Module 7 Social Security Flashcards
Nathan Maxwell, formerly a vice president at his company, received his first annual $80,000 payment from his employer’s retirement program when he retired on January 1 of this year. He also started receiving his Social Security benefit when he reached his full retirement age (FRA) this year. He worked for the same company for his entire 40-year career, accumulating 160 quarters of coverage under Old Age, Survivors, and Disability Insurance (OASDI) rules. Which of the following statements describe his eligibility for OASDI benefits?
He is eligible for reduced Social Security retirement benefits because of his income this year.
He is eligible for the Basic Hospital Insurance Benefits Plan of Medicare because he is at least age 65 and has accumulated enough quarters of coverage for fully insured status.
He is eligible for a full, unreduced Social Security retirement benefit due to his age and insured status.
He is not eligible for the Basic Hospital Insurance Benefits Plan of Medicare this year because of his income level.
A)
I only
B)
III and IV only
C)
I and II only
D)
II and III only
II III
He started receiving his Social Security retirement benefit when he reached his FRA, so his Social Security benefits will not be reduced due to receiving them earlier than FRA. Everyone who is fully insured becomes eligible for Medicare at 65.
LO 7.2.1
Spousal retirement benefits can be claimed as early as age
A)
66.
B)
62.
C)
70.
D)
60.
62
This is referring to Social Security, and you can get that as early as 62 on yourself, so then same with spouse.
Spousal retirement benefits can begin as early as age 62, assuming that the worker spouse has filed to collect his own benefit. Survivor retirement benefits are available at age 60 and even age 50 if the surviving spouse is at least age 50 and disabled.
LO 7.2.1
Which of the following statements is correct regarding an ex-spouse receiving Social Security benefits?
A)
The benefit received by an ex-spouse is included to determine if the family maximum has been reached.
B)
An unmarried former spouse of a worker is eligible for Social Security benefits based on the worker’s Social Security benefits if their marriage lasted at least 10 years and both of the former spouses are at least age 62.
C)
The ex-spouse can only begin receiving Social Security benefits if the worker has filed for benefits.
D)
The ex-spouse cannot receive Social Security benefits under any circumstances.
B
If a retired spouse qualifies for Social Security benefits, an unmarried former spouse will qualify for spousal benefits if the marriage lasted for at least 10 years and both former spouses are at least age 62. As long as both the ex-spouse and the worker are at least age 62, the ex-spouse can begin receiving benefits regardless of whether or not the worker has filed for benefits. The benefit received by an ex-spouse is not included in calculation of family maximum.
LO 7.2.1
Tammy doesn’t begin her Social Security benefit at FRA (age 67), instead opting to delay while collecting delayed retirement credits. When she reaches age 69, however, she encounters financial difficulty and must file for her benefits. How much will her payment have increased?
A)
24%
B)
5.5%
C)
8%
D)
16%
D
8% per year after FRA
8/12 % per month after FRA month
Tammy will receive two years of delayed retirement credits. Each year she will accrue an 8% payment increase, for a total of a 16% increase.
LO 7.2.1
All of these workers are covered under the Social Security system except
A)
an independent contractor.
B)
a minister.
C)
certain federal civil service workers hired prior to 1984.
D)
a self-employed individual.
C
The only one of the listed workers not covered under Social Security are certain federal civil service workers hired prior to 1984. The Civil Service Retirement Plan covers these workers. These pre-1984 federal government workers must stay continuously employed by the federal government. If a federal government worker hired before 1984 leaves and is subsequently rehired after 1984, he would be in Social Security from the rehire date onward.
LO 7.1.1
Tyrese will turn 67, his full retirement age (FRA), on August 2nd of this year and begin drawing $2,300 per month in Social Security benefits. He earns $5,250 per month and plans to continue working as long as he is able. He has asked his advisor about the reduction in Social Security since his older brother told him his benefit will be reduced if he continues working. Does a benefit reduction apply to him? If so, how does it apply?
A)
No. There is no benefit reduction for those who continue to work after attaining full retirement age (FRA).
B)
No. His benefit will not be reduced because his earnings are below the threshold.
C)
Yes. His benefit will be reduced. His income for the year will be $63,000, or $3,480 more than the $59,520 (2024) reduction threshold.
