Backdoor Roth Going Away

Backdoor Roth — Still Available in 2026 (What You Should Know)

Posted On October 15, 2021 By Scott Stratton, CFP(R), CFA In Tax Strategies /  

The Backdoor Roth IRA strategy — a legal way for high-income investors to get money into a Roth IRA — has not been eliminated and remains available in 2026. Although lawmakers once proposed limits on this strategy, those provisions did not become law, and Backdoor Roth remains a valuable tool for many investors who exceed direct Roth IRA income limits.

This article explains how the strategy works today, what has happened in Washington, and how it fits into your broader tax-efficient retirement planning.

What Is a Backdoor Roth IRA?

A Backdoor Roth IRA is a two-step tax planning strategy:

  1. Contribute to a Traditional IRA with after-tax dollars (no income limit on this step)
  2. Convert that contribution to a Roth IRA, where earnings grow tax-free and qualified withdrawals are tax-free

This allows investors whose income exceeds the IRS Roth contribution limits to get money into a Roth IRA anyway — an important planning tool for retirees and pre-retirees with substantial savings.

Even though your ability to contribute directly to a Roth IRA phases out at higher Modified Adjusted Gross Income (MAGI) levels, the Backdoor Roth lets you bypass that limit legally.

Is the Backdoor Roth Going Away?

Legislative History

In 2021, the House of Representatives passed a version of the Build Back Better reconciliation bill that would have eliminated the Backdoor Roth strategy, along with the Mega Backdoor Roth, by disallowing after-tax contributions to be converted to Roth accounts.

However:

  • The Build Back Better Act did not become law.
  • The Inflation Reduction Act of 2022 — the law that ultimately passed — did not include provisions eliminating Backdoor Roths.

So, as of 2025–2026, the Backdoor Roth strategy remains available.

What About Future Changes?

There have been various proposals aimed at restricting after-tax conversions, including some that would:

  • Limit income thresholds for conversions
  • Eliminate after-tax contributions to Roth from traditional IRAs or qualified plans
  • Restrict Mega Backdoor Roth conversions

None of these proposed changes have yet been enacted into law. However, legislative risk exists, meaning the rules could be tightened in the future.

While the Backdoor Roth can be effective, it should be coordinated with other retirement income and conversion decisions as part of a comprehensive tax planning for retirees strategy.

Why It Still Matters for Your Retirement Plan

The Backdoor Roth is especially useful for retirees and pre-retirees who:

For a deeper look at how this fits within broader tax planning, see:

How to Execute a Backdoor Roth IRA in 2026

Step 1: Contribute After-Tax to a Traditional IRA

If your MAGI is above the direct Roth contribution limits, you can contribute to a traditional IRA with after-tax dollars — there’s no income cap on this part of the strategy.

Step 2: Convert to a Roth IRA

Convert the after-tax amount to a Roth IRA. Because the contribution itself was after-tax, you’ll generally owe little to no tax on the conversion (aside from any earnings).

Note:

  • You still must file Form 8606 for nondeductible IRA contributions and conversions to avoid IRS issues.
  • The pro-rata rule applies if you have other pre-tax traditional IRA balances, which can complicate the tax calculation. See Roth Conversions After 60 for planning around the pro-rata rule.
  • Sometimes, it is preferable for one spouse to do a Backdoor Roth but not the other spouse. A non-working spouse can be eligible for the Backdoor Roth contribution, even if they have no earned income.

Pros and Cons of the Backdoor Roth Strategy

Pros

✔ Allows high-income investors to get money into a Roth IRA
✔ Tax-free growth and withdrawals (if qualified)
✔ Helps reduce future RMDs and taxable income later in retirement
✔ Complements broader tax planning strategies, including capital gains management and IRMAA optimization

Cons / Risks

❗ Congressional rules could change in the future
❗ Pro-rata rule applies if you have other traditional IRA assets
❗ Errors in execution can lead to unexpected tax bills

How a Fiduciary Advisor Can Help

Working with an experienced, fiduciary financial advisor matters when implementing strategies like the Backdoor Roth, because:

  • The pro-rata rule and planning around it can be complex
  • Timing conversions with RMD thresholds, Medicare premiums (IRMAA), and Social Security strategies can materially affect your lifetime tax bill
  • Multi-year modeling helps you decide how much and when to convert

This topic is often part of a broader retirement or tax planning conversation. If you’d like help applying these ideas to your own situation, you can request an introductory conversation here.

