Freeman's Blog


February 27th, 2017 by

A recent study by the Social Security Administration projected that an average of 56% of households receiving Social Security benefits will owe federal income tax on some or all of their benefits during the period from 2015 to 2050.1 This typically applies to taxpayers who have other substantial income, such as from a pension, financial products, or employment.

The formula for determining the tax liability of benefits is somewhat complicated but may be worth taking time to understand. Whether you are already receiving Social Security or projecting your future retirement income, knowing how much of your benefits might go toward taxes is important for realistic planning.

Taxing Social Security Benefits

Combined Income

The tax liability for Social Security benefits depends on your “combined income,” sometimes referred to as modified adjusted gross income (MAGI). For most people, this is adjusted gross income plus tax-exempt interest (such as from municipal or Treasury bonds) plus one-half of your Social Security benefits.

If your combined income exceeds a “base amount” of $25,000 ($32,000 for joint filers), you may owe federal income tax on up to 50% of your Social Security benefits. If your combined income exceeds a higher base amount of $34,000 ($44,000 for joint filers), you may owe tax on up to 85% of your benefits. Single-filer base amounts apply to those filing as head of household, qualified widow/widower, or married filing separately if spouses did not live together during the year. If you are married filing separately and lived with your spouse, the base amounts do not apply, and you will probably pay taxes on all your benefits.

The taxable portion of your benefit would be included with other ordinary income and taxed at your marginal rate.

Increasing Tax Liability

The combined income thresholds, which were set in 1983 and 1993 and intended for high-income beneficiaries, have never been indexed for inflation. This has increased the percentage of beneficiary households who are subject to taxes on their benefits from 8% in 1983 to 52% in 2015. For those whose benefits are taxed, the average percentage of benefits that goes toward paying taxes is expected to rise from 11.9% in 2015 to 14.7% in 2050.2 Adjusting these base amounts is among the many provisions considered in broader Social Security reform.3

If you are already receiving Social Security benefits, you should receive Form SSA-1099 each January, listing the amount of benefits you received in the previous year. If you expect to owe federal income taxes, you can pay estimated taxes with Form 1040-ES, have additional taxes withheld from other income, or request to have taxes withheld directly from your Social Security benefits by completing Form W-4V, Voluntary Withholding Request.
1–2) Social Security Administration, 2015
3), February 24, 2016

Freeman Owen, Jr -Retirement Specialist

I offer free Social Security Workshops to help you know more about your social security benefits. Click here to see my workshop offerings.  Let’s talk.

Meet me for a FREE retirement strategy consultation at my office at 1-833-313-7233. 


February 15th, 2017 by

In 2016, 21% of U.S. workers said they were very confident they would have enough money for a comfortable retirement. This was about the same percentage as in 2015, but both years showed a big increase in confidence from the 13% level in 2013, when many Americans were still struggling to recover from the Great Recession.1

When it comes to your own retirement, of course, trends don’t really matter. The question is, do you feel very confident that you will have enough money to enjoy the kind of retirement you envision? Even if you do, it’s smart to save more, and it may not be as difficult as you think.

Take the Match

If you participate in a workplace retirement plan such as a 401(k), 403(b), or 457 plan, you can choose to contribute a specific percentage of your salary, up to annual contribution limits. That’s why they are formally called defined-contribution plans. More than half of workplace plans automatically enroll new workers at a 4% rate.2 However, a common guideline suggests that workers should save about 15% of their salaries, and you may need to save more if you get a late start.

One of the best ways to boost your nest egg dollars is to take advantage of any matching dollars offered by your employer. For example, if your employer will match 50% of your contributions up to 6% of your salary, saving 6% on your part would result in saving 9% of your salary (6% from you and 3% from your employer).

Increase by Increments

How can you save even more? You might try increasing your contributions by 1% each year. Some employers may increase your contributions automatically (unless you opt out), but you can choose to do so on your own, whether you participate in a plan or save outside of the workplace. A 1% increase may not sound like much, but it could make a big difference over the course of your career (see chart).

steps to saving more

Here are three other ways to save without making a big sacrifice in your cash flow.

