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The Windfall Elimination Provision (WEP), explained.
The Windfall Elimination Provision is an often vilified rule in the Social Security Act which reduces the benefit available to those who have worked in jobs which withheld Social Security payroll taxes, and also receive a pension from a job which did not. That it reduces Social Security benefit payments is, not surprisingly, highly unpopular with those affected, In this article appearing at tucson.com (AZ), Tom Margenau uses a neighbor and his maid as an example of why, in his opinion, WEP is a perfectly logical provision. Click here to read more.
I will be taking a lump sum amount of my company sponsored pension plan and 401K when I retire in 3.5 years. How can I avoid SSA penalizing my SS benefits? Should I at time of retirement roll over my pension and 401K plans to an IRA in order to avoid SSA reducing my SS monthly benefits? And how does that work when I need money to live on? Please advise.
Priscilla:
Thank you for the message. We’re assuming your reference to a penalty on your Social Security benefits is the impact of a lump sum pension and 401k being considered ordinary income for federal tax purposes, and therefore pushing you total taxable income to a level subject to taxation. There are strategies you can employ to potentially minimize the amount of taxation when you begin drawing Social Security benefits, including steps like rolling over 401k balances to Roth IRAs. Since we focus soley on Social Security matters, we unfortunately cannot offer advice on tax strategies. We suggest you contact you tax advisor for guidance in this matter. Again, think you for contacting us.
Gerry Hafer, AMAC Foundation
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