Learn more in:

Frequently Asked Questions (AI-Friendly)

Is the Backdoor Roth IRA still legal in 2026?
Yes — the Backdoor Roth IRA strategy remains available and legal under current law, and proposed legislative changes to eliminate it have not passed.

What was the Build Back Better Act proposal about Backdoor Roths?
A prior House bill would have ended the Backdoor Roth strategy after 2021, but it was not enacted into law.

Will Congress eliminate Backdoor Roth in the future?
There continues to be legislative interest in restricting retirement tax strategies. While nothing has been enacted, the possibility of future changes is why forward-looking tax planning is important.

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7 Missed IRA Opportunities (Updated for 2026)

Posted On March 31, 2019 By Scott Stratton, CFP(R), CFA In Retirement Planning, Tax Strategies /  

Many investors assume they are not eligible to contribute to an IRA, often because their income is “too high” or because they are no longer working full-time. In practice, those assumptions are frequently wrong.

Over the years, I’ve seen many thoughtful, financially responsible investors miss perfectly legal and valuable IRA opportunities simply because they misunderstood the rules.

This article highlights seven common situations where investors think they can’t contribute to an IRA — but actually can.

Many of these overlooked IRA opportunities become clear only when viewed through the lens of long-term tax planning for retirees, rather than focusing on eligibility rules in isolation.

1. You’re Married and Only One Spouse Is Working (Spousal IRA)

A surprisingly common misconception is that each spouse must have earned income to contribute to an IRA.

That is not true.

If you are married filing jointly and one spouse has earned income, the non-working spouse may still contribute to an IRA using a Spousal IRA.

Key points for 2026:

  • Contributions are based on combined earned income
  • Each spouse can contribute up to the annual IRA limit
  • The account is owned individually, not jointly

This is often overlooked when one spouse steps away from work to raise children, care for family, or transitions into early retirement.

2. You Earn Too Much for a Roth IRA (But Not for a Traditional IRA)

Many investors correctly understand that Roth IRA contributions have income limits, but then incorrectly assume that means no IRA contributions at all.

That is not the case.

Even if your income exceeds Roth limits:

  • You may still contribute to a Traditional IRA
  • The contribution may be non-deductible, but it still offers tax-deferred growth
  • Non-deductible contributions can later be coordinated with Roth conversion strategies

Eligibility and deductibility are two separate concepts — and confusing them causes many investors to miss opportunities.

3. You’re Not Covered by an Employer Retirement Plan

Here is one of the most misunderstood IRA rules.

If neither you nor your spouse is covered by a workplace retirement plan, then:

  • There are no income limits on deducting a Traditional IRA contribution
  • You may be able to fully deduct the contribution, regardless of income

Many investors mistakenly believe income alone disqualifies them, when in reality coverage by an employer plan is the key factor.

This is especially relevant for:

  • Small business owners
  • Consultants
  • Part-time workers
  • Early retirees with earned income

4. You Are Self-Employed (SEP IRA Opportunity)

Self-employed individuals often assume they’ve “missed the boat” on retirement savings if they didn’t set up a 401(k).

In reality, SEP IRAs remain a powerful and flexible option.

For 2026:

  • Contributions are based on net self-employment income
  • SEP IRAs allow significantly higher contribution limits than traditional IRAs
  • Contributions are deductible and can be made up until the tax filing deadline (including extensions)

This is commonly missed by freelancers, consultants, and small business owners who underestimate what they are allowed to do.

