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Social Security vs Retirement Plan?

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Which are you relying on?

Social Security or retirement plan, which one are you counting on for your later years? Social Security is a employee/employer tax which wage earners and self-employed individuals pay annually during our working years. There are many factors to consider when talking about Social Security such as: earnings limits; benefits; disability; Medicare; taxation and other factors.

The Social Security Commissioner announced late in 2001 an increase of 2.6% of monthly benefits and supplemental security income benefits for 2002. The earnings or income effect may be different for each beneficiary. The 2.6% increase took place in January 2002. Social Security and SSI benefits increase automatically each year based on the rise in the Consumer Price Index for Urban Wage Earners and Clerical Workers.

    In January 2000, the Retirement Earnings Test was eliminated for individuals age 65-69. It still remains in effect for those ages 62-64. Under the age of 65 the earnings limit for 2002 is $11280/year or $940 per month. For every three dollars in earnings earned, one dollar will be withheld from the Social Security benefits. For disability thresholds check with the Social Security Administration to determine the withheld amount and limits.

    Individual Retirement Arrangements (IRA’s) contribution limitations changed for years after 2001. From 2002-2004 the smaller of a taxpayers earned income or $3000 is deductible, for 2005-2007 the limitation is $4000, and for tax years after 2008 the limit is $5000 and will be indexed for inflation.

    A catch-up provision was also added to the IRA deduction. Taxpayers age 50 or over at the end of the year can make “catch-up” contributions of $500 per year from 2002-2005 and for years after 2005 the contribution “catch-up” provision will be $1000. Other provisions for IRA’s, Elective Deferrals, and pensions were also changed. Check with your tax advisor or Plan Administrator to determine your limitations, contributions and compensation limits.

    Whether you are nearing retirement age or are planning early for retirement, check out the plan that fits your needs for the future. If you need help with your retirement plan check with a tax advisor or an investor advisor.

    Terry Stevens is a Member: National Associate of Tax Professionals and offers business and tax services out of his office in Clark Fork. Call him at 266-0210.

 

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Terry Stevens

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