Advanced Underwriting Consultants

Ask the Experts – October 14

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question:  My client is 63 and has begun receiving his Social Security benefit of about $1,600 per month. The problem is that he still works and earns about $45,000 per year. When, and by how much, will his benefits be reduced?

Answer:  Generally, if a retiree has reached her full retirement age (FRA), then his SS benefits will not be affected by his earnings. However, his benefits will be reduced if his earnings exceed certain limits before reaching FRA.

If a retiree has not yet reached FRA, he can earn only $15,120 in gross wages (i.e. pre-taxed income) in 2013 and not lose any benefits. His benefits will be reduced by $1 for every $2 earned above this amount.

The retiree is responsible for reporting his earnings if they affect the payment of his benefits. He may be subject to penalties if he filed late and if it resulted in an overpayment of benefits.

If the retiree earns more than the yearly exempt amount, Social Security will withhold full monthly benefits until the entire amount that is required to be withheld has been withheld. However, he may request that the withheld benefits be pro-rated over the course of the year.

Here’s how the rules would apply to your client’s situation. Let’s say he earns exactly $30,000 more than the yearly earnings limit. His SS benefit for this year will be reduced by $15,000. The SSA will withhold his entire SS benefits from January through September—for a total of $14,400. In October, the SSA will reduce his check by $600, and pay him $1,000 for that month. He will receive his full $1,600 benefit for the months of November and December.

If he forgot to report his anticipated income, he will be required to pay any over payment received back to the SSA and subject to penalties.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.  

Question of the Day – July 10

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question:  My government employee client is nearing retirement.  She has been eligible to participate in a 457(b) deferred compensation plan, but has not done so in the past.  In her last two years of employment, she will be eligible to receive more compensation than she will need.  Is she eligible to make special catch-up contributions to the Section 457(b) plan?

Answer:  Yes, if she otherwise qualifies.  If the applicable year is one of a the participant’s last three calendar years ending before the year in which the participant attains normal retirement age, she can use the special catch-up provision.

The special catch-up provision permits a governmental Section 457(b) plan participant to double the amount of the normal deferral if the participant failed to fully take advantage of deferrals in prior working years after 1979.

If the participant was previously eligible to participate in a 457(b) plan but did not choose to participate, she can potentially use the under-contribution for those non-participation years in her special catch-up.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day. 

Question of the Day – October 15

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Here’s the question of the day.

Question:  What’s the deadline to make a contribution of unpaid sick pay into a 403 b plan after retirement?

Answer:  Two and one half months after severance OR the end of the tax year, whichever is longer.

Here’s an excerpt from the IRS website:

Post-Severance Contributions: Plans may permit ….contributions to be made to 403(b) plans after an employee separates from service.

Elective deferrals: Employees may defer some (up to their annual deferral limits) of their regular, accrued vacation and sick pay into their 403(b) accounts if received by the later of 2 ½ months from the date of severance or the end of the limitation year (in most cases, calendar year) in which the severance occurred.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.