Episode 11: Questions, Questions & More Questions!

Here are just a handful of the things that you’ll learn:

Episode 11: Questions, questions & more questions!

Welcome to Round 3 of our Q & A series! Today we are going to talk about the loans from retirement accounts, and of course, social security!

(1:00) Disclaimer: Please do not take advice from me on this show. As a licensed Fiduciary I am only allowed to give advice to clients. Unless you’re a client I can’t give you advice because I don’t know you. Think of this as helpful hints and education only! And please, before implementing any information or ideas you hear on this show always consult your legal adviser, your tax adviser, and your financial adviser.

Practical planning segment:

(1:40) Guess what? We have some more questions! I like this series because we get to cover a lot of different areas but as usual, we have some Social Security questions!

As of 2012, Social Security’s Handbook had over 2700 separate rules governing its benefits.  And it has thousands upon thousands of explanations of those rules in its Program Operating Manual System, called the POMS, which provides guidance on implementing the 2,700 rules. Talk about a user’s nightmare! No wonder it’s so confusing and folks have a lot of questions regarding Social Security.

This one comes from a listener via email. I did reply to the listener by email, but I thought this was a good topic to cover. It goes as follows:

Hi Jeff – during one of your social security info sessions I learned that once my husband filed for social security, if ½ of his benefit is greater than mine, I could collect up to ½ of his. I recently ran into another financial adviser, and in casual conversation he told me that only applied if you were born before 1953. Is that true? 


This was my response: Sounds like the advisor is a bit confused about the changes that were made in 2015.  They are most likely referring to what’s called a “restricted application” for spousal benefits. That rule changed for people born on or after Jan 2nd, 1954.


You are still allowed regular spousal benefits under the new rules. You are entitled to your own benefit based on your own work history and an additional spousal benefit to equal no more than a maximum of 50% of your husband’s total benefit. This would only apply if you waited until your full retirement age to collect and would require your husband to also be collecting his own benefit.  If you collect early, prior to your full retirement age, then both your own benefit and your spousal benefit will be reduced.


(6:50) A quick rule of thumb: if you ever start collecting benefits early, whether spousal, survivor or your own, it will be reduced permanently. You may get cost of living increases/adjustments each year, but the starting point will be reduced permanently. FRA: for most folks and for this listener, the full retirement age is 66. (If you were born between 1943 and 1954) If you were born between 1955 and 1960 then you add two months per year after 1955 (i.e. if you were born in 1955 then your FRA is 66 & 2 months.) If you were born after 1960 then your full retirement age is 67. Your FRA is the age that you are entitled to 100% of your full retirement benefit.


I went on to give this listener an example:


Jeremy has a PIA at FRA of 66 of $2,200 and Samantha has a PIA at FRA 66 of $600


If Samantha collected her own benefit at FRA, she would receive $600. If she collected at age 62, that would be reduced by 25% to $450. If she waited until age 70, the $600 would increase by 32% to $792.


Now let’s add spousal benefits to the equation, it becomes a little more complicated.  It is important to note that your own benefit and spousal benefit are NOT aggregated, but rather coordinated.


Samantha’s spousal benefit is worth $1,100 (50% of Jeremy’s PIA of $2200).


That means if she collects her spousal benefits at FRA along with her own, she’ll add an additional $500 of spousal benefits to her own $600 for a total of 1,100 (50% of Jeremy’s benefit).


If she takes the spousal benefit at age 62, her $500 will be reduced by 30% to $350 for a benefit total of $800. On the other hand, if she waits until age 70 for both benefits, her spousal benefit will only be enough to get her $1,100 (her maximum spousal benefit). In this case she would add $308 to her own $792 for a total benefit of $1,100.


It is important to note that you cannot file for a spousal benefit unless your spouse has already filed for their individual benefit as well.


So in this case it makes absolutely no sense for Samantha to wait until 70. She’s not gaining anything. She’s only allowed a maximum of 50% of Jeremys which is 1100. Which she would receive at her FRA of 66 (600 own and 500 spousal). She’s getting $1100 per month for 4 years from age 66 to 70 (that’s $52,800 vs waiting to age 70 to receive the same amount 50% of $1100…50% of Jeremy’s.


