Changes Expand Opportunities For Elders, Others

FROM MAIN NEWS PAGE A18 (Sunday, January 12, 1997): Correction A column two weeks ago contained incorrect amounts that workers 65 to 70 can earn without losing Social Security benefits. The correct amounts are: 1996 - $12,500; 1997 - $13,500; 1998 - $14,500; 1999 - $15,500; 2000 - $17,000; 2001 - $25,000; 2002 - $30,000. Also, recipients must continue to pay federal income tax on 85 percent of their benefits when their allowable income exceeds $34,000 for singles or $44,000 for couples.

A number of changes in tax laws, pension plans and investment options that take effect New Year’s Day will create opportunities for retirees, working seniors, younger workers and small employers alike.

One is a new tax wrinkle of special interest to anyone who may be thinking of making a withdrawal from his or her retirement account. Until the year 2000, this change makes five-year tax-averaging available to persons who take retirement distributions after age 59 and one-half.

Averaging can produce sizable benefits in the early years of retirement, by enabling a recipient to treat a large lump-sum payout as though it was his or her sole income and was received in five equal annual amounts.

Meantime, 10-year averaging continues available to persons born before 1936.

Congress has nearly doubled the amount of money that a married couple with a non-earning spouse can contribute to a tax-deferred Individual Retirement Account (IRA). Which contribution may also be tax deductible, depending on income and participation in employer-sponsored retirement plans.

Whatever, regardless of who brings home the bacon, next year a couple may set aside up to $4,000. Heretofore, the maximum was $2,250.

At present, a 15-percent excise tax is commonly imposed on annual distributions over $155,000 (or a lump sum above $775,000) from employer retirement plans, tax-sheltered annuities, and IRAs. But starting Wednesday, the excise tax will be suspended through the balance of this millennium.

A new type of retirement plan, the Savings Incentive Match Plan for Employees (SIMPLE), figures to be a boon not only to employees but to the self employed and to small employers as well.

Employers who establish a SIMPLE program through IRAs for each worker or as part of a 401(k) can sidestep costly compliance procedures now required to take advantage of tax benefits.

For the self employed, effective the 1996-tax year, 40 percent of health premiums will be deductible, and that figure will increase gradually to 80 percent in 2006.

In 1997, the Senior Citizens Equity Act of 1996 will start to ease the financial penalty imposed on Social Security recipients who freely choose or are forced financially to work beyond “normal” retirement age.

It also rolls back the percentage of Social Security benefits on which retirees must pay taxes to the pre-1993 level.

In addition, it offers tax incentives that encourage individuals to purchase private long-term care insurance.

And, finally, the act makes it easier for the elder care industry to reserve retirement communities for adults only, without running a gauntlet of civil rights litigants.

Taking the above sections of the act in order: Currently, Social Security recipients age 65 through 69 lose $1 in benefits for every $3 they earn above $11,160. Starting Jan. 1, for the tax year of 1996, seniors can earn $15,000 without losing any benefits.

The earnings ceiling becomes $19,000 for 1997, $23,000 for 1998, $27,000 for 1999, and $30,000 for 2000.

Under current law, Social Security recipients who earn more than $34,000 for singles or $44,000 for couples must pay income taxes on 85 percent of their benefit amount.

That percentage will drop to 75 percent for tax year 1996, thence 10 percent a year until 2000, when the figure will be 50 percent.

To promote purchase of long-term care insurance, tax-free withdrawals from IRAs, 401(k) and other qualified pension plans are allowed starting next year. Also, accelerated death benefits may be paid from life insurance policies for the terminally ill or permanently confined.

What constitutes senior housing? The law is vague. Lawsuits abound. But next year, “retirement communities” can meet the Fair Housing Amendments Act’s “adults only” test if they can prove at lest 80 percent of their units are occupied by persons 55 and up.

, DataTimes MEMO: Associate Editor Frank Bartel writes on retirement issues each Sunday. He can be reached with ideas for future columns at 459-5467 or fax 459-5482.

The following fields overflowed: CREDIT = Frank Bartel The Spokesman-Review