Tax policy: what do you think of exempting retired seniors' income under, say, $90,000?

[Matryoshka]

I don't believe her situation is unusual. In the assisted living facility MIL lives are many other residents who have similar memory problems. I can't think of any of them who could collect their forms and deliver them to a tax preparer. I think seniors living on their own handling everyday issues (like dr appts, food prep, bill paying, etc) could struggle even more.

 

This.  Dh started doing MIL's taxes and having all her mail delivered to a PO box he picked up because for a few years in a row she threw out all her tax forms - she didn't realize what they were.  He had to make a ton of phone calls to get duplicates sent out.  She was spending too much time reading the junk mail she got to donate money to the lost kittens and the political candidates that would save her from the scary things.

 

She lived alone and did not have Alzheimer's.  I think a lot of people as they get older get confused about these things (that they had no trouble with when they were younger) - that's why seniors are constantly being targeted by scam artists.

[SKL]

A question: if you move from job to job, is there no way of consolidating company pensions?  In the UK, you can get a quotation from your new employer for taking on your old pension, then it's up to you whether you accept the quotation, leave the pension with the old employer, or transfer it into a private pension that you manage yourself.  When I last moved job, the transfer value did not make sense, so I set up a private pension, transferred it in, and can add to it/transfer in future pensions at will.  That means that I shouldn't have too many disparate sources of income in old age.

 

I am also currently negotiating to have my French state pension (I worked in France for two years) added to my UK one, again to simplify payments.

 

I'm not aware of this option being available in the US, though it is an interesting idea.  I've been out of the corporate world for about a decade, so things might have changed.

 

I think most people just leave their pensions / 401Ks with their employers as they move, unless something triggers them to roll it into a private IRA.  I don't know if people would roll multiple ones into the same IRA.  Each one has to be tracked for the proportion of pre-tax money vs. after-tax money paid in.  I guess if you had 100% pre-tax, you might do that.  The people I work with are not sophisticated enough to learn and weigh all the possible options; they just want it to be simple and to not cost them a ton.

Edited March 29, 2016 by SKL

[Matryoshka]

Tax software is cheaper and easy to use.

 

LOL.  I know my MIL could barely figure out how to turn a computer on - no less install and correctly use software.  But then she would still have had to have collected the correct forms, and she kept accidentally losing them or throwing them out.

[SKL]

Tax software is cheaper and easy to use.

 

 

Tax software asks questions that are hard to answer.  Example:  for each 1099-R, besides entering all the given numbers, about a dozen more questions are asked, including:  "how much of this distribution was RMD?"  And the answer to that is nowhere on any form.

[QueenCat]

No, just ordinary retirement investments, mortgage deductions, etc. I suppose we COULD do it, if we wanted to devote hours upon hours to the project.

 

Using tax software, it takes me about three hours, including compiling all the documents needed and having dh double check them. He double checks them because his name is on them too, not because he doubts me......... I think he's found one error in the past few years. We do itemize and have investments, a mortgage, etc.......... it's really not hard with decent software and doesn't take that long. I do prefer paying for better software (usually around $35-40) instead of using the free stuff that's available but it's still cheaper than a cpa!

[QueenCat]

Well, making a policy for elderly people *is* for everyone, excluding those who will die before they reach that age.

 

I understand the argument that they should just hire a CPA - and if so, let's at least give them a tax credit for doing that - but that assumes they have the ability to gather everything up and get to the CPA's office (or s/he will come to their house), and it also ignores the fact that some things need to be done at other times of the year.  Some things need to be done prior to the end of a tax year or prior to taking a distribution.  It's not as simple as just showing up on the CPA's doorstep each April.

 

I think that many of us don't consider a 65 year old elderly..........

[LucyStoner]

No, just ordinary retirement investments, mortgage deductions, etc. I suppose we COULD do it, if we wanted to devote hours upon hours to the project.

