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What happens if you work after starting to take benefits?

What happens if you work after starting to take benefits?
(Dreamstime)

Q: I plan to work even after I take Social Security at age 70. Because I'll be claiming benefits, does that mean I won't have to pay into the Social Security system on my wages?

A: Sorry, but no. Even if you receive benefits, you'll have Social Security tax withheld from your wages. And up to 85 percent of your Social Security benefits will be taxable, too. The silver lining for older workers: The Social Security Administration keeps tabs on annual earnings even after people claim benefits.

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So if one of those later working years is among your highest 35 years of earnings, your monthly benefit will be adjusted upward.

Q: I take annual required minimum distributions from my three traditional IRAs, but I'm interested in converting two of the smaller accounts to Roth IRAs. I know I have to take my RMDs before converting any of the money. But because I have multiple IRAs, can I take the total RMD out of just one of those accounts and convert the other two?

A: Yes. The IRS essentially considers all traditional IRAs as one account. So even without the conversions involved, you could figure out your RMD for each account and take the total RMD from just one IRA. Once the total RMD for the year is out of your traditional IRAs, you can convert the remaining balance in any of the accounts to a Roth IRA.

Q: I have two traditional IRAs. One holds deductible contributions, and the other holds only nondeductible contributions. I'll be turning 70½ soon, so when I start taking required minimum distributions, should I withdraw from the IRA with the deductible contributions first, or the one holding the nondeductible contributions?

A: It doesn't matter which one you tap first, because all your traditional IRAs are considered to be one account. And whenever you hold both deductible and nondeductible IRA contributions, pro rata rules will come into play when you make any IRA withdrawal.

Under the pro rata rules, you calculate the ratio of your nondeductible contributions to your entire IRA account balance. That's the percentage of each withdrawal that can come out tax-free.

Say you have $20,000 of nondeductible contributions and your total IRA balance is $200,000. In that case, 10 percent of your withdrawal would be tax-free. Each time you make a withdrawal you will need to refigure the ratio.

Kimberly Lankford is a contributing editor to Kiplinger's Personal Finance magazine. Send your questions and comments to moneypower@kiplinger.com.

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