SSA-521 - But Only For Those On Social Security Who Have Leased

This is to raise awareness of SSA-521.  This post is very limited in scope.  If you have leased your land and collected a large bonus, and if you are on Social Security, you might be interested in this.  This will not help others, except if you are younger and your parents are not on the internet this might help them.

SSA-521 is a Social Security form which accomplishes withdrawal of a person's Social Security application.  It has become quite popular in the last several years for reasons completely unrelated to leasing.  I will not go into those things here.  You can research them on the internet.  Look for the work of Larry (or Laurence) Kotlikoff.  Here is a link to get you started:


but there are literally hundreds of internet articles out there on Kotlikoff's idea.

This is not about Kotlikoff and I will focus not on him, but instead on the tie-in to leasing:

The applicability here is for those who have leased and have been paid, or soon will be paid, a windfall bonus payment.  Even when bonus payments are split, the tax hit can be very great.  Anything that reduces income for the bonus tax year can be a help.  That's where SSA-521 comes in.  When you return your Social Security payments you are permitted to take a deduction for the year of the payback.  That has the impact of reducing your income at a critical time.  You also are not required to pay interest on the Social Security money.  So you end us having had the use of the money and receiving a potentially large deduction for its return, provided the return comes in the same year you receive your bonus payment.

This is a complex financial matter and I cannot fully detail everything here.  This post is only to raise awareness of SSA-521.  Some Social Security recipients are unaware this exists.

While the thought here is to help with leasing, the Kotlikoff benefits remain also.  If you believe we are headed into a time of very high inflation, the Kotlikoff approach is quite attractive completely aside from help with income reduction at a critical time.

I signed up for Social Security without consideration for eventual leasing of my land.  The leasing matter was quite uncertain when I signed up.  Well, leasing happened for me and I ended up with a windfall which rocketed me into a tax bracket heretofore unknown . . even with a split payment.  And of course next year it could go even higher.  This SSA-521 will mean thousands of dollars in my pocket.  In addition and quite aside from leasing, I do foresee inflation ahead.  When I reapply for Social Security (not for a few years) my monthly check will be much larger than before.  And that larger amount will be eligible for the Social Security inflation adjustment . . as per Kotlikoff.

In closing, and once again, this is NOT for everyone.  This approach has severely limited applicability.  But for some older folks, this might be a help.

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Replies to This Discussion

Permalink Reply by Jeanette Carrier on October 15, 2010 at 2:36pm
What happens to your Medicare benefits if you return your
soc sec payments?
Permalink Reply by Frank Walker on October 16, 2010 at 4:18am
Thank you for asking a very good question!

It is important when filing SSA-521 to use the space on the back of the form to state the application is to withdraw ONLY from Social Security. You must write there that you do not wish to withdraw from Medicare. This is completely within the rules. The only jeopardy would come if a mistake were made, and it is a really good idea to state your wishes unambiguously on the form.

The other impact on Medicare involves billing. I always had my Medicare Part B and my Medicare Part D paid directly, monthly, out of my Social Security payment . Before I filed SSA-521 I telephoned my Medicare Part D carrier and requested direct billing. The billing change for Medicare Part B will happen automatically once SSA-521 is filed. You will be billed directly.

There might even be a silver lining here . . . I'm not sure about this yet and I'm waiting to find out. But they told me that with direct billing it is OK to pay by credit card. If they do not assess a surcharge for credit card use, then I will save 1% on my Medicare Part B payments because I have a rebate credit card. If there is a surcharge, I will not pay with my credit card and will instead use their automatic checking account withdrawal option. But saving 1% would put a smile on my face so I have my fingers crossed.
Permalink Reply by Frank Walker on October 28, 2010 at 1:35pm
Well, this did not work out for me. I thought I should post about what happened. I learned a lot in the process of trying this, and a lot of what I learned did not leave me happy:

The advantage here was supposed to be income reduction for the gas leasing bonus payment year, with recovery later. Well, If nothing changes that actually would work out. Trouble is, there's no guarantee the law won't change. Social Security is a mess and the politicians are talking about a "means test" which could come into effect in the future. If the "means test" were to strike in a year you have (for example) a lot of royalty income, you would have trouble recovering your up-front SSA-521 payback money . . . not to mention trouble coming out ahead. So it's a risk and it turns out to be one with which I find myself uncomfortable. I am unable to conjure what Congress will do, or to know how they will resolve the Social Security fiasco.

Also there was this annoying discovery:

Do you know IRMAA?? Believe me, if you are a senior on Medicare, and if you are staring at a large gas leasing bonus, you don't want to run into IRMAA. IRMAA is an acronym which stands for:

Income Related Monthly Adjustment Amount

This relates to the cost of your Medicare Part B. The latter most often is simply deducted each month from your Social Security payment. I'm a person of average means, so I had never before run into IRMAA. But it turns out that:

If your income gets above $85000 then two years later you are in for the shock of your life. And if you got a really large gas leasing bonus, well, just LOOK OUT that's all I can say. Two years later your monthly cost for Medicare Part B could TRIPLE!!! I didn't know about any of this and I sure didn't know about IRMAA.

It turns out that in (roughly) 2005 the law changed. Since then persons with larger incomes pay more for Medicare Part B. I was never one of those persons, always was comfortably below $85,000. But with my leasing bonus I am way over the limit and it's gonna cost me big time two years from now. Gawd.

Finally, back on SSA-521:

I also didn't know that in 2010 there is a two tier structure for Medicare Part B payments. Those on Social Security pay $96.50 each month. But those on direct pay have to pay $110.50 each month for the same benefit. It's a wrinkle in the law relating to the 0% COLA. Bottom line is that there's a penalty for going off of Social Security . . . and I didn't know about this when I wrote the OP in this thread. In 2011 folks who continue on Social Security will remain at the $96.50 rate. But those on direct pay are expected to see a significant premium increase above even the current $110.50. I was naive about this. I never guessed the amount of the Medicare Part B premium would depend on how you paid your bill each month. I (wrongly) assumed everyone would be treated the same.

So bottom line, SSA-521 turns out not to be as good an idea right now as I originally thought. In future I still might consider this option in order to raise my monthly SS benefit. But I won't do so without knowing what Congress plans to do vis a vis "means testing". And it could be years before that finally is decided . . . if ever.

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