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Securing Your Clients Financial Future
What Would Your Clients Like to Have? <ul><li>√  Security of Principle? </li></ul><ul><li>√  Tax-Deferral? </li></ul><ul><...
Security of Principle <ul><li>Guaranteed Interest Rate* </li></ul><ul><li>Access to funds** </li></ul><ul><li>Know the cos...
Tax-Deferral <ul><li>Their Interest Grows Tax-Deferred, </li></ul><ul><li>Giving them the Value of Triple Compounding…… </...
Liquidity <ul><li>Deferred Annuities are designed for long-term growth....... </li></ul><ul><li>However, partial withdrawa...
The Real Rate of Return <ul><li>What happens without triple compounding? </li></ul><ul><li>Many people put their money in ...
The Real Rate of Return * *This is a hypothetical example $590 Net Loss $99,410 Amount Left -3,605 3.50% Inflation $103,01...
Taxable Equivalent Yields <ul><li>Interest rate required on a </li></ul><ul><li>taxable investment to </li></ul><ul><li>eq...
What is their Risk Tolerance?
What is your Risk Tolerance? CD
What is your Risk Tolerance? CD Safety
What is your Risk Tolerance? CD Safety 2/3/4+ %?
What is your Risk Tolerance? CD Safety 2/3/4+ %? STOCK
What is your Risk Tolerance? CD Safety 2/3/4+ %? STOCK Upside Market Potential
What is your Risk Tolerance? CD Safety 2/3/4+ %? STOCK Upside Market Potential 100% Loss
What is your Risk Tolerance? CD Safety 2/3/4+ %? STOCK Upside Market Potential 100% Loss √
What is your Risk Tolerance? CD Safety 2/3/4+ %? STOCK Upside Market Potential 100% Loss √
What is your Risk Tolerance? CD Safety 2/3/4+ %? STOCK Upside Market Potential 100% Loss √ √
What is your Risk Tolerance? CD Safety 2/3/4+ %? STOCK Upside Market Potential 100% Loss √ √ Annuity Deferred or Immediate
The Taxing of Social Security
Social Security History
Social Security Became Law <ul><li>In 1935, President Roosevelt signed into law the most significant legislation of our ti...
Social Security Became law <ul><li>By 1940, Social Security began making benefit payments to beneficiaries. </li></ul><ul>...
Tax Law Was Changed <ul><li>In 1983 Congress changed the law and allowed up to 50% of Social Security Benefits to be subje...
What Causes Social Security  to be Taxed?
What Causes Social Security  to be Taxed? <ul><li>The taxation of Social Security is based on the amount of income you rec...
Provisional Income – How it Works - Married <ul><li>For Married or head of household Social Security can </li></ul><ul><li...
If you are married, Social Security is taxed when your threshold income exceeds $32,000 Income (Threshold) No Tax on Socia...
Provisional Income – How it Works - Single <ul><li>For a single person Social Security can become taxable </li></ul><ul><l...
If you are single, Social Security is taxed when your threshold income exceeds $25,000 Income (Threshold) No tax on Social...
What is Provisional Income 1099 Income from Savings & Investments Provisional Income Contributes to Taxing Social Security
What is Provisional Income? Income from these accounts may be the reason you pay more taxes including the tax on your Soci...
There  May be a Better Way <ul><li>It’s not so important about the amount of interest you earn on your money…….. </li></ul...
There  May be a Better Way <ul><li>Is the interest on your Certificates of Deposits, Money Market accounts or other plans ...
Reduce Provisional Income <ul><li>When income is deferred instead of taxed it  reduces   provisional income and may lower ...
Section 72 <ul><li>Section 72 of the Internal Revenue Code </li></ul><ul><li>allows “income credited on a deferred </li></...
Sam Q. Prospect <ul><li>Sam is retired and living comfortably.  </li></ul><ul><li>He receives a Pension and Social Securit...
Sam Q. Prospect * Estimated Income Tax *$6,828 Total Federal Income Taxes $47,400 Total Income Received $4,400 Money Marke...
Sam’s Social Security Threshold … Triggered a tax on Sam’s Social Security!! <$16,800> Over Threshold   $25,000 Threshold ...
Sam’s Tax on Social Security *Estimated based on tax table $2,665* Tax on Social Security $9,690 Social Security  (subject...
