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#27 Increasing Income, Yet Avoiding Increased Tax on Social Security


David Garrison
Home Equity Retirement Specialist
NMLS # 1595194
Serving the State of Indiana
p (317) 644-2595 c (765) 516-0130
e [email protected]

2169 East Rutland Lane, Martinsville, IN 46151
Corporate NMLS #1025894

As a couple, your careful savings habits leading up to your retirement a year and a half ago have stood you in good stead. Happily, you’ve had sufficient income flow to satisfy your needs without cutting back on spending, and your withdrawals haven’t impacted the satisfying market value increase in your investment accounts.

On the negative side, in the course of preparing your taxes last month, you realized that a good portion of your investment portfolio resides in tax deferred accounts. What that means is that almost all of your regular income is fully taxable. To make matters worse, (an effect that is somehow just now coming to your attention) as a couple, you are what Social Security considers “higher-income beneficiaries”. That means, you now understand, you are each paying more for Medicare Part B. Worse, you’re paying tax on a large portion of your respective Social Security benefits.

Related to all this is a second aspect of your carefully thought-out plan. As the second of you turns 68 (which will happen yet this calendar year) you are planning to take out a reverse mortgage on your home. You envision using the freed-up equity to pay for, over the next few years, a total redesign and remodel of the property (without needing to cut back on your lifestyle expenditures to subsidize these costs). Neither of your two children is interested in ever living in the home, you’ve reasoned, and your desire is to not only beautify and modernize your surroundings, but ensure that it can accommodate your needs as you age into your seventies and beyond./span>

In coordinating the various aspects of your planning, you now realize that tax planning needs to assume more importance. The good news is that when you use the line of credit provided by your reverse mortgage, the money you receive is not taxable and generally generally won’t affect your Social Security or Medicare benefits. Your tax advisor can help work out the details, but a plan to explore would involve taking regular supplemental income out of the reverse mortgage line of credit, deferring (or at least reducing) withdrawals from your tax-deferred investment accounts.

Your reverse mortgage might actually help “reverse” the tax burden on your Medicare and Social Security benefits!

*A reverse mortgage may affect benefits from or eligibility for some government programs such as Supplemental Security Income and Medicaid.