1. Taxes in Retirement
Pam Hicks, VP of Finance & Administration

2. Tax Considerations How to maximize income and keep taxes low
How the housing exclusion from IRC Section 107 affects retired clergy
Covering your taxes — estimated tax payments versus withholding
How large withdrawals affect tax liability — should you pay off home or debts?
Moving expenses

3. Maximize Income & Keep Taxes Low
Meet with a tax advisor and financial professional — laws and circumstances change
Know sources of income and needs over next few years — age starting Social Security
Know your deductions — review exemptions and itemized deductions under tax law
Social Security could be taxable — 50 percent to 85 percent over a threshold
Some income or deductions may have limitations or requirements

4. Meet With Tax Advisor or Financial Planner
Example: selling a home purchased while under appointment
Allowable exclusions: up to $250,000 (individuals) or $500,000 (married, filing jointly) of gain for sale or exchange of principal residence
Must have owned/used home as principal residence for at least two of five years ending on sale/exchange date
If requirement not met: allowed to exclude a fraction of $250,000 or $500,000, equal to percentage of ownership and use requirement met
Exclusion may not be claimed for more than one sale or exchange during any two-year period

5. Meet With Tax Advisor or Financial Planner
Requirements may have changed under tax laws
See IRS publication 523 (
Space once used for business or rental purposes may be considered residence at time of sale if the following apply:
The space was not used for business or rental when sold
No business or rental income from the space was earned in the year the property was sold
The space was used as residence for two of five years leading up to the sale
If the space was considered residence when sold, former business usage does not affect gain/loss calculations

6. Sources of Income/Cash – Social Security
You can retire between 62 and full retirement age
Starting benefits early reduces benefit a fraction of a percent for each month before full retirement age
Visit to determine benefit if retiring early
Select birth year
If birthday is Jan. 1, benefit will be determined as if birthday was in previous year

7. Social Security — Retirement at Age 62
The chart lists reduction amounts and examples based on an estimated monthly benefit of $1,000 at full retirement age (ssa.gov)

8. Medicare Cost — 2018 Monthly Premium
Standard Part B premium: $134 or higher depending on income (some with Social Security benefits pay less)
Pay the standard premium amount (or higher) if you:
Enroll in Part B for the first time in 2018
Don’t get Social Security benefits
Are directly billed for Part B premiums (not deducted from Social Security benefits)
Have Medicare/Medicaid and Medicaid pays your premiums (state pays $134)
Reported a modified adjusted gross income on tax return from two years previous that is above a certain amount — you pay the standard premium amount and an added Income Related Monthly Adjustment Amount (IRMAA) charge

9. Itemized Deductions & Personal Exemptions
Tax Cuts and Jobs Act repealed personal exemptions and increased standard dedutions (see summary at

10. Itemized Deductions & Personal Exemptions
New tax law modified tax tables — broadened-lowered tax rate
Individual tax brackets for 2018 (expire in 2025): 10%, 12%, 22%, 24%, 32%, 35% and 37%
Individual tax brackets in 2017: 10%, 15%, 25%, 28%, 33%, 35% and 39.6%

11. Itemized Deductions & Personal Exemptions
Law repealed or modified itemized deductions — examples:
Charitable contribution available, but altered:
Increased standard deduction — may exceed itemized deductions
Increased annual limitation (percentage of AGI) to 60 percent
Itemized deductions for planned gifts (donor-advised funds, IRA rollovers, sale of appreciated stock) could exceed standard deduction
Repealed miscellaneous deductions subject to 2 percent AGI floor
Home mortgage interest — modified-separating acquisition indebtedness from home equity indebtedness (set limits)
Repealed casualty and theft deductions except under presidential emergency declaration
Reinstated 7.5 percent AGI floor for medical expenses (2017 and 2018)

12. Itemized Deductions & Personal Exemptions
Other considerations under tax law:
Consolidates and repeals several education-related deductions and credits
Modifies alternative minimum tax (AMT) so it applies to fewer taxpayers
Modifies the estate- and generation-skipping transfer taxes