An Annuity would have stopped the tax on Sam’s Social Security Income *Assumes the interest paid by the Annuity is the sam...
An Annuity is the  only  interest producing asset that will not create a tax on Social Security Yes  No √ Gains-Mutual Fun...
Net Retirement income would have increased! Why pay tax on interest you don’t use? <ul><li>Pension-$19,200 + $11,400 SS  <...
Summary of Tax Savings $1,598 $3,480 $6,828 0% 50% 100% $2,665 $623 0 Reduced tax amounts based on a percentage of taxable...
Gary and Lisa <ul><li>Gary and Lisa are retired and travel quite a bit.  </li></ul><ul><li>Gary and Lisa receive a Pension...
Gary and Lisa $15,000 Social Security $20,000 1099 Income $24,450 Pension/ IRA Distribution $59,450 Total Income
Gary and Lisa  Tax on Social Security *Estimated based on tax table @ 15% $1,913* Tax on  Social Security $12,750 Social S...
Gary and Lisa  Tax on Remaining Income *Estimated based on tax table @ 15% $3,073* Tax on Remaining Income $20,000 1099 In...
Gary and Lisa  Potential Tax Liability *Estimated based on tax table @ 15% $1,913* Tax on  Social Security $12,750 85% sub...
There  May be a Better Way *With Annuity *Without Annuity *Assumes earnings from an annuity are not withdrawn and left to ...
There  May be a Better Way By repositioning Gary and Lisa’s 1099 assets (that created taxable income) into a Deferred Annu...
There  May be a Better Way <ul><li>Gary and Lisa did not withdraw the $20,000 taxable interest they </li></ul><ul><li>earn...
There  May be a Better Way <ul><li>Interested earned within a Deferred Annuity (and not withdrawn) </li></ul><ul><li>may s...
Annuity Values Accumulate  Tax Deferred <ul><li>Your money grows faster with an Annuity because </li></ul><ul><li>you earn...
To reduce the income taxes you pay on your Social Security while increasing the return you get “on” your money let’s compa...
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The Taxing Of Social Security

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Creative ways to reduce the taxes seniors pay on their social security.

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Transcript of "The Taxing Of Social Security"

  1. 1. Securing Your Clients Financial Future
  2. 2. What Would Your Clients Like to Have? <ul><li>√ Security of Principle? </li></ul><ul><li>√ Tax-Deferral? </li></ul><ul><li>√ Liquidity? </li></ul>
  3. 3. Security of Principle <ul><li>Guaranteed Interest Rate* </li></ul><ul><li>Access to funds** </li></ul><ul><li>Know the cost of getting your money </li></ul>*May be penalty for early withdrawal than in contract **Based on contract limits
  4. 4. Tax-Deferral <ul><li>Their Interest Grows Tax-Deferred, </li></ul><ul><li>Giving them the Value of Triple Compounding…… </li></ul><ul><li>Interest on Principle </li></ul><ul><li>Interest on Interest </li></ul><ul><li>Interest on Tax Savings – the money they would have paid in taxes </li></ul>
  5. 5. Liquidity <ul><li>Deferred Annuities are designed for long-term growth....... </li></ul><ul><li>However, partial withdrawals are available for any reason, </li></ul><ul><li>typically after the first policy year* </li></ul><ul><li>The Cash They Need…….. </li></ul><ul><li>To Travel </li></ul><ul><li>To Visit Family </li></ul><ul><li>For Sudden Emergencies </li></ul><ul><li>To Live Life </li></ul>*Based on withdrawal privileges of the contract, surrender charges may apply. If client is under 59 ½ , IRS penalty will apply
  6. 6. The Real Rate of Return <ul><li>What happens without triple compounding? </li></ul><ul><li>Many people put their money in a conservative </li></ul><ul><li>investment such as a CD* or money market </li></ul><ul><li>account because they aren’t sure what to do. </li></ul><ul><li>This money in their CD or Money Market Account </li></ul><ul><li>may be reduced by taxes and inflation and could </li></ul><ul><li>actually decrease in value. </li></ul>*CDs are FDIC insured
  7. 7. The Real Rate of Return * *This is a hypothetical example $590 Net Loss $99,410 Amount Left -3,605 3.50% Inflation $103,015 Amount after Tax -1,485 33% Taxes +4,500 (4.50% Interest Rate) $100,000 Premium Amount
  8. 8. Taxable Equivalent Yields <ul><li>Interest rate required on a </li></ul><ul><li>taxable investment to </li></ul><ul><li>equal the yield of tax-deferred </li></ul><ul><li>interest in accumulation. </li></ul><ul><li>For example, a person in the </li></ul><ul><li>35% tax bracket must earn </li></ul><ul><li>7.69% taxable to match </li></ul><ul><li>the 5% Tax-Deferred Yield. </li></ul>Annuity earnings will be taxed in the “pay out” or distribution phase 12.31% 11.11% 9.76% 8% 11.54% 10.42% 9.15% 7.5% 10.77% 9.72% 8.54% 7% 10% 9.03% 7.93% 6.5% 9.23% 8.33% 7.32% 6% 8.46% 7.64% 6.71% 5.5% 7.69% 6.94% 6.10% 5.% 6.92% 6.25% 5.49% 4.5% 35% Taxable 28% Taxable 18% Taxable Tax-Deferred Interest
  9. 9. What is their Risk Tolerance?
