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Reminder for working retirees (10/14/2007)

by: Cherryl Kjos

Winona Social Security District Manager

A growing number of retirees are including work " either full or part-time " in their retirement lifestyle. Some of these retirees work because they need the income; others work because they find it helps them to stay physically and mentally active. Whatever their reasons for working, all retirees need to understand the relationship between working and their Social Security benefits ... including when to let Social Security know about their earnings.

Here are a few brief reminders if you or someone you know is a "semi-retired" beneficiary.

For workers who are ‘full retirement age' or older

If you work and are full retirement age or older, you may keep all of your benefits, no matter how much you earn. This year, the full retirement age for workers born in 1942 is 65 years and 10 months. The full retirement age for workers born in the years 1943 through 1954 will be 66 years of age, and then gradually rise to age 67 for people born in 1960 or later. You can find out exactly what your full retirement age is by visiting our website at www.socialsecurity.gov/pubs/ageincrease.htm and typing in your year of birth.

For workers who are between age 62 and full retirement age

The earliest you can apply for Social Security retirement benefits is age 62. And if you are younger than full retirement age, there is a limit to how much you can earn and still receive full Social Security benefits. If you are younger than full retirement age during all of 2007, we must deduct $1 from your benefits for each $2 you earned above $12,960. And we do not count pensions, savings or investment income toward these threshold amounts - only wages or self-employment income.

If you reach full retirement age during 2007, we must deduct $1 from your benefit payment for each $3 you earn above $34,400, until the month that you reach your full retirement age.

Because we adjust the amount of your Social Security benefits based on what you have told us you would earn this year, it is important to let us know if you think your earnings for 2007 will be different than what you originally told us.

If other family members get benefits based on your work, your earnings after you start getting retirement benefits could reduce their benefits, too. However, if your spouse and children get benefits as family members, their earnings affect only their own benefits.

It's important to note that if a retiree's earnings cause benefits to be withheld before they reach full retirement age, Social Security will increase that retiree's monthly benefit amount starting at full retirement age. This will also increase the benefit amount paid to his or her survivors.

If you need help in estimating your earnings, contact us at 1-800-772-1213. When you call, please have your Social Security number handy.

For more information about Social Security retirement benefits and working, read the pamphlet, How Work Affects Your Benefits. You can find a copy online at www.socialsecurity.gov/pubs/10069.html. Or you can call 1-800-772-1213 to request a free copy.



Take control of your 2007 tax bill

When it comes to cutting your 2007 tax bill, there's no time like the present, says the Minnesota Society of CPAs (MNCPA). Here are some tax strategies you can put into action now to reduce your 2007 tax bill.

1. Take retirement savings to the max

One of the best ways to trim your tax bill is to make the maximum allowable contribution to your retirement savings plan. For 2007, employees may contribute up to $15,500 of their pre-tax salary to a 401(k) and the fund grows tax-deferred until withdrawn. Workers who will be at least age 50 by the end of the year may contribute up to an additional $5,000 per year. The IRA contribution limit for the 2007 tax year remains at its 2006 level of $4,000 ($5,000 for taxpayers who are age 50 or older).

2. Defer income

Income you don't receive by December 31 isn't taxed until the following year. While employees on salary don't have much of a choice regarding when they get paid, taxpayers who are self- employed or do freelance or consulting work have more flexibility. By delaying billing until late December, you can postpone the receipt of income into next year. Keep in mind that this strategy only makes sense if you think you will be in the same or a lower tax bracket next year.

3. Pay some bills early

By prepaying certain 2008 bills in 2007, you may be able to write off a deduction earlier. For example, when you pay your January 2008 mortgage bill on or before December 31, you may deduct an extra month of interest in 2007. If it's not included, remember to add the extra month's interest amount to the amount reported by your lender on your 1099 form. Paying your state income taxes or property taxes early is another way to accelerate your federal deductions for 2007 if you aren't subject to alternative minimum tax.

4. Take a loss

If your portfolio experienced significant capital gains in 2007, consider whether it makes good financial sense to sell off some of the losers. You can use the amount of your losses to offset capital gains. And if your capital losses are larger than your capital gains, you can deduct the capital loss against other income, such as your salary " up to a limit of $3,000 in one year. Any additional losses can be carried over into subsequent years, when they can be used to offset future capital gains.

5. Go green

Consumers who purchase and install specific improvements in their principal residence, such as exterior windows and doors, insulation to walls, ceilings, high efficiency water heaters, furnaces and boilers, and central air conditioning units can receive a tax credit of up to $500. But hurry - energy-efficient tax credits apply to improvements made between January 1, 2006 and December 31, 2007.

6. Be giving

Doing good for others can do good to your tax bill. Donations made before the end of the year are a great way to cut your 2007 tax bill. Keep in mind, however, that effective for 2007, all money contributions, regardless of the amount, require substantiation by a canceled check or a receipt from a charity. Previously, receipts were required only for contributions of $250 or more.

Donate appreciated property or stock rather than cash and you may save even more by avoiding paying capital gains taxes. Just be sure you understand the rules and give yourself plenty of time because it could take several weeks to transfer the stock or property.

7. Drain your flexible spending account

Do you still have money left in your flexible spending account? While the IRS now allows companies to give their employees a two-and-one-half month grace period to spend money set aside in a flex spending account, not all businesses have adopted this extension. If you have money left that needs to be spent before December 31, don't wait until the last minute.



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