Tags: Retirement | tax disadvantages | second career | retirement

Tax Disadvantages of a Second Career in My Retirement

By    |   Monday, 31 August 2015 07:15 PM

Those hoping for a second career in retirement must do their homework in determining if such work will cause tax disadvantages.

For some, working longer can help them to continue investing, growing their retirement accounts for a day in the future when they need to tap them. For others, however, it could create a financial problem.

"Generally speaking, overstaying your welcome at work could have some serious health care, Social Security and pension ramifications," Bankrate said.

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Some older workers could be propelled into a higher tax bracket by staying longer and earning more salary and benefits, Bankrate said.

"Working seniors can find themselves in a higher tax bracket in one of two ways — by taking pension distributions on top of a regular salary or by taking Social Security benefits while they continue working," Kevin Seibert, managing director of the International Foundation for Retirement Education in Lubbock, Texas, told Bankrate. "It's taxable, just like their regular salaries."

Older workers might also lose some Social Security benefits as well. In 2015, workers could earn up to $15,720 before. For earning above that limit, $1 of Social Security benefits are withheld for every $2 earned, according to the Social Security Administration.

"While it's not a permanent loss — the Social Security Department will repay all withheld benefits in monthly increments after you officially leave the working world — those relying on a fat check from the government may have to work with a significantly reduced one while they stay on the job," Bankrate said.

Working in retirement could affect the amount of Social Security benefits that is taxable, which is determined by combined income, Time magazine explained.

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“Take a retiree in the 15% federal tax bracket who is taxed on 50% of his Social Security. When he earns another $1,000, his so-called combined income rises by that much too, subjecting another $500 of Social Security income to taxes. So the tax bill on that $1,000 won’t be $150 (15% of $1,000) but $225 (15% of $1,500), for an effective rate of 22.5%,” Time said.

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Those hoping for a second career in retirement must do their homework in determining if such work will cause tax disadvantages.
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Monday, 31 August 2015 07:15 PM
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