This is why having your SS analyzed is so important, so you don’t leave any money on the table by not understanding the rules.


(16:30)*Shameless plug………. We do SS planning in combination with everything else! It’s extremely important to have an advisor look at the full picture because having a withdraw plan or income plan. After retirement is crucial for success and your 401k, IRA, general savings, pensions, expenses, longevity, health coverage, all play a factor in when to take your SS.


(17:30) Dates and filing strategies… what changed in 2015? Congress changed the rules at the end of 2015 and they grandfathered in some folks that are able to file under the old rules. Those born on or after January 2nd 1954, then the new rules apply to you. You are still allowed spousal benefits, but you are no longer allowed to file a restricted application. They did not change anything for survivor benefits! You can take this as early as age 60, but it will be reduced. You can take it early and delay taking your own all the way up until age 70.


Hopefully this cleared things up, if you have any more questions please email us at, give us a call at (410)-208-1004, or voice record your question here.


If you are not currently a client and you want to schedule a 15 minute “fit meeting”: go to our website at and you’ll see a tab to Schedule a Meeting. Simply fill out the quick form with you name, email, and phone number and Kristen from our office will schedule a 15 min call. It shouldn’t take any more than 15 min. to see if there are areas where we can help you.


(21:20) Can you explain how to borrow from your retirement accounts and how it gets paid back?


Well this is kind of a vague question. What type of retirement accounts? 401k’s 457b’s IRA’s, Roth???  That is the main question if specifically asking about loan provisions! What we’ll do to answer this question is go over some general rules. Now whether this is a good idea or not is an entirely different question. I’m going to assume that this listener has no other choice but to do this. However, I really feel like this should be a last resort or a truly unique circumstance.


Basic rules: not all retirement accounts have loan provisions. Under Federal rules, IRA and IRA based plans (SEP & SIMPLE) do not allow plan loans.


So I am going to assume this person is talking about a 401k, 403b, 457b plan. Why? Because loans are allowed in these types of accounts if you are still an active employee.  On some 403b and 457b plans if held as individual accounts with 3rd party custodian MAY allow loans to non-active employees. Make sure you check with your plan administrator!


Even though loans are allowed from your 401K, they are often limited to the pre-tax part of your account, not the Roth portion. Many times there are maximum amounts that can be borrowed. The maximum plan loan from a 401k, 457b or 403b is the greater of ½ of the employees vested account value or $10,000, or $50,000. Ex: if you have $100,000 in your 401k then your max loan amount would be $50,000. If you have $40,00 in your 401k then your max loan amount would be $20,000.


(26:45) Let’s talk about the rules governing the terms of the loan. The loans must be re-paid within 5 years except for loans used to acquire a principle residence. What happens if you get terminated or change jobs during the loan term? Most plans treat this as an acceleration of the loan. You may find yourself in a position where you have to repay the loan immediately. IF you don’t, then it will be treated as a taxable default of your 401k or 403b plan.


What if the loan participant passes away during the term of the loan? It will be treated as a taxable default to the estate of the decedent.


What if you miss a payment? The loan is considered delinquent. If the payment is not made by the end of the quarter in which the payment was due then the loan would be considered in default, and it would be taxable. You would receive a 1099R form for a taxable distribution from your retirement plan. AND if you are under 59 ½ you could also incur a 10% early distribution penalty.


If you don’t default, follow all the rules, and repay according to the entire payment schedule, then you won’t incur any taxes. You will only incur taxes if you terminate employment, miss a payment, or default on the loan.


Closing Segment: We appreciate you joining us today for this episode of The Fiscal Blueprint. Be sure to visit to access the most recent content available including all past shows.

Remember it’s not about the money but about your life! Having a mindset and living a life of abundance rather than scarcity will change the direction of your life forever!! Enjoy the Journey!!!

Final Disclaimer: “Opinions voiced in this recording are for general information only and not intended to offer specific advice or recommendations to any individual. All performance references are historical and no guarantee of future results. All indices are unmanaged and not available for direct investment.”