D)
Yes. His benefit will be reduced $1 for every $2 he earns over $22,320 (in 2024).
A
His income during the year before his attainment of FRA is irrelevant in this case because he had no Social Security income until he reached his FRA. There is no reduction for earnings after attaining FRA.
LO 7.2.1
Which of these individuals would be immediately eligible for Social Security retirement benefits? Assume each has held the same position for at least 10 years.
A 66-year-old owner/employee of a professional corporation
A 60-year-old officer/employee of an S corporation
A 67-year-old federal government employee who was hired in 1983
A 67-year-old self-employed consultant who works as an independent contractor
A)
I and II
B)
I and IV
C)
III and IV
D)
IV and II
I IV
Look at the ages. That brings you to I III IV. Now remember, if you were hired as a federal employee before 1984, you’re not covered under OASDI, you’re covered under CSRS (GPT)
Option I is correct because this is a covered occupation and the person is at least 62. Thus, benefits would be received because they are fully insured—i.e., has worked more than 40 quarters and meets the minimum age requirement. Option IV is a covered occupation, and a person over age 62 is eligible for benefits because they are fully insured.
Option II is wrong even though they work in a covered occupation. The problem is that they are only 60 and 62 is the earliest benefit age for a worker to receive Social Security benefits. Option III is incorrect since although this person is normal retirement age, federal workers hired before 1984 are not covered by OASDI (Social Security).
LO 7.2.1
How are Social Security benefits funded?
A)
Liability is calculated, and FICA taxes are assessed as if Social Security were a defined benefit plan.
B)
Special taxes are collected from workers and used to pay benefits to those workers who are retired.
C)
Benefits are paid by income taxes, which are increased to offset shortfalls.
D)
Special taxes are collected and deposited to a trust fund that is only allowed to disburse the benefits.
B
Social Security and FICA taxes are withheld by the employer. The total is 15.3% of payroll; the employer pays 7.65% and the employee pays 7.65%. While payroll taxes go into the Social Security Trust Fund, excess funds are “loaned” to the government for other government spending. Other than IOUs from the government, the trust fund doesn’t have assets. Benefits are not paid by income taxes. They are paid from a general account funded by payroll deductions and employer matching.
LO 7.1.1
Gary was born in 1960. His plan is to start Social Security retirement benefits when he reaches his full retirement age (FRA). His wife, Lisa, is exactly four years younger. She has earned 36 credits so far and has retired to take care of Gary’s mother, who requires an abundance of assistance. She has no plans to return to the labor force. Their plan is for her to start receiving Social Security benefits when Gary files for his benefits. If Gary’s full benefit is $2,000, what will Lisa’s spousal retirement benefit be?
A)
$1,000
B)
$700
C)
$750
D)
$666
B
The first thing to do is to determine Lisa’s FRA. She is four years younger than Gary, so she was born in 1964. FRA for someone born in 1960 or later is 67. She is entitled to 50% of Gary’s full benefit amount as her full spousal benefit at her FRA. By filing early, Lisa will receive a reduced benefit. If she files at age 63, she will be 4 years early. This is 48 months early. The reduction for the first 36 months is 25/36 of 1%, which equates to a 25% reduction. The remaining 12 months are reduced by 5/12 of 1% per month. This is an additional 5% (12 × 5/12% = 5%). Thus, the total reduction will be 30% for starting at age 63 (48 months early). So, her reduction will be 30% of Lisa’s spousal benefit of $1,000. $1,000 × 0.30 = $300. Thus her final spousal benefit for starting at 63 will be $700 ($1,000 ‒ $300).
LO 7.2.1
If provisional income exceeds the thresholds given, then a maximum of ___________ of Social Security benefits are subject to taxation.
A)
50%
B)
20%
C)
85%
D)
37%
c
If provisional income exceeds the stated threshold, a maximum of 85% of the excess amount is taxable as ordinary income.
LO 7.2.2
Which one of the following is a CORRECT statement about the amount of Social Security retirement benefits available when a fully insured worker’s retirement benefit begins at full retirement age (FRA)?
A)
The worker will receive 80% of his or her primary insurance amount (PIA).
B)
A 63-year-old spouse of the retired worker will receive 50% of the worker’s PIA.
