Tax planning for SS Benefits

[equinecpa]

I was just wondering. If you have a client that has say $50,000 in SE income. Spouse works in the business but is not compensated.

Which is more advantageous in regard to future SS benefits (assuming it exists in the future )

a) Maximize primary SE income, spouse will receive 50% of that figure;

or

b) Allocate some of the earnings each year to spouse.

I'm thinking it is better to go with option A) but what factors would change that. Say spouse had a full time job before marrying and had some accumulated SS earnings, would it then perhaps be better to keep on building SS benefits via option b) ?

[ChEAr$]

SS earnings

First thing to do is for each spouse to get copy of earnings records from SSA. That is the starting point. Each one will give the assumptions for determining end game benefits,
i.e. 66 or so years of age.

Next, do the math and use the SSA benefits calculator for the four scenarios. You'll find it on their web page.

[FEDUKE404]

Suggest some income to wife

Having endured many "issues"/planning with Soc Sec, I have somewhat been down the path.

Sadly, whatever long-range plans you make in this area just might turn out never to see fruition. The political storm in Washington only adds to the uncertainty. I can remember when no SS benefits were taxed, then a maximum of 50%, and now a maximum of 85%. (At least there only remains the other 15%?) Now they even play with Medicare premiums - I have one client who currently pays $3700/year versus the customary $1300/year, all because his overall income is "too high."

Not knowing how much income the spouse has made over the years, one potential problem I could see would be if both H/W lived to a merry old age of, let's say, 85 years. If the wife did not have much wages over the years assigned to her, she would get minimal benefits until any survivor benefits (from the much higher paid husband) occurred. For that reason alone you may want to level their playing field.

Another factor is the reduction in Soc Sec benefits from age 62 to full retirement age (probably 66 for them?). If the H/W have high enough incomes during that time period, their Soc Sec benefits would be reduced significantly until FRA is attained. If the wife has no such problem (gets "paid" less) then at least she might not face that problem. For 2009, the Soc Sec wage reduction comes into play at around $14k of earnings, which is not a large amount.

Good luck!

FE

[JohnH]

"Low Savings, Bad Investments" (what a title)
"...we don't save enough, and we don't invest very well..."

This recent discussion from the Baseline Scenario might be helpful in thinking about retirement issues (both SS and individual plans), although many of his conclusions aren't very encouraging. I especially like his analysis of investor behavior regarding mutual funds, and I agree with it wholeheartedly in spite of the constant barrage of conflicting claims from the investment advice industry.

http://baselinescenario.com/2009/11/11/low-savings-bad-investments/

[DaveO]

Everyone hopes the happy couple rides off together in the sunset but she will be left with very little SS income if they divorce and she gets remarried. Since they both work in the business she should get some credits.

[Jiggers]

SS for the spouse

Everyone hopes the happy couple rides off together in the sunset but she will be left with very little SS income if they divorce and she gets remarried. Since they both work in the business she should get some credits.

I tell clients that don't want to pay their spouse for working in their business to at least make an IRA contribution for them. Assuming the taxpayer with the business qualifies.

That way if there is a divorce, the spouse get's her IRA!

[equinecpa]

If they are married at least 10 years and she doesn't remarry she will get 50% of his benefits which is what she'd get if she stays married....

[Kram BergGold]

Aren't you liable?

If the IRS ever figures out that the spouse works in the business you and your client are in for it, no?