There is software you can use. For a tax return with itemized deduction, retirement and some investment income it doesn't take hours. Much less hours upon hours. I do a lot of tax returns. The secret is it's probably not taking your CPA hours either. He or she is having an office employee do the data entry and then he or she is checking it for accuracy.

[SKL]

OK, well again, let's see how you feel about your taxes when you are 75 or 85.

 

I didn't say they should get a free ride, I just think that most of them (middle-class / modest earners) should get it settled before or at retirement so they can be done with it.

Edited March 29, 2016 by SKL

[QueenCat]

LOL.  I know my MIL could barely figure out how to turn a computer on - no less install and correctly use software.  But then she would still have had to have collected the correct forms, and she kept accidentally losing them or throwing them out.

 

I was responding to someone whom I'm pretty sure isn't elderly's need to use a cpa. She mentioned relatively simple tax things that are addressed with decent software.

[Valley Girl]

Tax software asks questions that are hard to answer.  Example:  for each 1099-R, besides entering all the given numbers, about a dozen more questions are asked, including:  "how much of this distribution was RMD?"  And the answer to that is nowhere on any form.

 

The questions aren't just difficult for the elderly (speaking for myself, of course). As other posters have said, tax simplification is needed across the board for everyone--not just older people.

[SKL]

I think it would also be helpful for the executors of decedents' estates, who have to file tax returns after the person has died.

[QueenCat]

Tax software asks questions that are hard to answer.  Example:  for each 1099-R, besides entering all the given numbers, about a dozen more questions are asked, including:  "how much of this distribution was RMD?"  And the answer to that is nowhere on any form.

 

I haven't encountered a question when addressing investment distributions that I couldn't handle from the forms....... maybe I will but it hasn't happened yet.

[LucyStoner]

Well, making a policy for elderly people *is* for everyone, excluding those who will die before they reach that age.

 

I understand the argument that they should just hire a CPA - and if so, let's at least give them a tax credit for doing that - but that assumes they have the ability to gather everything up and get to the CPA's office (or s/he will come to their house), and it also ignores the fact that some things need to be done at other times of the year. Some things need to be done prior to the end of a tax year or prior to taking a distribution. It's not as simple as just showing up on the CPA's doorstep each April.

Everyone who itemizes already gets to deduct the cost paid to prepare their taxes. Everyone taking the standard deduction, well such costs are included in the amount of their standard deduction. The standard deduction saves many people quite a lot of hassle since you don't have to keep records, it's likely a higher deduction for people without large mortgages or other big deductible items and it lowers audit risk a bit.

 

Many seniors do not reach the filing threshold.

 

There are still CPAs that come to you or will send an emoloyee to you if needed.

 

There are also AARP and United Way free tax prep services in many areas.

Edited March 29, 2016 by LucyStoner

[SKL]

They dont need all their paperwork anyway. Tax software can link to that if they allow it.

 

Well this is another thing.  Some people are really anxious as they get older.  One thing they get anxious about is their personal data traveling over the internet.  (Maybe they are the smart ones, I don't know.)  Personally, I would worry that not all the information was going to be captured using those import features.  And if something is missed, it is the filer's problem.

 

[ErinE]

Tax software asks questions that are hard to answer.  Example:  for each 1099-R, besides entering all the given numbers, about a dozen more questions are asked, including:  "how much of this distribution was RMD?"  And the answer to that is nowhere on any form.

 

You couldn't locate RMD on the help section for the tax software? The IRS? 

 

Let me google it for you (IRS RMD): https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=IRS+RMD

 

RMD - Required Minimum Distribution, IRS provided table outlining the age-based minimum distribution required from tax deferred accounts.

 

Older people, in general, have more assets. The more assets, in general, the more complicated the tax bill. A 70-year old making a required minimum distribution of $60,000 has over $1 MM in a tax-deferred account (70-year old RMD of 17 * $60,000). That's someone who's in the top quintile of wealth, even if they are in poor health. I don't think an elderly person with an income of $60,000 a year should get a deferral from paying income taxes, no matter how complicated the tax code. Your points are arguments for simplifying the tax code, not increasing the complexity by granting age-deferrals.

