Ask the Expert: Questions about RMDs, Social Security benefits
If someone takes dividends as taxable income from a traditional IRA, does the amount they receive count toward their RMD?
Yes. The entire distribution counts toward your required minimum distribution, regardless of its tax treatment.
The taxation of distributions depends on how your individual retirement account contributions were taxed. If your contributions were pretax — i.e., they reduced your taxable income in the year you made them — then 100% of each distribution is taxed as ordinary income. If you also made after-tax IRA contributions, a pro rata part of each distribution is tax-free. If after-tax contributions represent 10% of your IRA balance, for example, then 10% of each distribution is tax-free.
I started collecting Social Security in 2012, then returned to work in 2021. To date, there’s been no increase in my Social Security benefit. When should Social Security make adjustments to reflect the new contributions to my account?
The Social Security Administration recalculates your benefit every year as long as you continue working. But new contributions won’t necessarily result in an adjustment.
Here’s why: Your Social Security benefit is determined by a formula that crunches 35 years of your work history. If you have only 10 years of earned income, that calculation includes 25 years of zero dollars. If you have more than 35 years of earnings, it counts the 35 years of highest earnings.
The recalculation only boosts your benefit if this year’s earnings replace an earlier year of lower earnings or zero earnings in your 35-year work history.
If you’re entitled to an increase based on the 2023 benefit recalculation, it won’t show up in your monthly check until December 2024; but it will be retroactive to January 2024.
Working in retirement may or may not boost your Social Security benefit depending on your earnings history.
If someone takes dividends as taxable income from a traditional IRA, does the amount they receive count toward their RMD?
Yes. The entire distribution counts toward your required minimum distribution, regardless of its tax treatment.
The taxation of distributions depends on how your individual retirement account contributions were taxed. If your contributions were pretax — i.e., they reduced your taxable income in the year you made them — then 100% of each distribution is taxed as ordinary income. If you also made after-tax IRA contributions, a pro rata part of each distribution is tax-free. If after-tax contributions represent 10% of your IRA balance, for example, then 10% of each distribution is tax-free.
I started collecting Social Security in 2012, then returned to work in 2021. To date, there’s been no increase in my Social Security benefit. When should Social Security make adjustments to reflect the new contributions to my account?
The Social Security Administration recalculates your benefit every year as long as you continue working. But new contributions won’t necessarily result in an adjustment.
Here’s why: Your Social Security benefit is determined by a formula that crunches 35 years of your work history. If you have only 10 years of earned income, that calculation includes 25 years of zero dollars. If you have more than 35 years of earnings, it counts the 35 years of highest earnings.
The recalculation only boosts your benefit if this year’s earnings replace an earlier year of lower earnings or zero earnings in your 35-year work history.
If you’re entitled to an increase based on the 2023 benefit recalculation, it won’t show up in your monthly check until December 2024; but it will be retroactive to January 2024.
The bottom line
Working in retirement may or may not boost your Social Security benefit depending on your earnings history.
More information
Westbury ICE protest ... Huntington Pride parade ... Freeport's Taylor builds basketball fan base ... Get the latest news and more great videos at NewsdayTV
