From the Virginia Society of Certified Public Accountants - Presented by Dean Knepper, CPA, CFP®


(May 1, 2007) -- It’s becoming a well-established trend: more and more retirees are working and, according to the media, many soon-to-retire baby boomers plan to do the same. Working during retirement can bring financial, physical, and psychological benefits, say experts. It can also bring tax-related implications. Here’s what the Virginia Society of CPAs says you need to know if you are, or plan to be, a working retiree.

Impact on tax bracket

One of the most obvious implications of paid employment during retirement is that when you combine your post-retirement employment earnings with Social Security benefits and income from retirement plans and other sources, you may find yourself in the same — or maybe even higher — tax bracket than you were in before you retired.

Social Security benefits

Income from employment also increases the likelihood that your Social Security benefits may be taxed. To get a better idea of whether your benefits may be affected, add up one half of your Social Security payments plus your income from all other sources (pensions, investments, etc.), including tax-exempt interest, such as interest from municipal bonds.

If you are filing as single and the total amount is less than $25,000 ($32,000 for married taxpayers filing jointly), your Social Security benefits are not taxed. If the total falls between $25,000 and $34,000 ($32,000 to $44,000 for joint filers), expect to see up to 50 percent of your Social Security subject to income taxes. For single filers with income over $34,000 and joint filers with income over $44,000, up to 85 percent of Social Security benefits may be taxable.

Although not tax-related, working retirees should also take into account the impact working may have on their actual Social Security benefits. Under current law, you can work and still collect benefits, but your benefits may be reduced if you are receiving early Social Security benefits and you earn over a certain amount at your job. For 2007, those retirees who begin collecting Social Security before their normal retirement age (which is gradually increasing from 65 to 67) lose $1 in benefits for every $2 they earn in wages above $12,960.

Once you reach your full retirement age, you may collect your full Social Security benefits regardless of how much you earn from employment.

Required minimum distributions

Older retirees who are still working should also be aware of how the minimum distribution requirements (MDR) on Individual Retirement Accounts (IRAs) and qualified retirement plans, such as 401(k)s and Simplified Employee Pension plans (SEPs), may impact their tax situation.

Under current law, you must begin taking minimum withdrawals from your retirement plans no later than April 1 of the year following the year in which you turn age 70½, even if you are still working. When you add your required distribution to your wages and other income, it could push you into a higher tax bracket and also may impact the taxation of your Social Security benefits.

An exception to the minimum distribution rule applies to the retirement plan of your current employer. If you continue to work beyond age 70½, and do not own more than 5 percent of the business you work for, you may defer taking distributions from a retirement plan sponsored by your current employer until April 1 of the calendar year after the year in which you retire. Another exception applies to Roth IRAs. With a Roth IRA, there is no minimum distribution requirement at any age.

Consult with a CPA

To make the most of working during retirement, consult with a CPA. He or she can suggest strategies for optimizing your situation.


The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at


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