[SKL]

I haven't encountered a question when addressing investment distributions that I couldn't handle from the forms....... maybe I will but it hasn't happened yet.

 

It gets worse when you reach age 70.5.  That's when the government requires a minimum amount to be distributed each year.

 

[ErinE]

I'm not aware of this option being available in the US, though it is an interesting idea.  I've been out of the corporate world for about a decade, so things might have changed.

 

I think most people just leave their pensions / 401Ks with their employers as they move, unless something triggers them to roll it into a private IRA.  I don't know if people would roll multiple ones into the same IRA.  Each one has to be tracked for the proportion of pre-tax money vs. after-tax money paid in.  I guess if you had 100% pre-tax, you might do that.  The people I work with are not sophisticated enough to learn and weigh all the possible options; they just want it to be simple and to not cost them a ton.

 

You can combine multiple 401ks into a roll-over IRA. Both are based on before-tax funds so there's no mingling of post-tax and tax-deferred assets. DH and I have done it several times. I don't know any pre-retirement people who have a traditional defined-distribution pension, but I've known retirees who have taken lump-sum distributions from pension plans.

[ErinE]

It gets worse when you reach age 70.5.  That's when the government requires a minimum amount to be distributed each year.

 

 

This is to prevent people from using retirement accounts as a tax shelter, allowing assets to grow tax free for heirs.

Edited March 29, 2016 by ErinE

[ChocolateReignRemix]

No, I was not making a mistake, I was correcting another person who said social security receipts should be taxed like a traditional IRA because there is a tax deduction upon paying in, and because they are getting more than they paid in. The part about getting more than they paid in is like getting interest - OK, I could see the logic of getting taxed on that part that exceeds what you paid in, just like people are taxed on interest. I don't agree with the logic of taxing people on what they paid in when they were already taxed on that money.

 

But again, SS is a TAX. You are not being taxed on money you paid in when you get taxed on SS receipts - the money you paid was part of the pay-as-you-go system.

[LucyStoner]

Free help with filling out tax forms, by some organization that isn't also responsible for processing the taxes, would seem like a decent idea.

Free prep services are widely available for low, moderate income and most all seniors. Here they are sponsored by the United Way and the American Association of Retired Persons (AARP). There are other sponsors around the country.

 

These programs are approved by the IRS and all preparers recieve two days of standardized training which is from IRS materials and then take an exam, also set by the IRS. Most of the volunteers are retired accountants or accounting students.

 

The preparer reviews all the forms, walks the taxpayer through the process, prepares the return using software called Volunteer Income Tax Application (VITA) and then the return is checked against the documents by an experienced volunteer, usually one with professional accounting experience. The taxpayer has the option to efile for free or to get a copy to mail to the IRS. Everyone leaves with a summary and complete copy of their tax return for their records.

 

I have helped folks from age 18 until well into their retirement years at these services.

 

And for people who think this is a burden to get out there, while I understand there are mobility issues for some, the seniors I've met love it. They get to chat with people, the AARP ones often have snacks and we have a right good time.

 

SKL, perhaps if this is an issue that you are deeply concerned about you should take an afternoon a week during tax season and volunteer at the AARP program.

Edited March 29, 2016 by LucyStoner

[SKL]

You couldn't locate RMD on the help section for the tax software? The IRS? 

 

Let me google it for you (IRS RMD): https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=IRS+RMD

 

RMD - Required Minimum Distribution, IRS provided table outlining the age-based minimum distribution required from tax deferred accounts.

 

Older people, in general, have more assets. The more assets, in general, the more complicated the tax bill. A 70-year old making a required minimum distribution of $60,000 has over $1 MM in a tax-deferred account (70-year old RMD of 17 * $60,000). That's someone who's in the top quintile of wealth, even if they are in poor health. I don't think an elderly person with an income of $60,000 a year should get a deferral from paying income taxes, no matter how complicated the tax code. Your points are arguments for simplifying the tax code, not increasing the complexity by granting age-deferrals.

