Hiatt Tax & Financial Planning

Know Your IRA Options

It's not too late to make contributions to an IRA for 2010. You can establish and contribute to a 2010 IRA as late as April 18, 2011. If the IRA is the traditional, tax-deductible kind, you can deduct your contributions on your 2010 tax return. If you're under age 50, the maximum contribution is $5,000; if you were 50 or older by December 31, 2010, you can contribute up to $6,000.

The "charitable IRA rollover" rule was extended through 2011, permitting taxpayers who are 70½ or older to use their IRA to donate up to $100,000 to charity. The donation must be made directly from the IRA to the charity, and it counts as part of the taxpayer's required minimum distribution for the year.

If you turned 70½ in 2010, remember that you're now required to take a minimum distribution from your IRA (and, unless you're still working, from other retirement plans also) every year. If you delayed taking your first distribution last year, you have only until April 1, 2011, to take it or you'll be subject to a 50% penalty on the amount you should have taken.

Converting a traditional IRA to a Roth IRA is still an available option for all taxpayers this year. Although a conversion will generate taxable income in the year you do it, later qualifying withdrawals from the Roth will be tax-free. Your conversion opportunities are not limited to just traditional IRAs. You can also convert your 401(k), 403(b), or 457 plan to a Roth.

Teenagers and IRAs - Saving For Retirement?

With all the publicity about ROTH IRA conversions don't overlook an important planning opportunity for younger taxpayers.  Saving for a teenager's retirement might sound far-fetched to parent and child alike, especially with college costs looming. 

Yet setting up a ROTH IRA for a young taxpayer can be a smart and rewarding move to consider at tax time.  A ROTH IRA differs from a traditional IRA in that you contribute with after-tax money but pay no taxes on withdrawals, meaning all growth is tax free. As with ROTHs for adults, not every teen qualifies, and there are strict rules to follow.

You can only open one if the child has income from a job - allowances don't count.  You can't contribute more that the child's salary in any given tax year, up to the limit of $5,000.  The deadline for making 2010 IRA contributions is April 18^th. 

Self employed individuals and family businesses may want to consider employing children so they can earn a salary and open a ROTH IRA. (Just make sure they do real work for a reasonable wage and you file W-2 forms reporting their earnings).

Here are five reasons why a ROTH IRA can be a good idea for these younger taxpayers:

1. Time to grow

So many taxpayers wait until their 30's or even later to start contributing to a retirement plan.  Starting at age 16 or 17 allows decades of earning interest on interest.

2. Best to start early

We used to talk about the three-legged stool for retirement savings - Social Security, employer pension and personal savings.  Today this does not seem to be a good illustration. Employer pensions are fewer and fewer in number and how will Social Security fare in the future?  Starting to save early is more important than ever.

3. Good financial habits should begin young

Teaching younger taxpayers the value of compound interest and savings is important.  Also important is helping them develop good financial habits. One of these habits is putting money aside regularly in a retirement account as well as other savings accounts for designated financial needs. As a result they are better prepared for the future.

4. Tax advantages

A teenager working part-time will have one of the lowest tax rates, making it a good trade-off to pay taxes on contributions now rather than accumulated retirement savings in a few decades when the total and the tax rate will be much higher.  The ROTH IRA's growth and withdrawals are tax free. Judith Martin said "the invention of the teenager was a mistake....once you identify a period of life in which people get to stay out late and you don't have to pay taxes - naturally, no one wants to live any other way."

5. You can start small

You don't have to contribute the yearly maximum of $5,000 to the ROTH.  Even if you have to start small - you have started!

Self Employed Individuals - 6 Tax Breaks For 2010 And Did You Take An Early Distribution From Your Retirement Plan?