  10. 10. What is your Risk Tolerance? CD
  11. 11. What is your Risk Tolerance? CD Safety
  12. 12. What is your Risk Tolerance? CD Safety 2/3/4+ %?
  13. 13. What is your Risk Tolerance? CD Safety 2/3/4+ %? STOCK
  14. 14. What is your Risk Tolerance? CD Safety 2/3/4+ %? STOCK Upside Market Potential
  15. 15. What is your Risk Tolerance? CD Safety 2/3/4+ %? STOCK Upside Market Potential 100% Loss
  16. 16. What is your Risk Tolerance? CD Safety 2/3/4+ %? STOCK Upside Market Potential 100% Loss √
  17. 17. What is your Risk Tolerance? CD Safety 2/3/4+ %? STOCK Upside Market Potential 100% Loss √
  18. 18. What is your Risk Tolerance? CD Safety 2/3/4+ %? STOCK Upside Market Potential 100% Loss √ √
  19. 19. What is your Risk Tolerance? CD Safety 2/3/4+ %? STOCK Upside Market Potential 100% Loss √ √ Annuity Deferred or Immediate
  20. 20. The Taxing of Social Security
  21. 21. Social Security History
  22. 22. Social Security Became Law <ul><li>In 1935, President Roosevelt signed into law the most significant legislation of our time…The Social Security Act. </li></ul>
  23. 23. Social Security Became law <ul><li>By 1940, Social Security began making benefit payments to beneficiaries. </li></ul><ul><li>The U.S. Treasury ruled that benefit payments were gifts and would not be subject to tax. </li></ul>The first monthly payment was issued on January 31, 1940 to Ida May Fuller of Brattleboro , Vermont .
  24. 24. Tax Law Was Changed <ul><li>In 1983 Congress changed the law and allowed up to 50% of Social Security Benefits to be subject to tax!! </li></ul><ul><li>In 1993 the law was changed again, now up to 85% may be taxed!!! </li></ul>
  25. 25. What Causes Social Security to be Taxed?
  26. 26. What Causes Social Security to be Taxed? <ul><li>The taxation of Social Security is based on the amount of income you received in a calendar year. </li></ul><ul><li>This is called provisional income. </li></ul>
  27. 27. Provisional Income – How it Works - Married <ul><li>For Married or head of household Social Security can </li></ul><ul><li>become taxable after your income plus (+) ½ of the </li></ul><ul><li>amount received from Social Security exceeds $32,000: </li></ul><ul><li>Up to 50% of Social Security Benefits can be taxed! </li></ul><ul><li>If the amount exceeds $44,000: </li></ul><ul><li>Up to 85% of Social Security Benefits can be taxed </li></ul>
  28. 28. If you are married, Social Security is taxed when your threshold income exceeds $32,000 Income (Threshold) No Tax on Social Security $32,000 and Under Up to 50% of Social Security is taxed $44,000 to $32,000 Up to 85% of Social Security is taxed Over $44,000
  29. 29. Provisional Income – How it Works - Single <ul><li>For a single person Social Security can become taxable </li></ul><ul><li>after your income plus (+) ½ of the amount received from </li></ul><ul><li>Social Security exceeds $25,000: </li></ul><ul><li>Up to 50% of Social Security Benefits can be taxed! </li></ul><ul><li>If the amount exceeds $34,000: </li></ul><ul><li>Up to 85% of Social Security Benefits can be taxed </li></ul>
  30. 30. If you are single, Social Security is taxed when your threshold income exceeds $25,000 Income (Threshold) No tax on Social Security $25,000 and Under Up to 50% of Social Security is taxed $34,000 to $25,000 Up to 85% of Social Security is taxed Over $34,000
  31. 31. What is Provisional Income 1099 Income from Savings & Investments Provisional Income Contributes to Taxing Social Security
  32. 32. What is Provisional Income? Income from these accounts may be the reason you pay more taxes including the tax on your Social Security ½ Social Security Corporate Bonds Tax Free Bonds Dividends Capital Gains Mortgage Certificates US Treasury Money Market Certificate Of Deposits IRA Distributions Threshold Income