 

I know what RMD is, but how do you calculate the amount based on the 1099-R?

 

I don't know why you chose $60,000 RMD.  People take out money for reasons other than being required to.  Like if they need a repair so their house doesn't fall down on top of them.  My parents hadn't had their 100-year-old house painted since about 35 years ago, so they spent money on aluminum siding.  This year they will need a new roof.  Not everyone who is elderly lives in subsidized housing.  Not everyone who takes a distribution is rich.

[QueenCat]

It gets worse when you reach age 70.5.  That's when the government requires a minimum amount to be distributed each year.

 

 

True....

[ChocolateReignRemix]

What pension? Pensions were gone for private industry workers, replaced by 401k by the time I moved to my second job. That was good, as I have nothing from the first job....had to be there 5 years before vested, and of course few were able to stay that long. My sib followed his uncles into the military.. no pension, he was RIFfed after ten years.

 

I fail to see why the elderly need everything for free. Their SS, as we saw in the last recession, goes up while younger workers are getting a freeze or a layoff. They have a discount at many stores, low cost housing options, and many have more income available for nonnecessities after taxes than working families, especially now that families pay so much in health care deductible and premiums.

Pensions still exist in certain industries and certain companies.

[SKL]

You can combine multiple 401ks into a roll-over IRA. Both are based on before-tax funds so there's no mingling of post-tax and tax-deferred assets. DH and I have done it several times. I don't know any pre-retirement people who have a traditional defined-distribution pension, but I've known retirees who have taken lump-sum distributions from pension plans.

 

There are plans that include both pre-tax and after-tax income in the same pot.  Mine does.

[ChocolateReignRemix]

OK, well again, let's see how you feel about your taxes when you are 75 or 85.

 

I didn't say they should get a free ride, I just think that most of them (middle-class / modest earners) should get it settled before or at retirement so they can be done with it.

I currently help my mother and MIL with theirs. They don't have an issue with filing.

[SKL]

But again, SS is a TAX. You are not being taxed on money you paid in when you get taxed on SS receipts - the money you paid was part of the pay-as-you-go system.

 

OK so you agree with my point that treating it like a traditional IRA is not logical.  And we are now allowed to call SS what it really is, yippee.

 

Other benefits that are paid out of the US treasury from tax receipts are not generally taxed to the recipients of those benefits.

 

[ChocolateReignRemix]

OK so you agree with my point that treating it like a traditional IRA is not logical. And we are now allowed to call SS what it really is, yippee.

 

Other benefits that are paid out of the US treasury from tax receipts are not generally taxed to the recipients of those benefits.

 

I am calling it what it is - a tax that provides income for people over a certain age.

It is not an IRA.

It is not a pension (although effectively this is what it is closer to as far as how payments are determined).

It is not a savings account.

[ChocolateReignRemix]

OK so you agree with my point that treating it like a traditional IRA is not logical. And we are now allowed to call SS what it really is, yippee.

 

Other benefits that are paid out of the US treasury from tax receipts are not generally taxed to the recipients of those benefits.

 

Wages are paid out of the Treasury, and are taxed.

Pensions are paid out of the Treasury, and are taxed.

 

Both are forms of income, as is SS, and are taxed.

[ErinE]

I know what RMD is, but how do you calculate the amount based on the 1099-R?

 

I don't know why you chose $60,000 RMD.  People take out money for reasons other than being required to.  Like if they need a repair so their house doesn't fall down on top of them.  My parents hadn't had their 100-year-old house painted since about 35 years ago, so they spent money on aluminum siding.  This year they will need a new roof.  Not everyone who is elderly lives in subsidized housing.  Not everyone who takes a distribution is rich.

 

You changed your original OP from $150,000 to $90,000 tax free. I picked a number that was well within the revised OP but was still a healthy income level for most people in case the OP was revised down again.

 

Roof needs to be fixed, house requires new siding, major plumbing repair: these are normal, expected expenses for homeowners. I'm not certain how the age of the homeowner factors into these costs.