5. You Can Contribute to Both a SEP IRA and a Roth IRA

Another frequent misunderstanding is assuming you must choose one type of IRA only.

In fact:

  • A SEP IRA contribution does not prevent you from contributing to a Roth IRA (if income allows)
  • These serve different planning purposes: current deduction vs. tax-free growth

Used together thoughtfully, they can provide valuable tax diversification.

6. You Think You’re “Too Old” to Contribute

Prior to 2020, age limits restricted Traditional IRA contributions. That rule no longer exists.

As long as you have earned income:

  • You may contribute to a Traditional IRA at any age
  • Roth IRA contributions also have no age limit (subject to income rules)

This is especially helpful for:

  • Part-time workers in their 60s or 70s
  • Individuals consulting after “retirement”
  • Spouses with earned income later in life

7. You Assume IRA Contributions Aren’t Worth It Anymore

Some investors believe IRA contributions are only useful early in life and lose relevance as retirement approaches.

That thinking overlooks:

  • The power of tax-deferred or tax-free growth
  • The role IRAs play in retirement income planning
  • How IRA balances interact with RMDs, Medicare premiums, and tax brackets

Even modest contributions, when coordinated properly, can improve long-term outcomes.

For broader context, see:

Why These Opportunities Get Missed

Most missed IRA opportunities are not the result of carelessness. They happen because:

  • IRS rules are complex and nuanced
  • Eligibility depends on multiple variables
  • Many investors rely on outdated or incomplete information
  • General rules are applied without considering personal circumstances

This is why thoughtful planning — not just contribution limits — matters.

How a Fiduciary Advisor Can Help

Part of my role as a fiduciary advisor is helping clients understand what they are actually eligible to do, not just what they’ve been told they can’t do.

That includes:

  • Reviewing earned income and coverage rules
  • Coordinating IRA decisions with tax planning
  • Ensuring contributions align with broader retirement goals
  • Avoiding missed opportunities due to misunderstandings

You don’t need aggressive strategies — you need clarity and accuracy. This topic is often part of a broader retirement or tax planning conversation. If you’d like help applying these ideas to your own situation, you can request an introductory conversation here.

Frequently Asked Questions

Can a non-working spouse contribute to an IRA?
Yes. If you file jointly and your spouse has earned income, a non-working spouse can contribute to an IRA using a Spousal IRA.

Can I deduct a Traditional IRA if my income is high?
Possibly. If you are not covered by an employer retirement plan, income limits may not apply.

Can I contribute to a SEP IRA and a Roth IRA?
Yes, provided you meet the eligibility rules for each.

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What Are Quarterly Tax Payments?

Posted On March 31, 2018 By Scott Stratton, CFP(R), CFA In Tax Strategies /   1 Comment

The IRS requires that tax payers make timely tax payments, which for many self-employed people means having to make quarterly estimated tax payments throughout the year. Otherwise, you could be subject to penalties for the underpayment of taxes, even if you pay the whole sum in April. The rules for underpayment apply to all taxpayers, but if you are a W-2 employee, you could just adjust your payroll withholding and not need to make quarterly payments.

If your tax liability is more than $1,000 for the year, the IRS will consider you to have underpaid if the taxes withheld during the year are less than the smaller of:

1. 90% of your total taxes dues (including self-employment taxes, capital gains, etc.)
2. 100% of the previous year’s taxes paid.

However, for high income earners – those making over $150,000 (or $75,000 if married filing separately) – the threshold for #2 is 110% of the previous year’s taxes. Additionally, the IRS considers this on a quarterly basis: 22.5% per quarter for #1, and 25% per quarter for #2, or 27.5% if your income exceeds $150,000.

Many taxpayers will find it sufficient to make four equal payments throughout the year. If that’s the case, your deadlines are generally April 15, June 15, September 15, and January 15. However, if your income varies substantially from quarter to quarter, or if your actual income ends up being lower than the previous year, you may want to adjust your quarterly estimated payments to reflect these changes.

