Episode-2864- Expert Council Q&A for 4-23-21 — 5 Comments

  1. Been a fan of John Pugliano for YEARS now. He was way incorrect on his Social Security info though. Only w-2 or self-employment income is subject to the Social Security earnings test. Dividends etc. are not. That’s a huge deal.

    Secondly, he glossed over the taxation of Social Security and made CRITICAL mistakes here, as almost everyone does.

    Your COMBINED income is not nearly as simple as you made over a certain threshold and as such 50 or 85% of your benefits are taxed. Not even close.

    example. $20k of IRA distributions $40k of Social Security. What’s your combined income???

    Take HALF your SS benefit PLUS your other income. IN this case combined income is all of $40k.

    You’re still not done here though. Now you need to look at how much of your Social Security benefit is subject to taxation.

    If you’re married, the first $32k of that $40k is free of any taxation. Only 50% of the next $8k (40k combined income MINUS the $32k Tax free) is only subject to taxation. Thus $4k is subject to taxation of yoru Social Security benefit.


    Now you go to your 1040. You add your IRA income, in this case, the $20k to the $4k of your social security benefit subject to taxation and you have GROSS income of $24k.

    Married filing jointly has standard deductions around $25k in current law and guess what…NO TAXATION AT ALL!

    Understanding this about Social Security can solve a lot of people’s concerns about taxation in retirement. it just doesn’t exist for the vast majoirty of us.

    Josh Scandlen

    • John saw this, said “he’s right” and will address it in his next segment.

      I am also thinking if that IRA is a ROTH it is a zero for income? Or at least some portion must be as it was already earned and taxed?

      • Hope John didn’t think I was busting his butt. I’m a HUGE Wealthsteading Podcast fan. John is head and shoulders one of my favorite investment guys. So, John, if I came across as an ass, my sincerest apologies!

        Roth and Social Security and you’re living Tax-Freakin’ free. Everyone is so worried about the state income tax, but it’s the Feds that get ya, especially when it comes to having large IRA/401k accounts.

        And then it gets even better. you’re married and die and leave your tax deferred acct to your wife. She will now get HAMMERED because she’s no longer MFJ but now a single taxpayer with Mandatory IRA distributions. I call this the Widows Tax Trap which I really need to get trademarked.

        I wrote a book on this whole thing. I won’t link to it here because that seems tacky. It pisses me off because everyone is trained to defer, defer, defer and then when it comes time to draw the money out, in retirement, the tax bill comes at you hard and there is little to do about it at that time.

        By the way, just while I’m rambling here, there is thing called the Social Security Tax Torpedo too. What this does for many retirees is it adds up to $1.85 of taxable income for every $1 of IRA distributions.

        So you take $10000 out of your IRA your taxable income INCREASES by as much as $18500.

        • Nope he was like, yep he is right, I will make it right. And please link to your book.

        • Also I am guessing that this “So you take $10000 out of your IRA your taxable income INCREASES by as much as $18500.” Applies to conventional IRAs vs. Roths?

          Fuck dude may be you should put in a guest form to be on the show.