[ErinE]

There are plans that include both pre-tax and after-tax income in the same pot.  Mine does.

 

I'm not an expert, but from my understanding, you can convert a traditional or rollover IRA to a Roth IRA, but you pay taxes on the conversion amount therefore all the monies in the account become after-tax funds. I would be interested in learning more about a retirement account that allows co-mingling of pre-tax and post-tax funds. I've never heard of it and retirement planning is an interest of mine.

[LucyStoner]

You couldn't locate RMD on the help section for the tax software? The IRS?

 

Let me google it for you (IRS RMD): https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=IRS+RMD

 

RMD - Required Minimum Distribution, IRS provided table outlining the age-based minimum distribution required from tax deferred accounts.

 

Older people, in general, have more assets. The more assets, in general, the more complicated the tax bill. A 70-year old making a required minimum distribution of $60,000 has over $1 MM in a tax-deferred account (70-year old RMD of 17 * $60,000). That's someone who's in the top quintile of wealth, even if they are in poor health. I don't think an elderly person with an income of $60,000 a year should get a deferral from paying income taxes, no matter how complicated the tax code. Your points are arguments for simplifying the tax code, not increasing the complexity by granting age-deferrals.

.

 

Also in the tax software I use there is a little "what is this?" icon on next to

just about any question more complicated than "what is your name?" Clicking this takes me to the answer.

[Matryoshka]

Well this is another thing.  Some people are really anxious as they get older.  One thing they get anxious about is their personal data traveling over the internet.  (Maybe they are the smart ones, I don't know.)  Personally, I would worry that not all the information was going to be captured using those import features.  And if something is missed, it is the filer's problem.

 

Yes.  My mom still won't use a credit card on the internet because she doesn't feel like it's secure enough.  She calls me and makes me buy stuff for her and pays me back.  It is very annoying.

 

But of course she has accidentally downloaded email viruses that would have been obvious to me or dh that have required a complete reinstall of her computer.

[ChocolateReignRemix]

I'm not an expert, but from my understanding, you can convert a traditional or rollover IRA to a Roth IRA, but you pay taxes on the conversion amount therefore all the monies in the account become after-tax funds. I would be interested in learning more about a retirement account that allows co-mingling of pre-tax and post-tax funds. I've never heard of it and retirement planning is an interest of mine.

Same. An account that allows mingling of those funds doesn't even make sense.

[SKL]

You changed your original OP from $150,000 to $90,000 tax free. I picked a number that was well within the revised OP but was still a healthy income level for most people in case the OP was revised down again.

 

Roof needs to be fixed, house requires new siding, major plumbing repair: these are normal, expected expenses for homeowners. I'm not certain how the age of the homeowner factors into these costs.

 

The point is that these people are not rich and a change in the tax policy to remove their complicated annual filing requirement would not make a significant difference (if any) to the US treasury.  Most of the people I help end up owing nothing, yet they still have to go through a lot of trouble to prove it.

 

PS if you look at my OP, I did not say tax free.  I said we could make up any significant difference by changing the timing of taxation or by some other way.  I know people closer to the higher end of my range would be in a position to pay taxes, but there are better ways to administer that.

[ErinE]

I know what RMD is, but how do you calculate the amount based on the 1099-R?

 

I don't know why you chose $60,000 RMD.  People take out money for reasons other than being required to.  Like if they need a repair so their house doesn't fall down on top of them.  My parents hadn't had their 100-year-old house painted since about 35 years ago, so they spent money on aluminum siding.  This year they will need a new roof.  Not everyone who is elderly lives in subsidized housing.  Not everyone who takes a distribution is rich.

 

Also found this worksheet on the IRS website: 

 

https://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf

 

Take the December 31 balance, divide by the corresponding distribution period on the worksheet. That's the RMD.

[SKL]

.

 

Also in the tax software I use there is a little "what is this?" icon on next to

just about any question more complicated than "what is your name?" Clicking this takes me to the answer.