  33. 33. There May be a Better Way <ul><li>It’s not so important about the amount of interest you earn on your money…….. </li></ul><ul><li>but how your money earns its interest! </li></ul>
  34. 34. There May be a Better Way <ul><li>Is the interest on your Certificates of Deposits, Money Market accounts or other plans affecting the taxation of your Social Security Benefits? </li></ul><ul><li>Are you paying income taxes on interest or money earned but do not currently need? </li></ul>
  35. 35. Reduce Provisional Income <ul><li>When income is deferred instead of taxed it reduces provisional income and may lower amounts below the allowed thresholds. </li></ul>
  36. 36. Section 72 <ul><li>Section 72 of the Internal Revenue Code </li></ul><ul><li>allows “income credited on a deferred </li></ul><ul><li>annuity contract is not currently includable </li></ul><ul><li>as income.” </li></ul>Based on Section 72, income credited inside an annuity will not create a tax on Social Security!
  37. 37. Sam Q. Prospect <ul><li>Sam is retired and living comfortably. </li></ul><ul><li>He receives a Pension and Social Security. </li></ul><ul><li>His savings are in CD’s, Mortgage Certificates </li></ul><ul><li>and Money Market Accounts. </li></ul><ul><li>He doesn’t need the interest so he reinvests the </li></ul><ul><li>interest back into his certificates </li></ul>
  38. 38. Sam Q. Prospect * Estimated Income Tax *$6,828 Total Federal Income Taxes $47,400 Total Income Received $4,400 Money Market $12,400 CD’s, Mortgage Certificates $11,400 Social Security $19,200 Pension
  39. 39. Sam’s Social Security Threshold … Triggered a tax on Sam’s Social Security!! <$16,800> Over Threshold $25,000 Threshold limit $41,700 Threshold Income $4,400 Money Market $12,400 CD’s, Mortgage Certificates $5,700 ½ Social Security $19,200 Pension
  40. 40. Sam’s Tax on Social Security *Estimated based on tax table $2,665* Tax on Social Security $9,690 Social Security (subject to tax) $11,400 Social Security
  41. 41. An Annuity would have stopped the tax on Sam’s Social Security Income *Assumes the interest paid by the Annuity is the same as paid by the Certificates of Deposit and Money Market Accounts. *With Annuity *Without Annuity $6,828 $1,598 Federal tax due $2,665 $0 Tax on Social Security $9,690 $0 Social Security taxed Over Below Over or Below Threshold $25,000 $25,000 Threshold limit (single) $41,700 $24,900 Threshold income $0 <$16,800> *Annuity (Deferred interest) $41,700 $41,700 Total Threshold Income
  42. 42. An Annuity is the only interest producing asset that will not create a tax on Social Security Yes No √ Gains-Mutual Fund √ Dividends – Mutual Fund √ Bonds including Tax Free √ Money Market Account √ Certificates of Deposits √ Annuity – Deferred
  43. 43. Net Retirement income would have increased! Why pay tax on interest you don’t use? <ul><li>Pension-$19,200 + $11,400 SS </li></ul><ul><li>Tax paid from Pension and SS </li></ul><ul><li>Net Retirement income after tax </li></ul><ul><li>Pct% increase in retirement </li></ul><ul><li>income </li></ul>*Assumes the Annuity interest rate to be the same as the taxable interest accounts with no withdrawals taken from the annuity. Taxable interest assumed to be reinvested back into savings. 0% 18% $23,772 $29,002 6,828 1,598 $30,600 $30,600 *Without Annuity *With Annuity
  44. 44. Summary of Tax Savings $1,598 $3,480 $6,828 0% 50% 100% $2,665 $623 0 Reduced tax amounts based on a percentage of taxable income ($16,800) illustrated as deferred income $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Total Federal Tax Tax on Social Security
  45. 45. Gary and Lisa <ul><li>Gary and Lisa are retired and travel quite a bit. </li></ul><ul><li>Gary and Lisa receive a Pension and a distribution from an IRA. </li></ul><ul><li>They also receive 1099 income and Social Security. </li></ul><ul><li>They don’t need the 1099 income so they reinvest the interest. </li></ul>