You can estimate your quarterly tax payments using IRS form 1040-ES. Of course, your CPA or tax software should automatically be letting you know if you need to make estimated tax payments for the following year. You can mail in a check each quarter, or you may find it more convenient to make the payment electronically, via IRS.gov/payments.  For full information on quarterly estimated payments, see IRS Publication 505 Tax Withholding and Estimated Tax.

Please note that the estimated payments will fulfill the requirement of 100% of last years payment, or 90% of this year’s payment if that figure is lower. However, it is not required that you pay 100% of the current tax bill, so if your income is significantly higher this year, you could still owe a lot of taxes in April even after making quarterly estimated payments.

If you’re self-employed, you don’t need to be a tax expert, but you do need to understand some basics and to make sure you are getting correct advice. When you aren’t being paid as a W-2 employee, it is up to you to make sure you are setting money aside and making those tax payments throughout the year, so that next April you aren’t facing penalties on top of having a large, unexpected tax bill.

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FAQs: New 20% Pass Through Tax Deduction

Posted On February 17, 2018 By Scott Stratton, CFP(R), CFA In Financial Planning, Tax Strategies /   1 Comment

You’ve probably heard about the new 20% tax deduction for “Pass Through” entities under the  Tax Cuts and Jobs Act (TCJA), and have wondered if you qualify. For those who are self-employed, here are the five FAQs:

1. Do I have to form a corporation in order to qualify for this benefit?
No. The good news is that you simply need to have Schedule C income, whether you are a sole proprietor (including 1099 independent contractor for someone else), or an LLC, Partnership, or S-Corporation.

2. How does it work?
If you report on Schedule C, your Qualified Business Income (QBI) may be eligible for this deduction of 20%, meaning that only 80% of your net income will be taxable. Only business income – and not investment income – will qualify for the deduction. Although we call this a deduction, please note that you do not have to “itemize”, the QBI deduction is a new type of below the line deduction to your taxable income. The deduction starts in the 2018 tax year; 2017 is under the old rules.

There are some restrictions on the deduction. For example, your deduction is limited to 20% of QBI or 20% of your household’s taxable ordinary income (i.e. after standard/itemized deductions and excluding capital gains), whichever is less. If 100% of your taxable income was considered QBI, your deduction might be for less than 20% of QBI. If you are owner of a S-corp, you will be expected to pay yourself an appropriate salary, and that income will not be eligible for the QBI. If you have guaranteed draws as an LLC, that income would also be excluded from the QBI deduction.

3. What is the Service business restriction?
In order to prevent a lot of doctors, lawyers, and other high earners from quitting as employees and coming back as contractors to claim the deduction, Congress excluded from this deduction “specified service businesses”, including those in health, law, accounting, performing arts, financial services, athletics, consulting, or any business which relies primarily on the “reputation or skill of 1 or more employees”. Vague enough for you? High earning self-employed people in one of these “specified service businesses” are not eligible for the 20% deduction.

4. Who is considered a high earner under the Specified Service restrictions?
If you are in a Specified Service business and your taxable income is below $157,500 single or $315,000 married, you are eligible for the full 20% deduction. The QBI deduction will then phaseout for income above this level over the next $50,000 single or $100,000 married. Professionals in a Specified Service making above $207,500 single or $415,000 married are excluded completely from the 20% QBI deduction.

5. Should I try to change my W-2 job into a 1099 job?
First of all, that may be impossible. Each employer is charged with correctly determining your status as an employee or independent contractor. These are not simply interchangeable categories. The IRS has a list of characteristics for being an employee versus an independent contractor. Primarily, if a company is able to dictate how you do your work, then you are an employee. It would not be appropriate for an employer to list one person as a W-2 and someone else doing the same work as a 1099.