 

Sometimes you have to be online and have the ability to read tax mumbo jumbo, but yeah.  You can usually figure out what they are asking.  That doesn't mean the answer is easy to provide.

[SKL]

Same. An account that allows mingling of those funds doesn't even make sense.

 

But mine does.  Sensible or not.  My employer did that for its employees.

[ChocolateReignRemix]

Also found this worksheet on the IRS website:

 

https://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf

 

Take the December 31 balance, divide by the corresponding distribution period on the worksheet. That's the RMD.

I am not certain as to why a tax professional wouldn't know something so basic offhand.

[Jean too]

Everyone uses the services (roads etc...) provided by the collection of taxes and should therefore have skin in the game. I am all in favor of a flat tax (with absolutely no loopholes for anyone for any reason) for all adults with any income.

[ErinE]

The point is that these people are not rich and a change in the tax policy to remove their complicated annual filing requirement would not make a significant difference (if any) to the US treasury.  Most of the people I help end up owing nothing, yet they still have to go through a lot of trouble to prove it.

 

PS if you look at my OP, I did not say tax free.  I said we could make up any significant difference by changing the timing of taxation or by some other way.  I know people closer to the higher end of my range would be in a position to pay taxes, but there are better ways to administer that.

 

There are poor young and middle-aged people with multiple income streams that have complicated taxes, yet end up paying very little. Again, it's not an age-based problem.

[ErinE]

But mine does.  Sensible or not.  My employer did that for its employees.

 

Does the account have a name based on the statutory code, like SEP IRA, 401k or 403b? I'd be interested in learning more.

 

I only ask because it doesn't make sense from a tax code perspective. It makes tracking asset values for income tax purposes far more complicated.

[SKL]

Also found this worksheet on the IRS website: 

 

https://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf

 

Take the December 31 balance, divide by the corresponding distribution period on the worksheet. That's the RMD.

 

This means you have to have the year-end balance statement.  They don't all come in the mail, you have to go find for each plan, or know to call each administrator well in advance of year-end to make sure stuff is getting done right.

 

And most people don't even see this creeping up on them.  Do you think most people age 70 are calling all their plan administrators to make sure they are getting their RMD?  This is just one example of how things get more complicated as people get older, more out-of-touch, less likely to be on top of things.

 

[SKL]

I am not certain as to why a tax professional wouldn't know something so basic offhand.

 

I know what an RMD is.  That doesn't mean I can calculate it based on a pile of papers brought to me by some retiree.  And I'm talking about your average elderly 70+-year-old, not your average CPA.

 

[LucyStoner]

Sometimes you have to be online and have the ability to read tax mumbo jumbo, but yeah. You can usually figure out what they are asking. That doesn't mean the answer is easy to provide.

For most things though, there a short answer written at a middle school level right in the box that opens up. If one wants more detail, there's a web link.

Edited March 29, 2016 by LucyStoner

[SKL]

Everyone uses the services (roads etc...) provided by the collection of taxes and should therefore have skin in the game. I am all in favor of a flat tax (with absolutely no loopholes for anyone for any reason) for all adults with any income.

 

But it doesn't work that way.  Many many people don't pay income taxes for many years of their lives.  If we're talking about elderly people with retirement savings / pensions, we're talking about people who have paid taxes for many years and from whom we could extract those final taxes in a more sensible way.

 

[TechWife]

No, just ordinary retirement investments, mortgage deductions, etc. I suppose we COULD do it, if we wanted to devote hours upon hours to the project.

 

Have you ever tried Quicken? It's a fabulous piece of software that steps you through completing tax forms by asking you a series of questions. It doesn't take that long to complete once you have received all of your various forms and statements. 

[SKL]

For most things though, there a short answer written at a middle school level right in the box that opens up. If one wants more detail, there's a web link.

 

And the web link still doesn't have the numerical information needed.

 

Remember, many people at that age can't read so well for various reasons.  Many don't have internet service.  Most do not understand the tax code as it relates to retirement income.