Dear Clients and Friends,

Self Employed Individuals - 6 Tax Breaks For 2010 Mileage rate for business use of vehicle. The rate in 2010 is 50 cents per mile. This rate increases to 51 cents per mile in 2011.  Equipment write-offs. The Sec. 179 deduction is up to $500,000 ($250,000 for qualified leasehold, restaurant, and retail improvements). Bonus depreciation is 50% for equipment purchases before September 9, 2010, and 100% for purchases after September 8, 2010.   Adjustment to net earnings from self-employment. When figuring self-employment tax, reduce net earnings by self-employed health insurance premiums.   Start-up costs. The deduction for costs in the year of starting a business in 2010 is up to $10,000.   Cell phones. These are no longer treated as "listed property" subject to certain restrictions on write-offs.   General business credit carryback. If you have business-related credits in excess of the general business credit limit, you can carry back the excess for 5 years. The offset applies to both regular tax and the alternative minimum tax. Did you Take an Early Distribution from Your Retirement Plan?  Some taxpayers may have needed to take an early distribution from their retirement plan last year. The IRS wants individuals who took an early distribution to know that there can be a tax impact to tapping your retirement fund.  Here are some facts about early distributions. Payments you receive from your Individual Retirement Arrangement before you reach age 59 ½ are generally considered early or premature distributions.   Early distributions are usually subject to an additional 10 percent tax.   Early distributions must also be reported to the IRS.  Distributions you rollover to another IRA or qualified retirement plan are not subject to the additional 10 percent tax. You must complete the rollover within 60 days after the day you received the distribution.   The amount you roll over is generally taxed when the new plan makes a distribution to you or your beneficiary.   If you made nondeductible contributions to an IRA and later take early distributions from your IRA, the portion of the distribution attributable to those nondeductible contributions is not taxed.   If you received an early distribution from a Roth IRA, the distribution attributable to your prior contributions is not taxed.   If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan.   There are several exceptions to the additional 10 percent early distribution tax, such as when the distributions are used for the purchase of a first home, for certain medical or educational expenses, or if you are disabled.

Independent Contractor Versus Employee - Examine The Entire Relationship

The IRS recently announced it is closely examining worker classifications as part of its National Research Program (NRP). The three-year NRP payroll tax audit began back in February, 2010. As part of the program, the IRS is randomly selecting 2,000 returns from various employers in the private, not-for-profit and government sectors.

 This issue has long been a concern for the nation's tax collectors. Reason: The IRS frequently maintains that employees have been misclassified as independent contractors. It estimates that employment tax underreporting accounts for about $54 billion of the $345 billion tax gap (which is the difference between what taxpayers owe and what they pay).

Basic differences: If a worker is classified as an employee, the employer must withhold federal income tax and the employee's share of employment taxes. In addition, the employer is responsible for paying its share of the employment taxes. The employer must also issue a Form W-2 for wages earned and send a copy to the IRS.

Conversely, if a worker qualifies as an independent contractor, the employer isn't responsible for employment taxes, withholding or the fringe benefits it offers to full-time employees. All the organization has to do is send a Form 1099 to the worker each year with a copy going to the IRS.

Whether or not a particular worker should be classified as an independent contractor generally depends on the level of control the employer exerts over the worker.

Rule of thumb: The greater the control, the more likely the worker will be treated as an employee.

How the IRS Makes a Determination

Unfortunately, no single factor determines a worker's status by the IRS, other government agencies or the courts. Each situation is determined by the facts and circumstances involved.

The key is to look at the entire relationship your business has with independent contractors.  Here are some of the factors the IRS considers to determine if a worker is an employee:

• Behavioral Control - An employee generally is told when, where, and how to work, as well as what order or sequence to follow.
• Tools - An employer usually gives tools, equipment and workspace to employees. In contrast, subcontractors often provide and invest their own money in equipment, tools and facilities.
• Assistants - Employees don't hire and pay others to help them do their jobs (although they may be told to hire assistants for the company). In contrast, contractors often hire, supervise, and pay their own assistants.
• Training - Employees are more likely to receive training from an organization than independent contractors.
• Other Customers - Independent contractors generally make services available to the public and are able to work for two or more businesses.
• Integral Role - An employer-employee relationship is supported when workers perform a service essential to the success of a business operation.
• Benefits - Are there employee type benefits (such as a pension plan, health insurance or vacation pay)?
• Financial Control and Risk - An employer has the right to control the financial aspects of a job, such as the business expenses the employee incurs and how staff members are paid. On the other hand, a worker's opportunity to personally earn a profit and assume risk of loss may indicate a non-employee status.

