Could an IRA contribution keep me under the earnings limit?

Q: After reading the article on reducing your gross income by putting money into a IRA I have a question. Would someone that is collecting early Social Security  retierment benefits with income restrictions be able to reduce their income by contributing to an IRA as to not be penalized for going over the income level  in that year? Is it legal, so to speak?

A: A deductible IRA reduces your adjusted gross income. However, Social Security has an EARNINGS limit, not an INCOME limit. If you are younger than regular retirement age, your benefit is reduced $1 for each $2 you earn above the limit ($13,560 in 2008). Only your W-2 income or net income from self employment is considered in determining whether you have exceeded the earnings limit. If you work for someone else, your gross income from work is the determining factor, before any deductions. If you are self-employed, contributions to a retirement plan may be legitimate business expenses that reduce your net self employment income.

Note: Any benefits you miss out on because of the earnings limit are not lost forever. They actually boost your future benefits.

Comments

[Helen Huntley]

Hi TJ-I'm not sure why you are asking about a calculator. Social Security sends you a personalized statement every year showing what your benefits would be at various ages, including 62. You can just compare that number to your income.
The Social Security Web site (www.ssa.gov) has a calculator to figure out your benefit, but you need each year's earnings to do that and they are right on the statement that figures it out for you.
Helen

[tj]

Are there online calculators that allow people to put in their gross pay at age 62, and compare it to what they would have coming in if they were to instead take early SS payments instead of working full time?