13. Taxable Social Security – Quick Method
Social Security could be taxable
If Social Security-only income — probably not taxable
Form 1040 and 1040A have worksheet to determine taxable amount — up to 85 percent maybe taxable
Quick computation:
Add half of Social Security benefits to all income, including tax-exempt interest and exclusions from income
Compare to base amount ($32,000 for married jointly; $25,000 for single, head of household, qualifying widow/widower with dependent child; $0 for married filing separately, living together)
If total is more than base amount, some benefits may be taxable

14. Taxable Social Security — Example

15. Taxable Social Security Benefits
Up to 85 percent of Social Security benefits can be taxable
Single adults with a combined income of:
$25,000-$34,000 — up to 50 percent of benefits taxable
Greater than $34,000 — up to 85 percent of benefits taxable
Less than $25,000 — no Social Security benefits subject to tax
Married, filing jointly, with a combined income of:
$32,000-$44,000 — 50 percent taxable range
Greater than $44,000 — up to 85 percent of benefits taxable
Married, filing separately, up to 85 percent taxable, regardless of income
“Up to” — determining taxable benefits is not a simple multiplication:
Use a Social Security tax calculator
See page 7 and 8 of IRS Publication 915 for an example

16. Social Security – Up to 85 Percent

17. Housing Exclusion & Retired Clergy
Eligible for housing allowance exclusion if:
Portion of pension income is designated housing allowance by church or denomination’s pension fund board
Clergyperson has no relationship with the local church and relies on fund for pension
Pension compensates clergy for past services to local churches or denomination

18. Housing Exclusion & Retired Clergy
In most cases, will be eligible to have some or all benefits designated in advance as housing allowance (see Conference Resolution and Calculations of Housing Forms,
Conference annually considers housing allowance resolution stating Wespath pension payments qualify as housing allowance
Exclusion rules — the lesser of:
Amount designated as the housing allowance
Amount of actual housing expenses
Fair rental value of the property (furnished, plus utilities)

19. Housing Exclusion & Retired Clergy
Example: a minister receives a 1099R from Wespath with $15,000 in box 1, $13,000 actual expense, $14,400 fair rental value

20. Housing Exclusion & Retired Clergy
Example: calculation indicates lesser of housing allowance, actual expenses or fair rental value is $13,000

21. Housing Exclusion & Retired Clergy
Example of 1040 tax return, line 16a — $13,000 excluded

22. Housing Exclusion & Retired Clergy
Schedule attached for housing exclusion

23. Housing Exclusion & Retired Clergy
May exclude the rental value of a home (plus utilities) furnished by church as part of pay for past services from gross income
Surviving spouse cannot exclude housing allowance or rental value of home unless allowance or home is for ministerial services he or she performs or performed
Case of Annie Laurie Gaylor, Freedom from Religion Foundation et al v. Steve Munchin et. al., Western District of Wisconsin, declared the tax-free housing allowance for clergy under Code section 107(2) unconstitutional (

24. Withholding Versus Estimated Taxes
Withholding is treated as if deducted all year, even if changes made at year-end
Social Security (W-4V), pension, 403(b), IRAs (W-4P) can have monies withheld
Estimated tax payments are based on prior year income and tax with modification sometimes for income in future year — spread over four times a year (April 15, June 15, Sept. 15, Jan. 15)

25. Large Withdrawals From Pension
Don’t forget taxes — consider withholding
Paying off home mortgage with retirement — consider tax effect (taxable income, possible reduction in housing allowance exclusion, itemized deduction)
Largest component of housing exclusion lost when mortgage paid off
Payments for home equity or conventional loan on debt-free home may be claimed as housing expense in computing housing exclusion if loan is for housing-related expenses
Remodeling house
Pay off debts
Large withdrawals often result in taxes — tax accountants recommend including calculation of tax in withdrawal as withholding with possible payment over time to keep some debt, reduce taxes
Moving expense deduction and exclusion of employer reimbursements for moving expenses repealed, except for military moved while on active duty

26. Financial Planning & Tax Resources
Certified Financial Planners:
Florida Conference Office of Financial Services:
Wespath:
GCFA ( search Tax Packet
Information on housing allowances and other tax issues
Publication 517 Social Security and Other Information for Members of Clergy and Religious Workers
Publication 523 Selling Your Home
Guidestone:
Your own tax advisor and financial planner