Julian Block is an attorney and author based in Larchmont, New York. For information about his books, visit www.julianblocktaxexpert.com.


Discussion

Martin from GA posted over 3 years ago:

This is an eye opener! But since when did "tax-exempt" income become taxable!


Leo from DE posted over 3 years ago:

good info.


Richard from GA posted over 3 years ago:

Martin, is tax exempt interest income taxable or just used in calculating taxation of SS Benefits?


Mark from OH posted over 3 years ago:

I understand that MRD from IRA's are taxable,
but how do they justify claiming it is additional income. It amounts to a transfer
from one account to another. You have no more
after the distribution than you had before.


Robert from VA posted over 3 years ago:

Do dividends earned by investments in a Roth IRA account get figured into MAGI?


Dick from VT posted over 3 years ago:

a huge penalty for being married. Everyone of you should be letting your senators and congressman know that married couples should receive twice the single persons 25,000. $50,000 whould be a lot fairer than $32,000. Talk to your church as the IRS is telling you to get divorced.

Just so you know capital gains are not surposed to be taxed if you are in the 15% brackett. Guess again they are included in MAGI and make more of your social security taxable.


Fred from MI posted over 3 years ago:

I will use distributions from my traditional IRA to supplement Social Security income every other year. That way, I am taxed on social security only every other year. I would like to maximize those withdrawls because I believe that IRA's will be taxed in the future, contrary to the advice of "professionals". Already, the Michigan governor is planning to eliminate the state tax breaks for IRA's.


Ronald from NJ posted over 3 years ago:

get rid of the marriage penalty & the politicians who dont correct this dilemma.


David from TX posted over 3 years ago:

Did I miss this something? If one takes Social Security benefits at full retirement age then there is no limit to how much one can earn, and therefore no theshold amount for a taxable liability. Is this not true?


Thomas from TX posted over 3 years ago:

Mr. Bock has written an excellent article. It is this kind of information that makes membership in AAII so useful.

Dick from Vermont cites the negative aspect of recognizing long term capital gains, i.e., it is included in the MAGI, but for those lucky enough to be in the 10 percent or 15 percent tax bracket and who have unrealized long term capital gains in taxable accounts, no Federal income tax is due on these gains if realized in 2011 or 2012. These gains can be lawfully excluded from taxable income thus potentially resulting in negative net taxable income i.e., no tax due. I plan to harvest these gains to the extent I can and still keep taxable income within the 15 percent bracket. The realized long term gains and qualified dividends, when subtracted from taxable income, potentially can result in a negative taxable income, i.e. no tax due. The realized gains can be held as cash to cover future needs with little or no future tax due or re-invested. Future taxes on new gains (or dividends) will probably be unavoidable but at least the tax will be less than doing nothing during the two tax years cited.


Marion from MO posted over 2 years ago:

Why should married couples get twice the deduction. We still pay the same utility and housing costs as married couples. Stop the discrimination against us. You will someday be in our shoes.


Terry from AZ posted over 2 years ago:

There is an addition issue to consider than Social Security. MAGI is also use to determine Medicare premiums. If MAGI for a married couple is between $170,000 and $214,000, then Medicare premiums increase $40 per month and Part D premiums increase $11.60. If MAGI is higher, then the premium increase is greater. This should be considered by many people when calculating a Roth Conversion.


Norman from WA posted over 2 years ago:

The killer is the atrocious marginal tax rate that goes on as one say withdraws more and more taxable IRA as you step through the beginning of the taxing of SS until you get to taxing 85% of SS.

The initial marginal tax rate starts at 15%, then moves to 27.75% then just before you get to the 85% of SS the marginal rate jumps to 48%, then after hitting the max taxable 85%, the marginal tax rate moves to 26%.

This calculation was performed using TAXACT software.

Interesting how the average pensioner with forced RMD can easily fall into the high marginal tax rate. At the worst point almost half of every dollar you withdraw goes for taxes.

The guys that wrote that law knew exactly how to stick it to us.


James Mcmurray from CA posted about 1 year ago:

Helpful article...85% of my S.S. benfit has been taxed. I'll go through my records to see if I can reduce this in the future. Thanks Jim


Gustavo Mellander from FL posted about 1 year ago:

Clearly this good article is outdated by more than a year.
Will we be seeing an update especially given the "cliff" changes made in January 2013?
Thanks!


Dennis Berthold from TX posted about 1 year ago:

Excellent article. Thank you Charles Rothblut for reposting the link in your latest email. I now realize that, in our upper income bracket, there's little we can do to reduce taxes, and will focus more on increasing qualified dividends. A good reality check!


S Mahadevan from MI posted about 1 year ago:

For people who can do , donate all the SSI payments to your favorite charity. This way the IRS does not get what you have paid into SSI.


W Newport from IN posted about 1 year ago:

MAGI is also used to calculate Medicare premiums driving up health care premiums for middle income taxpayers.


Stephen Golder from MA posted about 1 year ago:

The older you get, the more you realize how deceitful and corrupt Congress is. Unless you are poor, those years of payroll deductions are just theft and redistribution of my money to the poor.


Tom Claytor from NM posted about 1 year ago:

Don't you just love those pols that want to cut SS and raise the retirement age? Stick it to those weenies, next election.


Jon Hicks from OR posted about 1 year ago:

I have a couple of questions.
1. If a couples MAGI is $44,000 is 1/2 of their Social Security taxed at 50% or all of their Social Security?

2. If a couples MAGI is $44,001, is all their Social Security taxed at 85% because their MAGI is one dollar over the $44,000 limit?


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