Maximizing your Social Security Benefits: The File-and-Suspend Strategy

 Nearing retirement age? You should be considering the numerous strategies available for maximizing your Social Security benefits. If you’re in a position to take advantage of these (legal and completely permitted) techniques, not doing so essentially means leaving money on the table.

One of the most potentially effective benefit-maximization techniques is called “file-and-suspend,” or “voluntary suspension of retirement benefits.” Anybody who has reached “full retirement age” (66 for some one born before 1960; 67 for anyone younger) can utilize this technique. It makes the most sense, though, for married partners who are close to each other in age and can live without Social Security benefits for some time, or who would like to keep working after their official retirement age. (And it works best if one partner has made significantly more money than the other, and therefore will receive much greater Social Security benefits.)

Here’s how it works: When the older partner reaches her full retirement age, she doesn’t file for her benefits, and either continues working or lives off non-Social Security resources. Then, when the younger partner reaches his full retirement age, the older partner files for her benefits, but suspends her actual payments (that’s where “file-and-suspend” comes from); at the same time, the younger partner claims his partner’s spousal benefit (about half the partner’s benefit). At age 70, the older partner begins taking her payments—but because she has delayed until then, the payments are substantially higher.

In this way, file-and-suspend enables married partners to ultimately receive a higher monthly Social Security benefit, while continuing to work, if they want to. The strategy only makes sense if you expect to live fairly long (because if you have health problems or the such, it’s unreasonable to delay taking payments). Not sure if file-and-suspend is right for you and your partner? Ask your financial advisor.

A Different Kind of Tax Break

 People who owe the U.S. Internal Revenue Service taxes can get a blank(ish) slate under a recently announced expansion of an IRS program for struggling taxpayers.

“We have an obligation to work with taxpayers who are struggling to make ends meet,” IRS Commissioner Doug Shulman said in a statement on the expansion. “This new approach makes sense for taxpayers and for the nation’s tax system.”

The expansion of the “Fresh Start” initiative includes two groups.

First, wage earners who were unemployed for at least 30 consecutive days between January 1, 2011 and April 17, 2012, along with self-employed people who experienced a decrease of 25 percent or more in their business income in 2011 due to the economy, are eligible for a six-month grace period on failure-to-pay penalties. To qualify, a taxpayer’s income may not be higher than $200,000, if he files as “married, filing jointly,” or $100,000, if she files as “single” or “head of household,” and the taxpayer’s calendar-year 2011 balance may not exceed $50,000. To apply for this “penalty relief,” taxpayers must fill out and submit a Form 1127A.

In addition, people who owe up to $50,000 in taxes can use an installment agreement without having to provide the IRS a financial statement; previously, the limit was $25,000. Also, the IRS lengthened the maximum term for installment agreements from 60 months to 72 months. Installment agreements let taxpayers who owe the government money spread their payments out over time, but interest still accrues on the outstanding balance, and under the agreement, the taxpayer has to make monthly direct debit payments. For more information about installment agreements, go to the IRS’ Online Payment Agreement webpage—or contact your tax professional.