 

The fact that you can easily answer "most" questions doesn't change the fact that some questions are hard to answer.  And many of these are questions that relate to retirement income.

 

To make things even more interesting, state and local jurisdictions treat various kinds of retirement income differently, and have different exemptions / credits etc. for older people.  One of the fun questions on our state return is "have you ever taken xyz lump-sum credit?"  Well do you remember everything you did on your tax computation 10 years ago?  While it is nice if you still have all your old forms and can dig them out and read them, not everyone can produce all their old forms since the day they retired.

 

I agree that simplification might theoretically be a better answer, but in reality, every time someone tries to "simplify" taxes, they just get more complicated or more unfair.

[Lady Florida.]

So, as I said in the living wage thread, I'm older. Dh will retire in a few years. When we were young and attending public school, people with no children or older people whose children had grown paid for those schools with their taxes. As retired people dh and I will still use the roads, libraries, and other government services, including federal, state, and local. Our grandchildren and the grandchildren of our friends will be attending public schools. I see no reason why we shouldn't still contribute to society.

 

 

The U.S. has an aging population. If we start exempting that population from too many kinds of taxation we will negatively affect an already strained infrastructure. 

 

I do taxes for some older retired people (friends and family), and it bugs me that the older you get, the more complicated it is.  Meanwhile, as we age, we gradually lose the abilities that make us capable of dealing with complexities - hearing, vision, memory, and more.  And the older people I deal with get so stressed out over taxes.  They've had the IRS or state tax folks come back to them over some intricacy regarding pension income - a 1099 they misplaced and forgot to report, a credit they didn't realize was an either-or choice.  Tons of stress created over a tax difference of a few hundred dollars.  Is it really worth it?

 

 

 

It sounds like you're really talking about making things simpler and easier to understand. Another option would be to provide free tax service to seniors. Dh and I are fortunate in that we can afford to use a retirement planner/tax advisor. Many seniors cannot. I'm not crazy about having the IRS handle it. Instead, I'd be in favor of offering free tax service for seniors through tax companies such as H&R Block as well as individual tax accountants. The tax services would be subsidised. Yes, that would be your taxes paying for it, but it would likely be less than exempting a large number of people from paying taxes. The free service could be based on income, including retirement income. Dh and I likely would not qualify but my mother would have if she was still alive. All she really had for income was her social security payment plus the minimum she was allowed to earn without affecting her SS check.

[ErinE]

This means you have to have the year-end balance statement.  They don't all come in the mail, you have to go find for each plan, or know to call each administrator well in advance of year-end to make sure stuff is getting done right.

 

And most people don't even see this creeping up on them.  Do you think most people age 70 are calling all their plan administrators to make sure they are getting their RMD?  This is just one example of how things get more complicated as people get older, more out-of-touch, less likely to be on top of things.

 

 

Sending year-end statements is a normal part of doing business for financial institutions. I've received mine every year for the past 15 years without problem. My 90-year old grandfather does his own taxes before turning documents over to his accountant. It might be complicated, but a solution isn't going to be simple for large, multi-year investments.

 

This is why I'm fanatical about combining retirement accounts whenever possible. I've recommended friends and family close and combine their retirement accounts so they don't lose track of their accounts and statements.

 

I understand your position: why do my elderly relatives need to go through so much effort to prove how little income they have? But there are many taxpayers in the exact same position who must prove that yes, they really are that poor. I've never known the IRS to take taxpayers at their word when it comes to income. The organization always requires documentation.

Edited March 29, 2016 by ErinE

[TechWife]

Do either of you have a source for this, because that's not what our statements say and, um..., I'd really like to know how much I might need to adjust my math!!!

 

It changes annually at the most and is adjusted for cost of living. This is the amount for 2016, there was no COLA from 2015.  The statement you are receiving is an estimate, not a guarantee (notice the use of the word "about" in the statement). Here is a sample statement that includes an explanation at how they arrived at the estimated benefit. The format of the statement varies slightly according age. Links to the different statements are here.