There are several steps a business can take to increase the chance that workers are properly classified as independent contractors.

Have written, signed contracts with workers classified as independent contractors, spelling out the terms and conditions of the relationship. Consult with your attorney in the preparation of contracts.

 Once contracts are in place, give outside workers leeway over how they perform their duties. Resist the urge to supervise them the way you oversee employees.

Send each contractor a Form 1099 showing non-employee income if you pay $600 or more in a calendar year. The annual deadline for sending these forms is January 31.

Consistently treat workers performing similar tasks as either independent contractors or employees. Don't supply outside workers with services you give employees. Some companies run into trouble after they provide office space, computers, cars and other perks.

Maintain good records. Obviously, you need to keep an independent contractor's taxpayer ID number and other information required by the IRS, but you should also keep items that help prove the person is self-employed. For example, business cards, a letterhead, invoices and advertisements placed in newspapers. Keep copies of business licenses and print out contractors' Web site pages showing that services are offered to the public. A simple listing in the yellow pages of the phone book is sometimes enough to convince an IRS auditor that an independent contractor is in business for him or herself.

Do a self-audit of each worker's or each class of workers' status before a federal or state agency conducts one.

Conclusion: Employers that misclassify workers as independent contractors can end up with substantial tax bills as well as penalties for failing to pay employment taxes. They may also face employee benefit liability. In some cases, workers sue for benefits they claim they were eligible for, including overtime, health insurance and retirement plan contributions.

Reform on the Way? The Obama administration proposed to reform IRS oversight of worker classification in its 2011 budget proposals last year, but Congress failed to take any action. As the National Research Program audit continues, new reforms may be proposed. Since worker misclassification has been one of the concerns in the White House, we could see legislation or more enforcement in the future.

Tax-Free Charitable Contributions From IRAs - Extended Once Again

Background

The Pension Protection Act of 2006 first allowed taxpayers age 70½ or older to exclude from gross income otherwise taxable distributions ("qualified charitable distributions," or QCDs) from their IRA that were paid directly to a qualified charity. Taxpayers were able to exclude up to $100,000 in both 2006 and 2007. The law was extended through 2009 by the Emergency Economic Stabilization

Act of 2008, and has just been extended again, through 2011, by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the Tax Relief Act).         

How QCDs work for 2011 

You must be 70½ or older in order to make QCDs. You direct your IRA trustee to make a distribution directly from your IRA (other than SEP and SIMPLE IRAs) to a qualified charity. The distribution must be one that would otherwise be taxable to you. You can exclude up to $100,000 of QCDs from your gross income in 2011. If you file a joint return, your spouse can exclude an additional $100,000 of QCDs in 2011. Note: You don't get to deduct QCDs as a charitable contribution on your federal income tax return--that would be double dipping. QCDs count toward satisfying any required minimum distributions (RMDs) that you would otherwise have to receive from your IRA in 2011, just as if you had received an actual distribution from the plan. However, distributions that you actually receive from your IRA (including RMDs) that you subsequently transfer to a charity cannot qualify as QCDs.

Example: Assume that your RMD for 2011, which you're required to take no later than December 31, 2011, is $25,000. You receive a $5,000 cash distribution in February 2011, which you then contribute to Charity A. In June 2011, you also make a $15,000 QCD to Charity A. You must include the $5,000 cash distribution in your 2011 gross income (but you may be entitled to a charitable deduction if you itemize your deductions). You exclude the $15,000 of QCDs from your 2011 gross income. Your $5,000 cash distribution plus your $15,000 QCD satisfy $20,000 of your $25,000 RMD. You'll need to withdraw another $5,000 no later than December 31, 2011, to avoid a penalty.

Example: Assume you turned 70½ in 2010. You must take your first RMD (for 2010) no later than April 1, 2011. You must take your second RMD (for 2011) no later than December 31, 2011. Assume each RMD is $25,000. You don't take any actual distributions from your IRA in 2011. Prior to April 1 you make a $25,000 QCD to Charity B. Because the QCD is made prior to April 1, it satisfies your $25,000 RMD for 2010. Prior to December 31 you make a $75,000 QCD to Charity C. Because the QCD is made prior to December 31, it satisfies your $25,000 RMD for 2011. You can exclude the $100,000 of QCDs from your 2011 gross income.

As indicated above, a QCD must be an otherwise taxable distribution from your IRA. If you've made nondeductible contributions, then normally each distribution carries with it a pro-rata amount of taxable and nontaxable dollars. However, a special rule applies to QCDs--the pro-rata rule is ignored and your taxable dollars are treated as distributed first. (If you have multiple IRAs, they are aggregated when calculating the taxable and nontaxable portion of a distribution from any one IRA. RMDs are calculated separately for each IRA you own, but may be taken from any of your IRAs.)

Why are QCDs important?

Without this special rule, taking a distribution from your IRA and donating the proceeds to a charity would be a bit more cumbersome. You'd receive a corresponding income tax deduction for the charitable contribution. But the additional tax from the distribution may be more than the charitable deduction, due to the limits that apply to charitable contributions under Internal Revenue Code Section 170. 

QCDs avoid all this, by providing an exclusion from income for the amount paid directly from your IRA to the charity--you don't report the IRS distribution in your gross income, and you don't take a deduction for the QCD. The exclusion from gross income for QCDs also provides a tax-effective way for taxpayers who don't itemize deductions to make charitable contributions.

QCDs in 2010

As indicated earlier, the Tax Relief Act also allowed QCDs to be made for 2010, but the deadline for making 2010 QCDs (January 31, 2011) has passed. If you made QCDs in 2011 that you elected to apply to 2010, you must subtract those QCDs from your December 31, 2010, IRA balance when calculating your RMD for 2011.

Financial Conversations with Parents and Elderly Relatives

Tax season may be the time to bring up financial concerns with parents and elderly relatives.   As these individuals age, we should approach their financial planning with care and with respect.  Here are 11 important questions to consider when assisting aging parents and relatives prepare for the future.

1. How do you feel about your financial health?  Are you receiving the advice you need and would you like help from a financial planner?
2. Do you have an estate plan?
3. Should you become ill, who will handle your finances?
4. In case of serious illness, what level of care do you want?  Have you considered a living will?
5. Do you feel you have enough health insurance?
6. Do you feel comfortable with your doctor?  Do you feel he or she is well-informed with current geriatric treatments?
7. Is there something I can do to make your home more comfortable?
8. Are you comfortable with driving?
9. Do you have any thoughts about your funeral?
10. Have you made a list of your important information, for example, insurance policies, titles, retirement plans, etc.?
11. Have you reviewed your beneficiary designations on life insurance policies and retirement plans?

I know that these questions may be difficult for some individuals to discuss.  Maybe we have "tip-toed" around these questions and have not had a formal, direct conversation.  We need to.  We may encounter resistance, reluctance and just plain failure to act (but we see this at almost any age!).

 We need to think about doing the same type of planning for our children. 

Please let me know if I can be of assistance (and thank you for your referrals!).

P.S.  Judith Martin said "the invention of the teenager was a mistake....once you identify a period of life in which people get to stay out late and you don't have to pay taxes - naturally, no one wants to live any other way."

Tax Planning Guide Is Available

Dear Clients and Friends,

We invite you to review our 2010-2011 Tax Planning Guide which is accessible at our web site (www.breslowstarling.com).     To access your Tax Planning Guide, please click on the tab "Resources", then click on "Breslow Starling Publications" , then "2010-2011 Tax Planning Guide."  I hope you find this to be helpful and informative.    Please do not hesitate to contact me to discuss any of the items included in the Tax Planning Guide.

