Santa, Scrooge, and Social Security

It’s that special time of the year. Thanksgiving, Christmas, spending time with family and friends.  Turkey, ham, presents, and of course your cost of living adjustment for Social Security! Starting in January of 2018, your cost of living adjustment (COLA) will increase by 2%. This is the highest COLA adjustment since 2012.

Though this increase in your Social Security benefit is a terrific way to kick off the new year, it also means there may be some increases to your Medicare Part B premiums. Some individuals who were on Medicare prior to 2015 may see a slight increase of their premiums to make up for the lack of COLA for the previous three years.

So, while it’s a good thing that you are seeing an increase in your Social Security benefit, you may also see a corresponding increase in your Medicare Part B premiums. It appears Santa and Scrooge work in tandem.

Along with increases in Social Security and Medicare, there are some other things to be aware of this time of year.

  • Consider sitting down with your financial professional or tax professional to look at creating a 2017 tax review to find ways to minimize taxable situations.
  • Make those end of year tax-deductible donations.
  • This could include additional contributions to your 401k or IRA.
  • Studies have shown that giving can increase personal happiness, so charitable gifts may not only help with your happiness level, they may also help minimize taxes and increase cash flow!
  • Talk to your CPA or tax preparer to see how additional charitable contributions might help minimize your tax consequences for 2017.
  • Implementing a charitable gifting strategy into your financial plan can help bring Santa to your wallet all year long—so consider having a financial professional draw one up today!

Though Santa can bring a lot of joy in the form of charitable giving, Scrooge isn’t far behind with mandatory required minimum distributions (RMD). Keep in mind that if you are over 70 1/2 you will be required to take out a RMD by December 31 or face a 50% IRS penalty.

If you just reached age 70 1/2 in 2017 you have until April 1 to draw your RMD. There can be exceptions to this, so consult with your tax professional regarding your specific circumstances.

But since this is the holiday season, even (Uncle) Scrooge gives you an opportunity to spread a little cheer. There is a provision within the tax code called the Qualified Charitable Distribution (QCD).

This provision allows your RMD up to $100,000 dollars come out tax-free if you make a direct transfer of your funds from your IRA to a qualified charity. For many investors, QCD is a terrific way to satisfy the RMD requirement while spreading a little cheer during the holiday season.

‘Til next year…have a happy holiday and we will see you in 2018!

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Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc.