Dear Rusty: I retired on Feb. 1, 2022. I collect a pension from my employer plus a union pension, as well as Social Security, all of which started in February 2022. I am married and I’m 65 years old. I only worked four weeks in 2022 before retiring, but my income ended up being far more than expected. I got five weeks of vacation pay and a retroactive check from an overdue labor contract. I also received hazard pay and a small check for a class-action lawsuit my union filed years ago. All of that brings my 2022 income to about $35,000, which means I have exceeded what I can make as far as Social Security goes. My question is, should I contribute some money to my IRA to offset my earned income? And is it even possible for me to do that?
Signed: Retired but Concerned
Dear Retired but Concerned: Generally, income earned before starting your Social Security (SS) benefits (such as accumulated vacation pay) doesn’t count toward Social Security’s earnings limit for those who have not yet reached their full retirement age (FRA), nor do your earnings from working in the four weeks of 2022 before your SS benefits started. Similarly, the check for retroactive labor-contract benefits, hazard pay for past work, and income from the class-action suit do not count toward Social Security’s earnings limit. The only thing that counts toward the limit is earnings from working after your Social Security benefits started, which you apparently did not do. Thus, from what you have shared, you should not be subject to any impact to your monthly SS benefits as a result of your total 2022 income. Note: you may still get an inquiry from Social Security next year about your 2022 earnings, but only earnings from actually working after your Social Security benefits started (which you did not) would count toward Social Security’s earnings limit.
You may, however, wish to consult with a qualified tax advisor because some of your Social Security benefits received in 2022 will be subject to income tax on your 2022 tax return. Assuming you file your tax return as “married/jointly,” if your combined income from all sources exceeded $32,000 then 50 percent of the SS benefits you received during the tax year will become part of your overall taxable income; and if your 2022 combined income from all sources (including your wife’s income) exceeded $44,000, then up to 85 percent of your SS benefits received in 2022 will become taxable income. A tax advisor can give you more information on that, and also help you decide if it would be wise to contribute to an IRA. But, in any case, contributing to an IRA will not affect your monthly Social Security benefit.
Russell Gloor is a national Social Security advisor at the AMAC Foundation, the nonprofit arm of the Association of Mature American Citizens (AMAC). The 2.4-million-member AMAC says it is a senior advocacy organization. Send your questions to: firstname.lastname@example.org.
Author’s note: This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained and accredited by the National Social Security Association (NSSA). The NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity.