Streetlegal

Hi all,

Could someone "translate" the 50% rule for me as regards the impact of WEP on social security:

"The WEP includes a guarantee that the reduction in the benefit amount caused by the WEP formula can never exceed more than one-half of the noncovered pension. Thus, for workers who become eligible for benefits in 2019, the maximum reduction under the WEP may be less than $463."

So, if referring to the impact of UK OAP on social security (which I assumed is the "noncovered pension" referred to above) then the maximum reduction in your social security would be half your UK OAP?

Given that the maximum OAP is about 9K pounds per annum (I think), the maximum reduction in SS would be 4.5 k pounds = circa 5.76k US dollars. Which is a lot. Is this correct? But then $463 x 12 = $5556 so maybe this is the max?

Either way, it seems a lot.

One more thing, I'm sure I read somewhere that whatever happens, you will never be worse off overall than before WEP was applied--correct?

durham_lad

Yes, sort of, you are correct and I confess to not understanding exactly how it works. However WEP I believe only reduces SS by up 50% to the first bend point of the SS calculation, beyond that WEP does not take effect at all. SS is designed so that the lowest paid workers get 90% of their earnings when they retire.

As you can see from this link below the 2019 SS first bend point is $926 so the most your SS can be reduced by is $463 if you applied WEP in 2019. For budgeting purposes I always assumed I would get "WEP'ed" to the max when in fact it will be less than that for me because I will have over 20 years SS contributions but less than 30. (30 years SS contributions means WEP = 0)

Suppose your SS was $2,926/month and you had less than 20 years of SS contributions. If your OAP was greater than $926/month your SS could be reduced at most by $463 leaving you with $2,463/month. (This is just a guestimate by me)

https://www.covisum.com/knowledge-ba...ty-bend-points

mrken30

This is the first I had heard of this, 30 years SS means WEP=0. This this mentioned in the link. If not do you have a reference or can you confirmed this now?

I am hoping this is correct

durham_lad

SSA website.

https://www.ssa.gov/benefits/retirem...anner/wep.html

durham_lad

Here is a table from SSA that clearly shows the max WEP deduction against years of SS contributions and how it reduces to $0 with 30 years contributions.

https://www.ssa.gov/benefits/retirem...anner/wep.html

Streetlegal

Thanks DurhamLad
Ed

Streetlegal

BTW, thanks to this forum, I set up a Roth IRA earlier this week. It was very easy. I'll monitor how it does and then put the full year's allowance in (7k for me). I went for a slightly riskier trade, but thought I would try it out, particularly since I hope to retire in a few years. One thing that dawned on me: besides offering the advantage of ultimately tax-free distribution, it represents a second retirement fund.

One area that I will be probing with the company in due course is creating a Rollover IRA and its full implications--such as does it matter if money is transitioned into the Rollover from my 403b in one go versus in smaller distributions, whether it is better to rollover before retiring, the exact mechanism in which transfers are taxed by the IRA etc. If you have any general tips, I'm all ears.

Ed

durham_lad

Congratulations on starting a Roth.

You usually cannot roll money out of a 403b while you are still working for the money that is providing the 403b but it is well worth asking.

There are zero tax implications when rolling money from a 403b to a Rollover IRA, so you can do it all at once if you like. When I rolled my 401k over after retiring it was a bit of a hassle so was pleased to be able to only have to go through the exercise once. In my case the rules of the provider were that it had to be a physical check sent to my address on record. Vanguard were extremely helpful, they gave me the exact wording that the check should be made out to, then when I received it I went down to the FedEx office and overnighted it to them.

You only start paying taxes when converting an IRA to a Roth IRA and this is when you decide how much and how often to convert depending on how much tax you are prepared to pay. I always paid the tax owed on Roth conversions with money out of savings rather than out of the IRA which is another way of squeezing money into a Roth. I’ve done 10 Roth conversions now since retiring and next year will be the last one so my retirement savings will be 100% tax free and won’t be taxed at 40% when normal IRA rules require distributions in my 70’s.

GOALFIRE

Well played sir, well played.

durham_lad

Thank you.

I use tax software to file each year and as the end of the year approaches I figure my taxes, then put in a theoretical sum for a conversion and see how much of it gets taxed. I then usually do a Roth conversion in November or December. The conversion is usually taxed by about 15%, the tax rates in the USA are really low at present.

I learned all about Roth conversions from forums like this so am thankful to many anonymous folks who share their successes and failures with others.