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Home / Business / entitled to social security at the age of 62? A Roth IRA can prevent pitfalls – The Motley Fool

entitled to social security at the age of 62? A Roth IRA can prevent pitfalls – The Motley Fool



Before the Social Security Law of 1935 came into force, seniors did not have a financial safety net beyond the pensions paid to disabled veterans of the Civil War or their families. Today, social security provides over 43 million retirees with an important source of money, many of which account for more than half of their annual income. Since social security is crucial to most people in order to obtain financial freedom in retirement, it is important to ensure that you do not lose benefits due to social security income restrictions and federal tax regulations.

So you can use a Roth IRA as part of a retirement planning strategy if you seek early social security.

  An elderly woman using a hula hoop with children playing in the background.

IMAGE SOURCE: GETTY IMAGES.

Income Limit of Social Security

With an IRA from Roth, you can now pay after-tax money, which you can withdraw tax-free in your retirement. Apart from the benefits of tax-exempt growth, the withdrawal of money from a Roth-IRA can also help workers claiming that their social security benefits are being avoided early on the basis of the social security earnings test.

As a refresher, workers can contribute up to an amount each year a certain income limit in dollars after taxes to an IRA of Roth. In 2019, this contribution limit will be $ 6,000 if you are under 50 years old, or $ 7,000 if you are 50 years or older, as the contribution rules apply to catch up.

Since Roth IRA contributions are made with additional tax, these contributions can be withdrawn tax-free at any time. If the Roth-IRA is at least five years old and you are at least 59.5 years old, the premium income can also be deducted tax-free.

So, if you apply for Social Security early, you can use the tax -free disbursements from a Roth IRA to supplement your income, reducing the risk of failure of the Social Security check as you continue to work.

You can claim Social Security from age 62, but Social Security only pays your full benefit if you wait until your full retirement age is claimed. This is the case for persons born after 1954, between the 66th and 67th, who claim before reaching full retirement age, while continuing to work part-time.

Getting social security benefits early is okay, but you can take social security earnings test 19659002] In the years leading up to the retirement age, US $ 1 will be paid for every 2 US Retain a dollar earned over an annual limit ($ 17,640 in 2019), and $ 1 will be deducted for every $ 3 you've earned over a limit in the year you reach full retirement age ($ 46,920 in 2019).

With Roth's IRA, you can avoid the withholding tax being caused by failing the earnings test by receiving tax-free income that you can use To bridge the gap between the income ceiling and your spending, for example

You are 62 years old, collect $ 700 per month in social benefits, and your monthly spend is $ 2,500. The income test limit in 2019 will allow you to earn up to $ 17,640 or $ 1,470 per month without triggering a reduction. Therefore, $ 1,470 plus $ 700 is $ 2,175, which is $ 325 per month. If you work more to cover the remaining expenses, you can not pass the merit test. However, if you deduct the $ 325 a month you withdraw from a Roth IRA tax-free from the Roth IRA, you avoid paying withholding tax and you can put the benefits that you deserve in your pocket.

  In the other hand a stack of 100-dollar bills.

IMAGE SOURCE: GETTY IMAGES

It can also reduce your tax bill.

Tax-free withdrawals from a Roth IRA can also reduce the likelihood that your social security will be subject to federal income tax.

If you are single or married and apply together, up to 50% of your social security will be taxed if your income exceeds $ 25,000 or $ 32,000, and up to 85% of your social security. Security will be taxed on your earnings $ 34,000 and $ 44,000, respectively. If you do not plan ahead and make too much money from work, you could pay more income taxes on social security than you need.

By taking tax-free deductions from a Roth IRA to cover expenses over the IRA IRS income limits You are not working to earn more money, you can avoid or reduce federal income taxes on your social security benefits.

Overall, Roth IRA Payouts in Retirement Can Help You Avoid Withholding and Income Taxes It could be wise to fund a Roth IRA at least five years before claiming Social Security to benefit from tax-exempt contributions and earnings.


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