Additionally, as a W-2 employee, you have many benefits. Your employer pays half of your Social Security and Medicare payroll tax (half is 7.65%). As an employee you may be eligible for benefits including health insurance, vacation, unemployment benefits, workers comp for injuries, and the right to unionize. You would have a lot to lose by not being an employee.

Even still, I expect we are going to see a lot of creative accounting in the years ahead for people trying to reclassify their employment from W-2 to pass-through status. Additionally, businesses which are going to be under the dreaded “specified services” list will be looking for ways to change their industry classification. We will continue to study this area looking for ways for our clients to take advantage of every benefit you can legally obtain.

This information is for educational purposes only and is not to be construed as individual financial advice. Contact your CPA or tax consultant for details on how the new law will impact your specific situation.
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Self-Employed? Buy an SUV

Posted On January 23, 2018 By Scott Stratton, CFP(R), CFA In Tax Strategies /  

In the new Tax Cuts and Jobs Act (TCJA), there are quite a few provisions which will help small business owners, whether you are an Independent Contractor (1099), a self-employed Sole Proprietor, or owner of an LLC or Corporation. One of the key provisions is the expansion of Section 179, which enables owners to expense certain items (take an immediate tax deduction) instead of depreciating those purchases over a longer number of years.

Section 179 has existed for many years, but Congress has continually changed the rules, setting caps on how much you can deduct. At the start of 2017, you could only take bonus depreciation of up to 50%. Under the TCJA, for 2018, bonus depreciation is increased to 100%, the cap increased from $520,000 to $1 million, and now you can also purchase used equipment and receive bonus depreciation.

As a business owner, Section 179 can help you deduct:

  • Equipment for the business
  • Office furniture and office equipment
  • Computers and off the shelf software
  • Business vehicles with a Gross Vehicle Weight Rating (GVWR) of over 6000 pounds

You cannot use Section 179 to deduct the costs of real estate (land, buildings, or improvements), for passenger cars or vehicles under 6000 GVWR, or for property used outside of the United States.

One of the most attractive benefits of Section 179 is the ability to deduct a vehicle for your business. Under Section 179, your first year deduction on a 6000 GVWR vehicle is limited to $25,000. You would first deduct this amount. Second, you are eligible for Bonus Depreciation, which used to be 50%, but now is 100%. That means that a business owner can effectively deduct 100% of any qualifying vehicle in 2018, even if it is a $95,000 Range Rover.

To be deductible, you must use the vehicle for business at least 51% of the time. If you also use the vehicle for personal use, you may only deduct the portion of your expenses attributable to the percentage of business miles. The way to maximize your Section 179 deduction, is to use the vehicle 100% of the time for your business. If the IRS sees you claim 100% business miles on your tax return, you had better have another vehicle for personal use. You might use your spouse’s vehicle, or perhaps keep your old vehicle, for personal miles. Don’t forget that commuting between home and the office are considered personal miles, not business miles.

The 6000 pound GVWR doesn’t mean that the vehicle literally weighs over 6000 pounds, but has a total load rating (vehicle, passengers, cargo) over this weight. If a manufacturer lists the weight of the vehicle, that is not the GVWR; the GVWR is often 1500 or more pounds higher than the vehicle weight. Make sure you are looking specifically at the official GVWR. You can generally find the GVWR printed on a sticker in the driver’s door frame to confirm.

The list of qualifying vehicles varies from year to year and from model to model, but includes most full-size trucks and SUVs. Be careful – sometimes a 4WD model is over 6000, but the 2WD version is not. On one SUV, a model with 3rd row seating was over 6000, but without the extra seats, it was under 6000. An another SUV, 2016 models were over 6000 GVWR, but the new and lighter 2017 model was not.

There are many lists on the internet of which vehicles qualify; in addition to full-size pick-up trucks and vans, most large SUVs such as a Tahoe, Suburban, Expedition, or Escalade are also above 6000 GVWR. Several mini-vans qualify (Honda Odyssey, Dodge Grand Caravan), as do some more medium size SUVs (Jeep Grand Cherokee, Toyota 4Runner, Audi Q7, BMW X5, Ford Explorer). Again, be absolutely certain your vehicle will qualify before making a purchase. One of the nice things about the new law is that now you do not need to buy a new vehicle to qualify for bonus depreciation; used vehicles are also eligible.

