Friday, February 22, 2008

Social Security: repay, then restart later for higher benefits

Sandra Block has a story on p B3 of USA Today, Friday, Feb. 22, “Have your retirement cake early and eat it, too: you can repay benefits, then restart them at a higher rate,” link here. The article also appears here in Insurance News.

This would occur if someone started social security at 62 while unemployed and then suddenly got a high paying job, which would push him over the earnings limits until reaching full retirement age. It’s possible to pay the sum back without interest, and restart later (as late as age 70-1/2) with a higher monthly draw. However, if someone had invested the income in the meantime, he or she still owes taxes on that as ordinary income (according to ordinary tax law), and may have paid taxes on up to 85% of social security benefits depending on investment income in addition to social security.

The Baltimore Sun has a similar story by Eileen Ambrose from Feb. 17, 2008, with a lot of other little known social security tips, here. The story is titled “The benefits of social security can be surprising.”

1 comment:

Anonymous said...

We just received the full refund of 5 yrs worth of taxes paid on my husband’s benefits that we repaid! Hurrah! It took IRS awhile (4 months messing with it) — they obviously don’t handle many of these situations — but in the end, they got it right with a little help from myself and a lot of persistence in saying they got it wrong. We did claim and receive the credit (rather than the deduction) — we are thrilled getting more than 50% more on his monthly benefits. We have a disabled adult child who also draws on his SSA– so with that combo, it will take us only 6 years to break even, and from then on it’s a whale of a deal! Daughter’s benefits increased also — but only up to his full retirement level (age 65) rather than his new start date (age 67). I’m going to wait to take my beneifts until full retirement age so I can get full benefit of his increase now. It’s worth waiting for — I don’t want that 7% penalty for each year I could take it early.