Q. I would like to know if there’s a maximum that you can receive in Social Security benefits when you retire at 65 – what the maximum payment is, if there is any.
A.R.,
North Providence, R.I.
A. For this year, it’s $1,741 a month. (For next year, it’s $1,825 a month.)
To receive the maximum benefit, you must meet these two key conditions:
-You must have been earning the maximum amount of wages to which the Social Security tax applies, said Robert Muksian, professor of mathematics at Bryant College in Smithfield, R.I.
For this year, $87,000 is the “maximum taxable earnings,” the Social Security Administration says. (For 2004, it’s $87,900.)
In other words, you had to have been earning pretty good money – and you had to have been earning it for a long time. That’s because, to figure the amount of your benefit, the Social Security Administration looks not just at one or two years, but at your history of earnings over time – generally from age 22 through the year before your retirement, Muksian said in an interview at his office.
-You reach (or have reached) full retirement age this year. That’s the age at which you become entitled to full Social Security retirement benefits – and it’s not age 65 any more.
For this year, full retirement age is 65 and 2 months. Retire before then and you take a haircut on your benefits. (For next year, full retirement age is 65 and 4 months.)
OK, so that takes care of the higher-income person. What about somebody who doesn’t make as much money? Muksian, author of “Mathematics of Interest Rates, Insurance, Social Security and Pensions” (Prentice Hall, 2003; 349 pages), offered this example:
Suppose you’ve always earned average annual wages. (The average, according to the Social Security Administration, was $32,922 in 2001, the latest year for which such figures are available.)
If you retire this year – at full retirement age, as described above – you’ll get an estimated $1,170 a month in Social Security retirement benefits, Muksian said. In a sense, that’s the maximum monthly benefit for someone in these circumstances.
Can you get more in Social Security benefits than the “maximum” amounts listed here?
Yes, said Kurt Czarnowski, regional communications director for the Social Security Administration.
For example, you may get more if you delay drawing Social Security benefits after you reach full retirement age; if you keep working even after you start collecting (assuming that your work is covered by Social Security and that you earn enough money); or if you’re a widow or widower with young children.
Neil Downing writes for the Providence Journal.
. I heard … (that) someone is able to deduct 2.5 percent of one’s adjusted gross income for losses on the Roth IRA. However, they gave no other details. I wonder if you could procure those details for us. …
J.S.,
East Greenwich, R.I.
A. You may be able to claim the loss as a deduction on your return, but it isn’t easy. You must go through a few hoops first. Here, in general, is how it works:
nYou can’t look only at one Roth IRA in isolation. To be eligible to claim a deduction for a loss on the investments in one or more of your Roth IRAs, you must first withdraw all the money from all your Roth IRAs, said Marvin R. Rotenberg, national director of retirement services at Fleet Bank’s Private Clients Group in Boston.
-Once you’ve done that, you’re still not home free. The total amount you have upon withdrawing everything from all your Roth IRAs must be less than the total amount you contributed to all your Roth IRAs, according to Rotenberg, a nationally recognized authority on IRAs, and his colleague, Mark S. LaVangie, senior retirement planning specialist at Fleet’s Private Clients Group.
-If you still have a loss to show, you may claim it only if you itemize your deductions. In other words, you can’t simply claim the lump-sum standard deduction as most taxpayers do; you must list all your deductions separately, on a special sheet, known as Schedule A, as part of your tax return.
-Even if you itemize, you must list the Roth IRA loss not as a regular itemized deduction but instead as a miscellaneous itemized deduction, Rotenberg said in a recent interview at a Fleet office in Providence, R.I.
What’s the big deal about that? In general, you must lump your Roth IRA loss together with all your miscellaneous itemized deductions. These include such items as unreimbursed employee expenses, tax preparation fees, union dues, dues for professional organizations and job-search expenses.
Once you add up all these, you may claim a deduction only for that portion that exceeds 2 percent of your adjusted gross income, or AGI. Your AGI is generally found on the front page of your return, toward the bottom. (If your AGI is high enough, your deduction may be further restricted.)
Suppose you have only one Roth IRA. You contributed $1,000 to it. Because the investment you chose for your account has performed poorly, the Roth IRA is now worth $750. Can you treat that $250 loss as a deduction for federal income- tax purposes?
First, you must withdraw the entire $750. That’s less than your basis of $1,000, so you’ve got a $250 loss. But to claim it on your tax return, you must itemize your deductions, and include the $250 loss along with any other miscellaneous itemized deductions you have.
You get to claim, as a deduction, only that portion that exceeds 2 percent of your AGI. (And remember that there may be further restrictions for high-income taxpayers).
So, to answer your question, you may be able to get a tax deduction for any investment loss you’ve suffered inside your Roth IRA, but it won’t be easy.
TODAY’S TIPS: New standard mileage rates take effect in January: 37.5 cents a mile for business miles (up from 36 cents); 14 cents a mile for medical or moving expenses (up from 12 cents); and 14 cents per mile driven for charity (same as last year.) The IRS Web site has more details: www.irs.gov/newsroom.
If you buy a “hybrid” vehicle – generally one that combines an electric motor and a gasoline-powered engine for greater fuel efficiency and fewer emissions – you may claim a tax deduction of up to $2,000.
It’s a one-time deduction available only to the original owner and must be taken in the year in which the vehicle is originally used.
The Internal Revenue Service recently certified the 2004 Toyota Prius as being eligible for this clean-burning fuel deduction. The IRS previously certified the Prius for model years 2001, 2002 and 2003; the Honda Insight for model years 2000, 2001 and 2002; and the Honda Civic Hybrid for model year 2003.
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(Neil Downing is a Journal staff writer and author of “The New IRAs and How to Make Them Work for You.” If you have questions about your money matters, call us at 1-401-277-7484 or 1-888-697-7656 and leave a message. (When calling toll-free, please ask for ext. 7484.) We can’t reply personally; as many questions and issues as possible will be addressed in this column.)
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AP-NY-10-27-03 0632EST
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