Keith Hiatt, CPA

N.C. Sales Tax Holiday For Energy Star Appliances

Sales Tax Holiday Set for November 5th to 7th

 

North Carolinians can save money on selected Energy Star-rated appliances during the state's Energy Star sales tax holiday that begins on Friday, November 5, at 12:01 AM and runs through Sunday, November 7, at 11:59 PM.

Energy Star qualified products meet the energy efficient guidelines set by the Environmental Protection Agency and the Department of Energy. Qualified products feature the Energy Star label, making them easier to identify.

Energy Star qualified clothes washers, freezers, refrigerators, central air conditioners, room air conditioners, air-source heat pumps, geothermal heat pumps, ceiling fans, dehumidifiers, and programmable thermostats are exempt from sales taxes during the holiday weekend. There is no price limit or ceiling for products to qualify.

 

Purchases Must Be "For Immediate Delivery" To Qualify

An item is eligible for the exemption if the customer pays for it during the holiday period and the retailer accepts the order and takes an action to fill the order for immediate delivery.

• The actual delivery can occur after the holiday period.
• Deliveries delayed because of a backlog, order or because the item is currently unavailable to the seller or on back order by the seller, are still eligible for the exemption during the holiday.
• If the customer requests delayed shipment, the order is not considered "for immediate delivery" and is not exempt from sales taxes.

Purchases By Businesses Are Not Exempt

Items purchased for use in a trade or business are not covered by the exemption and are subject to applicable sales taxes. For example, purchases of qualified products by contractors who will install the products in structures for customers are considered to be purchases for use in a trade or business and are not exempt from sales taxes.

 

Rentals are also not exempt from sales taxes during the holiday.

 

Questions, Or To Get More Information

You can call the Taxpayer Assistance and Collections Center at 1-877-252-3052 if you have any questions about this issue.

Year End Planning and Tax Estimate

Tax planning is a year round activity.  The coming of autumn reminds us that we are approaching the end of the year.  The more effort we put into planning now, the better we can take advantage of possible tax planning opportunities and strategies. 

 

Should we prepare a year end tax estimate?

 

Please let me know if we can send you a schedule which may be used to provide us with estimates of income and expenses to help us project your 2010 tax liability.  If your income and expenses have not changed significantly from 2009, we may not need to adjust the arrangements already in place for meeting your 2010 tax liability. 

 

Should we meet to discuss year end tax planning along with other planning opportunities such as retirement, estate and so forth?

 

Whether or not a year end tax estimate is needed, the time is ripe to discuss year end strategies, plans and specific concerns.  We can also discuss other matters including retirement, estate and investment planning. A little bit of planning now will go a long way to helping you achieve future goals.

 

Should we schedule a time to review what tax information to gather for 2010 as well as the efficient way to do so?

 

I know that you may find gathering your tax information each year to be a significant challenge. We could meet or talk by phone on how to make this effort more effective.

 

I enjoy working with you and I appreciate the opportunity to be of assistance. I appreciate your referrals.  Please call me with questions or let's schedule a time to meet.

Small Business Jobs Act and the Coming "Sunset"

Small Business Jobs Act was signed on September 27

 

The "Small Business Jobs Act of 2010," signed into law on September 27, creates several tax-saving opportunities for businesses. Here's a summary of the key tax breaks.

 

* SECTION 179 DEDUCTION: The new law doubles the maximum amount that can be deducted for business equipment purchases to $500,000 for 2010 and 2011. Also, the dollar threshold at which the maximum deduction is phased out is increased from $800,000 to $2 million.

 

* BONUS DEPRECIATION: The new law revives the 50% bonus depreciation for qualified property placed in service in 2010 (through 2011 for certain property).

 

* START-UP EXPENSES: For 2010, the maximum deduction for qualified costs of starting a business is increased to $10,000, with a $60,000 phase-out threshold.

 

* QUALIFIED SMALL BUSINESS STOCK: Investors in "qualified small business stock" may be able to exclude 100% of the gain from the stock's sale if it is held at least five years (for acquisitions from September 27, 2010, through December 31, 2010).