C)
If the full retirement age (FRA) spouse also is entitled to benefits on his or her earning record, the ultimate benefit is the lesser of 100% of the spouse’s own PIA or 50% of the worker’s PIA.
D)
At their own FRA, the worker’s spouse will receive 50% of the worker’s primary insurance amount (PIA).
D
The spouse, at his or her FRA, will receive 50% of the worker’s PIA unless the spouse’s Social Security benefit is HIGHER based on his or her own earnings. At full retirement age the worker will receive 100% of his or her PIA and the worker who retires at prior to their FRA would receive a reduced benefit based on how many months early the Social Security retirement benefits were started. The reduction for workers is 5/9 of 1% for each of the first 36 months and 5/12 of 1% for each month in excess of 36 months prior to FRA. The spousal benefit would be less than 50% for a spouse who is not at FRA when spousal retirement benefits started. The 50% of PIA is reduced by 25/36 of 1% for each of the first 36 months (plus 5/12 of 1% for each month in excess of 36 months prior to FRA) the spouse is under FRA when benefits begin. A spouse who is at FRA and entitled to benefits on their own record would receive the higher of 100% of their own PIA or 50% of their spouse’s PIA.
LO 7.1.1
Which one of these individuals will be eligible for Medicare coverage?
A)
A 62-year-old federal government employee who was hired in 1999
B)
A 65-year-old trust fund recipient who has always received only dividend income from the trust
C)
A 68-year-old farmer
D)
A 55-year-old corporate director, in the capacity of director
c
The farmer is in a covered occupation and is over age 65. Thus, he or she would receive benefits if fully insured. The 55-year-old and 62-year-old individuals are in covered occupations, but they must be age 65 to be eligible for Medicare benefits. The trust fund recipient is age 65, but he or she is not in a covered occupation for Social Security purposes.
LO 7.2.1
Which of the following workers must have Social Security and Medicare taxes withheld from their earnings?
A household worker, unrelated to the employer and age 25, who is paid $10,000
An agricultural worker who paid in excess of a specified threshold
A)
Both I and II
B)
II only
C)
I only
D)
Neither I nor II
both, stupidly
Ann has reached her full retirement age (FRA) of 67. She can elect to receive $1,000 now or delay receipt by two years. She expects to live until age 90. Ignoring all other factors, when should she begin her benefits to receive the highest amount?
A)
Two years from now
B)
Not enough information to determine
C)
She should have started earlier
D)
Now, at FRA
By delaying two years, her benefit will increase 16%, to $1,160.
Forfeiting: $1,000 × 24 months = $24,000
Gaining: $160/month
$24,000 ÷ $160 = 150 months or 12.5 years
Ann would need to live until 79½ to “break even.” Because she is expecting to live until age 90, she should opt to delay receipt of benefits. Expecting to life longer would make starting earlier a poor choice.
LO 7.2.1
George Adams, a single recipient of Social Security retirement benefits, is calculating the taxability of his $20,000 Social Security benefit. Which of the following sources of income will George need to include to determine whether or not part of his benefit is taxable?
Rental income
Pension income
Tax-free interest income from a municipal bond
Roth IRA withdrawals. He started contributing when he was 50.
A)
I, II, and III
B)
I, II, III, and IV
C)
II and III
D)
I and II
I II III
Literally all income is taxable when determining PIA I’m fairly certain. The only thing I can think of that’s not is Roth IRA withdrawals, because of that textbook “ALWAYS AND WITHOUT EXCEPTION TAX FREE AND PENALTY FREE”. Don’t quote past Alex on that though, words may vary.
All of the sources of income that are listed are used to determine whether or not part of the Social Security benefit is taxed except for the Roth IRA distributions. George’s age is not given, but he is at least 62 or he could not be receiving Social Security retirement benefits. Thus, he is older than 59½ and he has had a Roth IRA for over five years, so none of his Roth IRA withdrawals will be subject to income tax and they will not be considered when determining how his Social Security benefits will be taxed. Muni bond interest might make Social Security benefits more taxable, but qualified Roth distributions or Roth withdrawals of contributions and conversions would not increase the provisional income and thus possibly cause higher taxation on Social Security benefits.
