Social security “file and suspend” changes
Up until a few weeks ago, if a married couple had one spouse at full retirement age (66 or older), the “file and suspend” strategy allowed the other spouse and/or a dependent to enjoy short-and long-term benefits. But after April 29, 2016, this is no longer be the case. Now, if a spouse suspends his or her benefits, benefits for everyone involved—including the other spouse or qualifying dependent—will be suspended, too. Therefore, a filer must take benefits and abstain from delayed retirement credits for the other person to also receive benefits.
Under the now outdated file and suspend strategy, a married person—typically the one who makes the most money—could file for his or her own Social Security benefits at age 66 or older, and then immediately suspend those benefits, while their spouse could still file for spousal benefits. As a result, the couple collected an ongoing Social Security check, and, at the same time, the spouse earning the most money saw his or her benefits grow by 8% each year, allowing for a potentially higher benefit for the surviving spouse.
If you have already used this strategy, you’ll be happy to know that you’ll be grandfathered in until age 70. But, with the April 29 deadline now passed, a number of scenarios and strategies now come into play for those who have not used this strategy.
Restricted application is another strategy that also changed on April 29. This strategy previously allowed a spouse age 66 or older who had not received any benefits to restrict their choice to receive their spousal benefit only and delay their own personal benefit until the future (no later than age 70). With the new law, this option will only be available to those who turned 62 on or before January 1, 2016, thus keeping the luxury of restricting their claim to their spousal benefit if they wait until 66 at full retirement age.
However, let’s say they are eligible under the new law to file a restricted application at their full retirement age. If their spouse is not receiving their own retirement benefit or has not filed and suspended by April 29, 2016, then there is no spousal benefit available on which to file the restricted application. For example, if Tom is age 62 or older by January 1, 2016 and his spouse, Helen, is at her FRA or older by April 29, 2016, Helen would have either needed to file and suspend by April 29, 2016 or, failing that, file and receive her own retirement benefit to enable Tom to receive a spousal benefit on Helen’s record at his full retirement age.
Lump Sum Voluntary Reinstatement of Benefits
Another important change is the ruling on lump sums. Previously, a person who filed and suspended at full retirement age could ask for all suspended payments to be paid in one lump sum at a later age up to age 70. Now that the April 29 deadline has passed, however, lump sum payments are no longer allowed.
For questions on these changes, contact a ShindelRock tax professional today.