Jeopardy, Double Jeopardy and Double Taxation!

Bear with me while I tie a few things together…

The game show “Jeopardy” has been around since the 1960’s. It wasn’t until I was much older that I began to appreciate the show for what it is and what it isn’t. I am amazed at the amount of obscure trivia that the contestants knew and wonder where they find the time to consume and retain such tidbits of information. What is truly unique about the show is that the answers are given to you and you have to come up with the questions. When you do give your answer it must be given in the form of “What is…”

“Double Jeopardy” on the other hand is where the government created laws that eliminate the possibility of someone who committed a crime to be subject to a double trial and double conviction for the same crime.

Since I have given you a brief history and definition of Jeopardy and Double Jeopardy, I’d like to play a game in the format of Jeopardy.

And the Daily Double is… Income that is calculated by the IRS to determine whether or not recipients of Social Security are required to pay taxes on their benefits. This income is calculated by adding up a recipient’s gross income, tax-free interest, and 50% of Social Security benefits.

The answer is “What is Provisional Income”. Most likely you have never heard of this. Neither has your financial adviser. Simply put, during retirement all of your income from your IRA’s, pension, mutual funds, muni bonds and 1/2 of your Social Security are added up. If they total more than $44,000 for married couple, then 85% of your Social Security is taxable. How far will $44,000 take you during 1 year of retirement? Not very far.

By now you are probably saying to yourself, “Hey, I already paid the social security tax once, why am I getting dinged again with taxes?” That is a fair question, unfortunately the answer is there is no such thing as double jeopardy provision with taxes.

Fortunately there is an answer. Whether you make $100,000 per year or $1,000,000, it is possible to structure your financial life in such a way that during retirement 100% of your income is tax free and 100% of your Social Security is tax free. Put another way, you could have an income during retirement of $500,000 per year but not be taxed a single dime on it.

To get there you need to have all of your assets structured correctly. If this has piqued your interest stay tuned for additional posts to follow. If you don’t want to wait, contact me if you would like to further this conversation.