  1. Save your raise. When you receive a raise, it’s tempting to increase your spending. But this is a great opportunity to boost your retirement savings by diverting a portion of the raise into your retirement account. When you contribute on a pre-tax basis, the difference in your take-home pay may not be significant. This is one of the must do steps to saving more this year.
  2. Make payments toward your future. Taking steps to saving more this year is going to take effort. If you pay off the balance on a car loan, student loan, or credit card, consider making the same monthly payments directly to your retirement account. Because the payment is already part of your monthly budget, you could increase your savings without reducing the amount available for other expenses.
  3. Limit the treats. You deserve an occasional reward, but spending on “little things” can add up over time. For example, if you stop for a $4 latte each day on your way to work and have another one in the afternoon, you would spend about $175 each month. If the same amount was instead put away monthly in an account with a 6% annual growth, you could increase more than $100,000 after 25 years.However, this is a vital one of the steps to saving more in 2017. You can do it!

1) Employee Benefit Research Institute, 2016
2) Aon, 2016
3) This hypothetical example is used for illustrative purposes only and does not represent the activity of any specific financial instrument. Fees, expenses, and taxes are not considered and would reduce the activity or increases described if they were included. Actual results will vary.

Freeman Owen, Jr -Retirement Specialist

Make better plans for your retirement. The time to plan is now. Let me help you get the process started. Let’s talk.

Meet me for a FREE retirement strategy consultation at my office at 1-833-313-7233. 


February 13th, 2017 by

U.S. workers change jobs every 5½ years, on average.1 These changes often include a significant decision regarding the assets in their former employer’s 401(k) or other defined contribution plan. Unfortunately, about 45% of people cash out their balances in workplace plans when changing jobs, and the percentage rises to 55% for those with balances of $5,000 or less.2

When you take a distribution from your 401(k), you will owe ordinary income tax on the withdrawal and possibly a 10% early-withdrawal penalty if you are under age 59½. The biggest penalty, however, might be the loss of future retirement dollars. Consider that even a $5,000 401(k) balance could grow to more than $30,000 over 30 years, assuming a hypothetical 6% annual growth rate.3 Cashing out a larger balance would have greater consequences.

Careful with Your 401(k)

Preserving Tax-Deferred Money

Depending on your situation, you may have several other options for your 401(k) assets when changing jobs. All of them keep the tax-deferred status of your retirement funds and offer the potential for continued tax-deferred growth.

Keep money in former employer’s 401(k).

This could be a conveniently short period option (if allowed by your old employer), but you will not be able to make future contributions. Keep in mind that many employer plans may automatically transfer balances under $5,000 to an IRA and automatically cash out balances under $1,000.

Transfer monies to a new plan.

If your new employer offers a 401(k) or other workplace retirement plan that accepts rollovers, this strategy might make sense if you are comfortable with the fees and options in the plan and expect to stay with your new employer for some time.

Roll monies to an IRA.

IRAs typically provide a wider variety of options than employer plans and enable you to consolidate your retirement assets in a single account. Moreover, the IRA is yours to control, regardless of your employment situation.

For either type of rollover, it’s more efficient to execute a trustee-to-trustee transfer from your old plan to the new plan (or IRA), either directly or in the form of a check made out to the new trustee. If you receive a check payable to you from your former employer’s plan, 20% will be withheld for federal income taxes. You have 60 days from the date of the check to roll over the entire distribution — including the tax withheld — to an IRA or another employer-sponsored plan; otherwise, the amount not rolled over will be considered a taxable distribution.

Distributions from traditional IRAs and most employer-sponsored retirement plans are taxable as ordinary income. Withdrawals before age 59½ may be subject to a 10% federal income tax penalty, with some exceptions.

1) Employee Benefit Research Institute, 2015
2) InvestmentNews, February 17, 2015
3) This hypothetical example of mathematical principles is used for illustrative purposes only and does not represent the activity of any particular financial instrument. Fees and expenses are not part of the calculation, and they may reduce the activity or increases described. Actual results will vary.

Freeman Owen, Jr -Retirement Specialist

Allow me to guide you through your retirement planning and strategy. I want to help you keep your money secure!  Let’s talk.

Meet me for a FREE retirement strategy consultation at my office at 1-833-313-7233.