tax question

[targa911S]

i got a notice today from the insurance company that hold one of my annuities that they want to buy me out with a one time disbursement. so i'm wondering just how much tax will be due on $40K and just how will that income effect my social security.

[dan88911]

Uncle Sam will tax up to 85% of benefits, most states give SS recipients a pass.

[targa911S]

85%???? What? This is an old IRA that I rolled over and now they will take 85% of it.??

[dafischer]

What Dan meant is that the extra income for the disbursement could raise you income level to the point that your SS benefits could be taxed at a rate up to 85%, depending what this $40K does to your total income level. As to the disbursement being taxed it self, it all depends on what your basis is in this investment. If you don't need the money, it most likely can be transferred in a trutee to trustee exchange to another annuity, and there would be no taxable event on your income.

If you'd like, you can PM me with some details and I can give you more info, as there are some options depending on your specific circumstances.

[targa911S]

I may do that over the weekend. Thanks.

[74-911]

Originally Posted by dafischer

What Dan meant is that the extra income for the disbursement could raise you income level to the point that your SS benefits could be taxed at a rate up to 85%, depending what this $40K does to your total income level.

Did you not mean to say that the extra income could cause up to 85% of his SS benefit to be taxable ? - not taxed at an 85% tax rate.

[targa911S]

See this is all very confusing to me. I suck at this stuff.

[dafischer]

Yep..thanks Jack. 85% of benefits taxable. My error in typing, not what I meant to say.

[targa911S]

Ok so my wife is on SS disability, I'm on regular SS. So they would total both our incomes, then add the $40K to it and base the rate of tax on that figure? What about rolling it into something like a Roth IRA?

[dafischer]

It depends on where the money in the annuity originally came from. If it was with an IRA that you started and funded with pre-tax money, it can't be rolled into a Roth, and only into another Qualifed Plan.
Again, I can give you some tax info, but it might be wise to talk to a financial guy for more info on what your options are.

[targa911S]

I was thinking of taking half and putting it into an SC and securing the balance some how. This IS a Porsche board ...:-) Yes the money was from a pretax IRA from on old job.

[dafischer]

That could hurt. If you do that, the $40K becomes taxable, and depending any other income you may have, could result in a large portion of your SS benefits being taxed by the IRS. Best bet is to roll it into another plan.

[targa911S]

that's what I needed to hear. Thanks.

[Shaun @ Tru6]

David I can get you a decent SC Targa for a lot less than $20k! Like half less.

[Jim Richards]

Taxes? What's that?

[targa911S]

Originally Posted by Shaun 84 Targa

David I can get you a decent SC Targa for a lot less than $20k! Like half less.

lets talk over the weekend..

[74-911]

Originally Posted by dafischer

... If it was with an IRA that you started and funded with pre-tax money, it can't be rolled into a Roth, and only into another Qualifed Plan.

You can convert the traditional IRA to a Roth IRA but you will have to pay income taxes on the amount you convert and it will still cause up to 85% of your SS to be subject to income taxes...

The only real benefit (if any) to converting to a Roth IRA at this point is that any gains in the Roth will not be taxable when withdrawn....

as Dafischer says, talk to your accountant or financial adviser to learn all your options.