikipedia Often we find ourselves in situations that we never dreamed of – like owing the IRS a considerable amount of money. Maybe you earned a lot more than you expected, perhaps you had a filing status change that dramatically changed your tax rate, or maybe there was a change to your deductions. It doesn’t matter, you’ve found yourself in the situation – what should you expect? The IRS recently issued Tax Tip 2011-14, which provides Ten Tips for Taxpayers Who Owe Money to the IRS. While the majority of Americans get a tax refund from the Internal Revenue Service each year, there are many taxpayers who owe and some who can’t pay the tax all at once. The IRS has a number of ways for people to pay their tax bill. The IRS has announced an effort to help struggling taxpayers get a fresh start with their […]
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The Importance of a Taxable Investment Account
I’ve written about this topic a few times in the past, such as in this article on tax diversification of your investment accounts. It’s an important topic, but probably the most important subtopic has to do with having a significant portion of your investments not only in tax-deferred accounts, like 401(k) or IRA, but also in regularly-taxed accounts. Roth-type accounts are also critically important, but given the limited availability and costly nature of getting assets into a Roth-type account, I’ll focus for now on the importance of the taxable investment account. With a taxable investment account, you have the opportunity to use the tax code to your advantage, even though it may seem counter to your initial thoughts on the topic. Granted, in a taxable investment account you don’t get the complete tax-deferral that is available from an IRA or the tax-avoidance in a Roth IRA. So with that fact, […]
Sterling Raskie, MSFS, CFP®, ChFC®
The latest in our Owner’s Manual series, A 401(k) Owner’s Manual, was published in January 2020 and is available on 
A Medicare Owner’s Manual, is updated with 2020 facts and figures. This manual is available on 
Social Security for the Suddenly Single can be found on Amazon at 
Sterling’s first book, Lose Weight Save Money, can be 
An IRA Owner’s Manual, 2nd Edition is available for purchase on Amazon. Click the link to choose the 
Jim’s book – A Social Security Owner’s Manual, is now available on Amazon. Click this link for the 
And if you’ve come here to learn about queuing waterfowl, I apologize for the confusion. You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed “advisor’s advisor”.