  46. 46. Gary and Lisa $15,000 Social Security $20,000 1099 Income $24,450 Pension/ IRA Distribution $59,450 Total Income
  47. 47. Gary and Lisa Tax on Social Security *Estimated based on tax table @ 15% $1,913* Tax on Social Security $12,750 Social Security (85% subject to tax) $15,000 Social Security
  48. 48. Gary and Lisa Tax on Remaining Income *Estimated based on tax table @ 15% $3,073* Tax on Remaining Income $20,000 1099 Income $24,450 Pension/IRA Income
  49. 49. Gary and Lisa Potential Tax Liability *Estimated based on tax table @ 15% $1,913* Tax on Social Security $12,750 85% subject to tax $15,000 Social Security $3,073* Tax on Remaining Income $20,000 1099 Income $24,450 Pension/IRA Income $4,986 Total Tax Potential
  50. 50. There May be a Better Way *With Annuity *Without Annuity *Assumes earnings from an annuity are not withdrawn and left to accumulate. Assumes standard deductions $3,073* $555.00* Federal tax due $1,913* $0 Tax on Social Security $12,750 $0 Social Security taxed (assuming qualified deductions) Over Below Over or Below Threshold $44,000 $44,000 Threshold limit (married) $59,450 $39,450 Threshold income $0 <$20,000> *Annuity (Deferred interest) $59,450 $59,450 Total Threshold Income $4,986 $555.00* Total Tax Potential
  51. 51. There May be a Better Way By repositioning Gary and Lisa’s 1099 assets (that created taxable income) into a Deferred Annuity, the tax of $1,913 on their Social Security was eliminated! Potential total tax savings …$4,431 *Without Annuity *With Annuity 1099 Asset Created Income $1,913 *Assumes earnings from an annuity are not withdrawn and left to accumulate. Assumes standard deductions $3,073* $555.00* Federal tax due $0 Tax on Social Security $12,750 $0 Social Security taxed Over Below Over or Below Threshold $44,000 $44,000 Threshold limit (married) $59,450 $39,450 Threshold income $0 <$20,000> *Annuity (Deferred interest) $59,450 $59,450 Total Threshold Income $4,986 $555.00 Total Tax Potential
  52. 52. There May be a Better Way <ul><li>Gary and Lisa did not withdraw the $20,000 taxable interest they </li></ul><ul><li>earned from their 1099 assets, rather they had the earnings roll </li></ul><ul><li>back into the assets. </li></ul><ul><li>They were forced into taking money from their *monthly retirement </li></ul><ul><li>checks to pay the tax on this 1099 income that they did not access. </li></ul>NET RETIREMENT INCOME *Retirement income is Pension and Social Security combined *$39,450 *$39,450 $38,895 $34,464 With a Deferred Annuity Without a Deferred Annuity
  53. 53. There May be a Better Way <ul><li>Interested earned within a Deferred Annuity (and not withdrawn) </li></ul><ul><li>may stop or reduce the income tax on Social Security and could </li></ul><ul><li>increase Net Retirement Income! </li></ul>NET RETIREMENT INCOME *Retirement income is Pension and Social Security combined With a Deferred Annuity *$39,450 $38,895 *$39,450 $34,464 Without a Deferred Annuity
  54. 54. Annuity Values Accumulate Tax Deferred <ul><li>Your money grows faster with an Annuity because </li></ul><ul><li>you earn interest on dollars that would otherwise </li></ul><ul><li>be paid as taxes. </li></ul><ul><li>The principle earns interest, the interest compounds, and the money saved in taxes earns interest. </li></ul><ul><li>With this tax-deferred status, you can accumulate more money over a shorter period of time and consequently earn a greater return. </li></ul>
  55. 55. To reduce the income taxes you pay on your Social Security while increasing the return you get “on” your money let’s compare your current rate of return?

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