 

* BUSINESS CREDITS: Normally, general business credits can't offset alternative minimum tax (AMT) liability. The new law removes this restriction for an "eligible small business" and permits carrybacks of general business credits for five years.

 

* HEALTH INSURANCE: For 2010 only, self-employed individuals can deduct health insurance costs from their self-employment income in computing self-employment tax.

 

* CELL PHONES: The new law removes strict substantiation requirements for cell phones and similar devices used in business and treats employee use as a tax-free fringe benefit.

 

* ROTH ACCOUNTS: Effective September 27, 2010, participants in 401(k), 403(b), and 457(b) plans can roll over funds to a Roth account. For rollovers in 2010, the resulting taxable income can be divided between 2011 and 2012.

 

 The coming sunset affects more than tax rates

 

The "2001 Tax Act" is set to expire at the end of this year, bringing back pre-2001 tax rates and rules. While the current discussions focus on the income tax rates that will rise if the law is allowed to expire, there are dozens of other major changes that will sunset too.

 

Here's a quick overview of what 2011 will bring unless Congress intervenes.

 

* The limitation on itemized deductions based on income will be reinstated in full.

 

* The phase-out of the deduction for personal exemptions for higher-income taxpayers will be reinstated in full.

 

* Married couples filing a joint return will not be entitled to twice the standard deduction amount allowed for single taxpayers. Nor will couples get the 15% tax rate on twice the amount of income as single taxpayers get. The marriage penalty, in other words, is back to pre-2001 levels.

 

* The child tax credit and the dependent care credit will revert to pre-2001 levels.

 

* The maximum rate for capital gains will revert to 20%, and dividends will be taxed at ordinary income rates as high as 39.6%.

 

* Among the changes to education tax breaks, the annual contribution to Coverdell education savings accounts will revert to $500.

 

* The estate tax will return with a maximum rate of 55% and an exclusion amount of $1 million.

 

Your tax planning, as challenging as it already is, should take these potential changes into account.

The "Right Time" to begin Social Security benefits

When should you apply for Social Security benefits? How can you maximize the monthly Social Security benefits to which you're entitled?

 

Social Security benefits are a major component of retirement income for most Americans.  You can begin receiving your benefits at age 62, but if you wait until age 67 or even age 70, you can receive considerably higher payments.

 

So why do almost 70% of Americans apply for benefits as soon as they're eligible to receive them and miss the opportunity to take full advantage of the income to which they are entitled? Some retiree's feel like they don't have a choice.  They may have been forced to retire earlier than anticipated because of health issues or employer downsizings.  Others, however, can't resist the prospect of receiving ongoing income and retiring as early as possible.

 

Unfortunately, many of these individuals don't realize that by taking their Social Security benefits early, they are impacting not only their financial security but the security of their spouse and their dependents.

 

Why should you wait?

 

Taking Social Security benefits at age 62 may be unavoidable, if you need income immediately and don't have assets with which you can generate income. You should realize, however, that adopting this strategy involves consequences:

 

§  The monthly payments you receive may be adjusted for inflation but will never be as high as the monthly payments you would have received if you had waited.

§  You may find that continuing to work or going back to work becomes a less desirable option for the following reasons:

• If your income exceeds a certain amount, you will suffer a reduction of your Social Security benefits.  In 2010, you could lose up to $1 in Social Security benefit for every $2 you earn above $14,160.
• Your increased income may result in increased taxation of your benefit.  Depending on what you earn, you might pay income tax on up to 85% of your benefit.
• You may pay FICA (Social Security and Medicare tax) on any income you earn, even though it may not lead to an increase in your benefit.

 

Finally, your decision to take early Social Security benefits may affect the future security of your spouse and dependent children.  If your spouse doesn't have the work history to qualify for Social Security benefits that exceed yours, he or she can receive a benefit that is based on yours.  While you and your spouse are both alive, the spousal benefit is 50% of your benefit.  After your death, your spouse would receive 100% of your benefit.  If you elect to begin receiving Social Security monthly benefits at age 62, your benefit is reduced and that reduced benefit is what your spouse's benefit is based on.  In addition, if your spouse elects benefits prior to their Normal Retirement Age the benefit would be reduced further to account for his/her early start.