LO 7.2.2
Bob and Helen Jones just won the lottery. The benefit this year will be $50,000, and it will increase over the next 19 years. Bob’s monthly Social Security benefit is $1,800; Helen’s monthly Social Security benefit is $1,200. Bob is age 68, and Helen is age 69. Which one of these is a CORRECT statement about Bob and Helen’s old-age Social Security benefits?
A)
Up to 85% of their Social Security benefit must be included in gross income.
B)
Because they are both past Social Security’s full retirement age, the lottery benefit will not reduce the Social Security benefit or increase the taxes on it.
C)
Their lottery winning will be reduced because of their Social Security benefits.
D)
Their benefit will be reduced by $1 for every $2 that the lottery winnings exceed this year’s limit in outside earnings.
A
Because Bob and Helen are married, filing jointly, and their gross income exceeds the base amount of $44,000, then up to 85% of their Social Security benefit must be included in gross income, regardless of age. Because Bob and Helen are over Social Security’s full retirement age, the Social Security benefit would not be reduced because of additional earned income. Lottery winnings are not earned income, but they are taxable income. With $50,000 per year of income, they are over the $44,000 limit even before including half their Social Security, so up to 85% of their Social Security benefits will be subject to income taxes.
LO 7.2.2
Which of these is(are) CORRECT regarding the Government Pension Offset (GPO) provision related to Social Security benefits?
The GPO may apply to Social Security benefits for spouses, widows, or widowers if someone receives a pension from a federal, state, or local government based on compensation on which Social Security taxes were not paid.
If applicable, the GPO provision reduces the spouse, widow, or widower’s benefit by 50% of the government pension.
A)
Both of these
B)
None of these
C)
I only
D)
II only
I
Statement II is incorrect. The Social Security benefit is reduced by two-thirds of the government pension.
LO 7.2.2
Which of the following individuals would be eligible for Social Security retirement benefits? Assume each has held the same position for 11 years.
a 65-year-old owner-employee of a professional corporation
a 60-year-old officer-employee of an S corporation
a 65-year-old federal government employee who was hired in 1983
a 67-year-old self-employed consultant who works as an independent contractor
A)
I and II
B)
II and III
C)
I and IV
D)
II, III, and IV
I IV
The owner-employee of a professional corporation is in a covered occupation, and the person is at least 62. Thus, benefits would be received because the individual is fully insured (i.e., has worked more than 40 quarters). The self-employed consultant is also in a covered occupation, and a person over age 62 is eligible for benefits because the person is fully insured. In option II, the 60-year-old is not yet old enough to receive benefits. With option III, individuals who started work for the federal government before 1984 are not covered under their federal employment.
LO 7.1.1
Which of these correctly describe the earnings limitation on Social Security benefits?
Retirement or survivor benefits may be reduced $1 for every $2 earned over the specified limit by recipients who are age 62 through the year just prior to the year they attain full retirement age (FRA).
Retirement or survivor benefits may be reduced $1 for every $3 earned over the specified limit by recipients who are at FRA.
Recipients who have attained their FRA may earn any amount without any reduction in their Social Security benefits.
One-half of unearned (investment) income may be considered in the reduction of Social Security benefits.
A)
II and IV
B)
I, II, and III
C)
I only
D)
I and III
d
Before FRA, $1 reduced for every $2 earned over the specified limits (like 20k range). And if you make it to FRA and take SS, you’re golden and can do both.
The impact working has on Social Security benefits can be thought of as three different time frames. First, between age 62 and December of the year prior to the person reaching their FRA has a $1 benefit reduction for every $2 over an annual threshold. The second time frame is from January 1st of the year the person will reach their FRA until the month they will reach their FRA. During this time frame, there is a $1 reduction in Social Security benefits for every $3 of pay over a much higher annual threshold. The third period starts the month the person reaches their FRA. Once someone gets to the month they will reach the FRA, compensation no longer will reduce their monthly Social Security benefit. In other words, Congress decided that those still working after their FRA should not have any reduction to their benefits due to their continuing to work. Next, there are two issues that planners need to differentiate. We have been discussing the reduction in the monthly Social Security benefit due to someone continuing to work after they start receiving their Social Security benefit. The second issue is how the receipt of Social Security benefits will be income taxed. That is a different issue from the reduction of the current benefits for people continuing to work after they start receiving Social Security benefits. Finally, investment income is not considered in determining the earnings reduction.
