My wife and I both turn 62 this year and we're thinking about applying for Social Security. I know at our age there's a limit on the earned income we can receive without forfeiting some benefit. Do my state pension and our IRA withdrawals count toward that limit?

No. To recap the rule, when you're under age 66 and collecting Social Security while still working, your benefit is temporarily reduced if your earned income exceeds an annual limit. (At 66, your benefit is recalculated to make up for amounts you forfeited earlier due to excess earnings.) If you'll turn 66 in 2015, you forfeit $1 for each $3 earned above $41,880 until your birthday month. People who'll turn 66 after 2015 forfeit $1 of benefit for each $2 they earn above $15,720.

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What counts as earned income? Wages, commissions, bonuses and severance pay; net earnings from self-employment; and your contribution to a pension or a retirement plan if the contribution amount is included in your gross wages. What doesn't count: Income from other government benefits, or from pensions or annuities, investment or interest income, or capital gains.

So your pension payments and IRA withdrawals won't reduce the size of your Social Security benefit -- but depending on the amounts involved, they might affect its tax treatment. If you're married filing jointly and your "provisional income" -- half your Social Security benefits plus all your other income (including tax-exempt income) -- is between $32,000 and $34,000, up to 50 percent of your benefits can be taxed. If your "provisional income" exceeds $44,000, up to 85 percent of your benefits can be taxed. The rest is tax-free.

THE BOTTOM LINE Until you turn 66, your Social Security benefit check is temporarily reduced if your earned income exceeds annual limits.


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