President Obama expected to sign into law a Federal Budget which will close Social Security Loopholes.
Recent budget legislation that came through in the midnight hours at the end of last week impacts Social Security planning for many retirees by closing what is deemed to be loopholes for those reaching Full Retirement Age (FRA) such as: 1) certain benefits for filing and suspending an application for one’s own benefit while opening the window for family members to file on that same record and 2) filing a restricted application for benefits on a spouse’s record. These strategies available to those who are FRA and do not need the benefits for cash flow needs allow delayed credits which amounts to an increase of benefits of 8% per year.
It all started back in 2000 when Congress passed the Senior Citizens Freedom to Work Act which allowed voluntary suspension of Social Security benefits. This may have been applicable if a worker changed their mind and decided to go back to work. When a worker suspended their own benefit at FRA, they were still eligible to file for a spousal benefit while building up their own benefit.
As of this writing the President has not yet signed the legislation but the following is a summary as we understand it at this time.
- Anyone who is already collecting Social Security on their own record or on a spouse’s record, will not be affected.
- Six months from the legislation being enforced, recipients will no longer be able to file restricted applications for just spousal benefits. Exception: The new limits to restricted applications will not apply to anyone who is already age 62 or older in 2015; they can still file a restricted application for spousal benefits when they turn Full Retirement age over the next four years.
- Suspending your own benefit will also suspend benefits to others, such as spouses or dependent children, eligible for benefits on the same earnings record. Exception: Anyone currently utilizing file and suspend will be grandfathered. Beyond the six months of enactment, filing and suspending will have limited purposes such as when someone begins to file and then changes their mind.
- 180 days after enactment, benefits earned during suspension will no longer be eligible for a lump sum payout should the recipient “unsuspend.”
- Survivor benefits have not changed. They are still allowed to file a restricted application for survivor benefits while delaying their own.
For more information, contact Valley National’s Senior Vice President Laurie Siebert CPA, CFP®, AEP®.