 

What is your Normal Retirement Age?

 

                        Year of Birth                         Normal Retirement Age

 

                        1943 - 1954                            66

                        1955                                        66 and 2 months

                        1956                                        66 and 4 months

                        1957                                        66 and 6 months

                        1958                                        66 and 8 months

                        1959                                        66 and 10 months

                        1960 and later                         67

 

By waiting until you reach Normal Retirement Age (the table above) or higher to receive your Social Security benefits, however, you stand to gain the following advantages:

 

§  Your spouse stands to receive benefits that can be considerably higher than they would be if you had opted for early payments.

§  You may receive more income from Social Security over your lifetime than you would have if you had begun taking lower payments at age 62, provided you live to more than the average life expectancy.

§  You may receive the higher benefits and continue to work without adversely affecting those benefits.  In fact, working can increase your benefit since it increases the lifetime earnings used to calculate Social Security payments.

 

There are some tradeoffs to delaying your benefits to receive a higher income.  You are giving up income you could be receiving today.  However, you can make up these payments over the course of your retirement by maximizing what you are entitled to receive over your lifetime.

 

How can you increase your Social Security payout?

 

An article in the U.S. News and World Report (May 3, 2010) discussed several ideas about increasing the payout from Social Security.  The article reviewed some ways couples can boost their Social Security benefits.

 

Claim and Suspend. The lower earner cannot receive spouse's benefits until the higher earner files for retirement benefits. Workers who have reached their full retirement age may apply for retirement benefits and then request to have the payment suspended. Claiming and suspending payments allows the lower earner to claim a spousal benefit and the higher earner to continue working and earn delayed retirement credits until age 70. "This would tend to maximize their lifetime benefits and more importantly maximizes the survivor's benefit," says Andrew Biggs, a resident scholar at the American Enterprise Institute and a former deputy commissioner of the Social Security Administration. "You will ensure you will have a higher benefit when you need one, which is when you are a widow later in life." Social Security checks increase by 7 to 8 percent for each year of delayed claiming between your full retirement age and age 70. After age 70 there is no additional benefit for waiting to collect.

  

Claim Twice. Dual-earner couples who have reached their full retirement age can claim Social Security twice: first as a spouse and later using their own work record. A person may choose to sign up for only a spouse's benefits at their full retirement age and continue accruing delayed retirement credits on their own Social Security record. The worker may then file for benefits based on their own work at a later date and receive a higher monthly benefit due to delayed retirement credits. For example, a man planning to retire at age 70 could claim a spouse's benefit based on his wife's earnings at age 66 and then claim again based on his own working record when he exits the workforce at age 70. High-income couples with relatively equal earnings gain the most using this strategy, according to calculations by the Center for Retirement Research at Boston College.

 

Ex-Spouses are Eligible. A former spouse may be eligible for benefits if the marriage lasted at least 10 years. The divorced spouse must be age 62 or older and unmarried. The amount of benefits an ex-spouse claims has no effect on the benefits the worker and his or her current spouse can receive.

 

Boost the Survivor's Benefit. Widows and widowers are entitled to the higher earner's full retirement benefit. Surviving spouses can begin receiving Social Security benefits at age 60, or age 50 if they are disabled. Benefits are reduced by up to 28.5 percent if claimed before the recipient's full retirement age. The surviving member of a dual earner couple can also claim a reduced benefit on one working record and then switch to the other. For example, a woman could take a reduced widow's benefit at age 60 and then claim 100 percent of the retirement benefits based on her own working record when she reaches her full retirement age. Most survivor benefits are paid to women because wives are generally younger than their husbands and live longer. A husband can increase the monthly survivor's benefit his wife will receive by 60 percent by waiting to sign up for Social Security until age 70.