LO 7.2.1
Stanley received $55,000 in taxable pension plan and IRA benefits. His adjusted gross income (AGI) is $60,000 before considering his Social Security benefits. His Social Security benefit is $25,000 annually. What percentage of his Social Security benefit will be taxable?
A)
50%
B)
85%
C)
30%
D)
0%
B
Learn the thresholds for SS income taxation stuff.
Because Stanley’s modified adjusted gross income (MAGI) of $72,500 (AGI of $60,000 + 50% of his Social Security income [$12,500]) exceeds the second threshold amount for a single taxpayer by an amount greater than his Social Security benefit, up to 85% of his Social Security benefits will be taxable.
LO 7.2.2
Beulah Tibbs, age 57, has been receiving Social Security disability benefits for three years. Which one of the following is a correct statement regarding her eligibility for Medicare?
A)
Beulah is currently eligible for Part A and Part B Medicare coverage.
B)
Beulah will first be eligible for full Medicare coverage at age 62.
C)
Beulah is currently eligible for Medicare Part A coverage and can apply for Part B coverage at age 65.
D)
Beulah will first be eligible for full Medicare coverage at age 65.
A
Two years after SS Disability, you can get on Medicare.
People who are receiving Social Security disability become eligible for Medicare two years after they are entitled to Social Security disability. Most other people become eligible for Medicare at age 65.
LO 7.2.1
An individual’s Social Security payment amount will be adjusted annually to account for increases in inflation as measured by
A)
the PPI.
B)
the COLA.
C)
the CPI.
D)
the GDP.
CPI
An individual’s Social Security payment amount will be adjusted annually to account for increases in inflation as measured by the consumer price index, or CPI.
LO 7.2.1
What is the maximum Social Security pension offset amount for a worker subject to the windfall elimination provision (WEP)?
A)
0%
B)
50%
C)
100%
D)
75%
B
The maximum offset amount for the worker is 50%. There is no offset allowed for survivors.
LO 7.2.2
This year, your 63-year-old client had $20,000 of earned income and $30,000 of investment income. He was also drawing Social Security benefits. Which one of the following correctly describes the impact on his Social Security benefits?
A)
There is no reduction to his benefits.
B)
He loses $1 of benefits for every $1 above the allowable limit.
C)
He loses $1 of benefits for every $3 above the allowable limit.
D)
He loses $1 of benefits for every $2 above the allowable limit.
A
The client’s earnings (earned income) are below the allowable limit for the current year ($22,320 for 2024). According to the work penalty rule, only earned income is counted toward the allowable limit.
LO 7.2.1
Which of the following statements is correct regarding Social Security survivor benefits?
A)
A widow(er) and children of a deceased worker may be eligible for Social Security survivor benefits only if the worker was fully insured.
B)
Children of a deceased worker may be eligible for Social Security survivor benefits if the worker was either fully or currently insured.
C)
A 40-year-old widow(er) would receive 100% of a deceased worker’s primary insurance amount (PIA) while the surviving spouse has children under the age of 18.
D)
The Social Security benefit paid to a widow(er) and children of a deceased worker would not be subject to the family maximum.
B
The worker can be either fully or currently insured in order for the surviving spouse and children to receive Social Security survivor benefits. The benefit for a widow(er) caring for children under age 16 would be 75% of the deceased worker’s PIA and it would be subject to the family maximum. The family maximum also covers the Social Security benefits paid to the children of the deceased.
LO 7.2.1
A reduced Social Security retirement benefit is available for all retirees as early as which age?
A)
60
B)
59½
C)
62
D)
65
62
Carl is going to reach full retirement age (FRA) later this year. He has begun Social Security benefits but is still working. His Social Security benefits will
A)
be reduced $1 for every $2 earned above the earnings cap.
B)
be taxed solely due to his employment.
C)
be reduced $1 for every $3 earned above the earnings cap.
D)
not be impacted, because he is going to reach FRA in the current year.
C
Compensation for work received in the year you obtain FRA will be reduced $1 for every $3 earned above the earnings cap until the first of the month in which you will obtain your FRA.
LO 7.2.1