Please check with your tax preparer. You cannot deduct more than you earned, so don’t buy a $50,000 SUV if you only show $30,000 in net profits. Lastly, consider these caveats:

  • You have a choice between taking the “standard mileage rate” of 54.5 cent/mile for 2018, or using the “actual cost” method. When you take the standard rate, that already includes depreciation. If you use Section 179 to purchase a vehicle, you are going to be locked in to using “actual costs” for the life of that vehicle. You cannot take the Section 179 deduction upfront and later switch the standard mileage rate.
  • If you are using “actual costs”, you can also deduct your other operating expenses such as gasoline, oil changes, maintenance, insurance, tolls, and parking, but will need to document your costs. Keep those receipts!
  • You may still be required to keep a mileage log to prove you are using the vehicle for more than 50% business miles. If business use falls below 50%, you may be required to pay back some of the depreciation. Let’s just say that would be expensive and a headache.
  • If you depreciate 100% of the cost of the vehicle upfront, that will reduce your cost basis to zero. When you sell the vehicle, you may be creating a taxable gain.

Under the TCJA, these expansions to Section 179 are temporary through 2022; bonus depreciation will be phased back down from 100% to 0%. So if you want to buy an SUV or truck, you have a five-year window to take advantage of this full depreciation.

This tax deduction is especially effective if you have a banner year of high income and anticipate being in a very high tax bracket, because it will let you accelerate future depreciation on a vehicle into the current year, provided the vehicle is purchased and placed into service that year. Please remember that this section 179 deduction is available only to the self-employed and not to W-2 employees.

I feel I should point out that driving a large SUV or truck may not be the most cost effective decision. I am not suggesting everyone rush out and buy a Suburban just to get a tax deduction. But if you do need a vehicle for your business, or were thinking about buying a vehicle this year, it can certainly help to know about this tax deduction. And it might influence which vehicle you choose to buy!

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Self Employed? Discover the SEP-IRA.

Posted On April 11, 2016 By Admin In Retirement Planning /  

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The SEP-IRA is a terrific accumulation tool for workers who are self-employed, have a family business, or who have earnings as a 1099 Independent Contractor. SEP stands for Simplified Employee Pension, but the account functions similar to a Traditional IRA. Money is contributed on a pre-tax basis, and then withdrawals in retirement are taxable. Distributions taken before age 59 1/2 may be subject to a 10% penalty.

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A Business Owner’s Guide to Social Security

Posted On January 13, 2015 By Admin In Retirement Planning /  

Keyboard Hands

For many small business owners I meet, their business is their retirement plan. They expect that either they will be able to receive an income while handing off day-to-day management to an employee or they hope to sell the business and use the proceeds to fund their retirement. Both approaches carry a high degree of risk as the success of one business will make or break their retirement. As a financial planner, I want to help business owners achieve financial independence autonomous from their business.

Social Security plays a part in their retirement planning, but for most people covers only a portion of their expenses. While the Social Security Administration observes that 65% of participants receive more than half of their income from Social Security, the average Social Security benefit today is only $1294 a month and $648 for a spouse.

Five Social Security Considerations for Business Owners

For the sake of simplifying the points below, I am assuming that the business owner is the husband, but anyplace I use “he”, this could of course be “she”. Age 66 is the Full Retirement Age (FRA) for individuals born between 1943-1954, however, the FRA increases from 66 to 67 for individual born between 1955 and 1960.

1) Salary versus Distributions

While sole proprietorships generally pay self-employment tax on all earnings, business owners who have established as an entity such as a corporation or LLC may receive income from salary as well as distributions or dividends. Only salary is countable towards your Social Security benefit; other forms of entity income, such as distributions or dividends are not subject to Social Security taxes and therefore not used in determining your Social Security benefit amount. (Benefits are calculated based on your highest 35 years of income, inflation adjusted; the Social Security maximum wage base for 2014 was $117,000.)

Avoiding Social Security taxes (15.3%) is often a consideration in selecting an entity structure. For example, we may see an owner pay himself $50,000 in salary and take another $100,000 in distributions from the company profits, rather than taking all $150,000 as salary. At retirement, a business owner’s Social Security benefit amount is only based on their salary, so in the example above, his benefit amount will be less than a worker who received the full $150,000 as salary. I’m not suggesting that business owners should forgo these tax savings and take more income as salary, however, they should consult with their financial planner to estimate their Social Security benefits and create other vehicles to save and invest their tax savings to make up for the lower SS benefits they will receive as a result of taking a lower salary.

2) SS between 62 and FRA

Approximately half of SS participants start taking benefits immediately at age 62; 74% of current recipients are receiving a reduced benefit from starting before FRA. Starting at age 62 will cause a 25% reduction in benefits versus starting at age 66. While SSA will automatically recalculate your benefits if you continue to work while receiving benefits, the actuarial reduction (up to 25%) remains in place for life.

3) Survivor Benefits

Many people consider their own life expectancy in deciding when to start Social Security. The payback for deferring SS benefits from age 66 to 70 may take until age 79 or 80, depending on your estimate of COLAs. If the owner is concerned that they will not live past 79 or 80, they often take benefits at 66. However, there is an additional vital consideration which is survivorship benefits for your spouse.

A surviving spouse will receive the higher of their own benefit or the deceased spouse’s benefit. The higher earner’s benefit will end up being the benefit for both lives. Therefore, it often makes sense to maximize the higher earner’s benefit amount by delaying to age 70, especially if the spouse is younger and has a longer life expectancy. For each year you wait past age 66, you receive an 8% increase in benefits (delayed retirement credits or DRCs), which is a good return. When people take early benefits based solely on their own life expectancy, they fail to consider that their benefit also impacts their survivor’s benefit amount.

4) File and Suspend

One of the problems with delaying to age 70 is that the owner’s spouse will be unable to receive a spousal benefit until the owner files for his benefit. This is generally not an issue if the spouse has a substantial benefit based on her own earnings. If she does not, however, there is a solution to enable the spouse to receive her spousal benefit while the husband delays until age 70. In a “File and Suspend” strategy, the business owner files for benefits at age 66, to allow his spouse to receive her spousal benefit, (the full amount, provided she is also age 66 or higher). The owner then immediately suspends his benefit, which entitles him to earn the deferred retirement credits until age 70.

DRCs do not apply to the spousal benefit, so if the spousal benefit applies (spousal is higher than her own benefit, or she does not have a benefit based upon her own work record), she should not delay past age 66. That’s why it is essential to know if a spouse will receive their own benefit or a spousal benefit. The spouse should never delay past age 66 if receiving a spousal benefit – you’re losing years of benefits with no increase in amount.

To recap: File and Suspend works best when the spouse is the same age or older and has little or no earnings history on her own.

5) Claim Now, Claim More Later

For a business owner who is still working, but whose spouse has already filed for her own SS benefit, at his FRA, he can restrict his application to his spousal benefit and receive just a spousal benefit. This will allow him to still receive DRCs and delay his own benefits until age 70, while receiving a spousal benefit without penalty. That’s free money. (Note: this only works when spouse is already receiving benefits and he is at FRA. You cannot restrict an application to the spousal benefit prior to FRA.)

I can help you to compare different Social Security timing strategies to make the best decision for your situation. Before we get started, you will need to first download the current Social Security statements online at www.ssa.gov/myaccount/ for both yourself and your spouse. A Social Security statement never shows any spousal benefit amounts, and the calculators on the SSA website do not consider file and suspend strategies, so you cannot consider these scenarios without using other tools.

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