Slott Report Mailbag: The Effects of IRA Contributions on Social Security Benefits

Friday, May 02, 2014

By Joe Cicchinelli, IRA Technical Expert

Follow Me on Twitter: @JoeCiccEdSlott

This week’s Slott Report Mailbag includes questions about the effects from contributions and rules on retirement plans. As always, we stress the importance of working with a competent, educated financial advisor to keep your retirement nest egg safe and secure. Find one in your area at this link.

1.

If I contribute to a traditional IRA, won’t that reduce the amount of my Social Security benefits? Even though FICA stays the same aren’t our benefits based on AGI (Adjusted Gross Income)?

Answer:
Contributing to an IRA does not affect the amount of Social Security as an employee. Taking IRA distributions, however, could affect the taxation of Social Security. Whether or not Social Security benefits are taxable is based on a formula using “combined” or “provisional” income which takes into account your IRA distributions.

2.

If I move a rollover IRA back into a company 401(k) and then make a back door Roth conversion, how long do I have to wait before I can move the money back out of the company 401(k) and into the rollover IRA?

Answer:
If you want to avoid the funds being included in the pro-rata calculation when you roll them back into the IRA, you must wait until the next calendar year before you rollover the 401(k) funds back out of the company 401(k) and into your IRA.

3.

I own my own business and have 4 employees including myself, however, I also have 2 contract jobs, which supplement my business income. Can I start a SEP for only my contract jobs and not for my business?

Answer:
No. You are considered the owner of all of those businesses, so if you start a SEP, you must include all the employees of all the businesses you own.
 

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