For many people, reaching retirement means leisure time and collecting a pension. However, for others it means continuing to work part time, embarking on a second career, or starting a business. How do these activities impact taxes?
Anyone who has worked the requisite number of quarters can begin to collect Social Security benefits starting at age 62. Full benefits cannot begin before reaching the full retirement age (e.g., 65 years, 10 months for those born in 1942).
Those who are under the full retirement age will suffer a loss of benefits if they earn too much. For 2007, those under full retirement age can only earn up to $12,960. If they earn more, then benefits are reduced by $1 for each $2 of excess earnings.
For those who will reach full retirement age during the year, there is an annual earnings limit in 2007 of $34,440, or $2,870 per month. This applies only to earnings for the months prior to attaining full retirement age. But if any earnings are over the limit, there is a $1 reduction for every $3 of excess earnings.
Once full retirement age is reached, there is no reduction of Social Security benefits, regardless of the amount of earnings.
Anyone who works must pay Social Security and Medicare taxes on their earnings, regardless of their age. For example, a 68 year old who collects Social Security benefits and still works, still pays into the Social Security system.
“Work” includes part-time and full-time employment as well as self-employment income.
Those who continue to work can be able to accrue more retirement savings. For example, you can add to a 401(k) plan or an IRA within the limits allowed. However, no additions to a traditional IRA are allowed after reaching age 70½; funds can, however, be added to a Roth IRA.
Under the new rules, those age 62 and older who are covered by a defined benefit (pension) plan can receive their pension even though they continue to work for the company.
Once you attain age 70½, you must start taking distributions from qualified retirement plans and traditional IRAs. However, if you are still working, you may be able to postpone distributions from the company’s retirement plan as long as you don’t own more than 5% of the business.
One-third of all non-cash charitable contributions (stock, land, art, etc.) were made by taxpayers with adjusted gross income (AGI) of $10 million or more. The average donation in this income category was $2.4 million, or 7.2% of their AGI.
Source: Spring 2010 Statistics of Income BulletinView all factoids