Stimulus: What's in it for retirees

On the face it of, the bill might not seem to offer much to those in their golden years, but take a closer look and you may find a few goodies that can benefit you post career.

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By Walter Updegrave, Money Magazine senior editor

Walter Updegrave is a senior editor with Money Magazine and is the author of "How to Retire Rich in a Totally Changed World: Why You're Not in Kansas Anymore" (Three Rivers Press 2005).

NEW YORK (Money) -- Question: What does the new stimulus package do for people receiving Social Security benefits? --Bonnie, St. Petersburg, Florida

Answer: At first glance, it may seem like the giant stimulus bill president Obama signed on February 17th doesn't do a heck of a lot for people who have already retired. Indeed, there's only one provision targeted exclusively to Social Security recipients and other retirees.

But if you think more broadly about the package, you'll find that retirees like you may be able to take advantage of more than a few of its goodies, even if they're not specifically aimed at the retirement crowd.

So let's take a little tour through the legislation that our legislators have optimistically dubbed the American Recovery and Reinvestment Act of 2009 to see which provisions you and other retirees might cash in on.

Payments to Social Security recipients: This is the obvious benefit for retirees. If you're collecting Social Security payments, you'll get a one-time $250 tax-free payment for this year, regardless of your income. Retired government workers who don't receive Social Security will get a one-time $250 tax credit instead. Since that credit is "refundable" -- i.e., you get the amount of the credit even if you owe no income tax -- it amounts to the same benefit that Social Security recipients receive. If you and your spouse are both collecting Social Security (or are government retirees), you'll get a total of $500.

Exactly how and when checks will be distributed hasn't been announced, although the legislation says payments should begin "at the earliest practicable date, but in no event later than 120 days" after the bill is signed.

Make Work Pay Credit: This provision, which provides a tax credit of up to $400 for singles (up to $800 for married couples filing jointly) for 2009 and 2010, is really designed to get money into the hands of working people, not retirees. But these days many retirees also work occasionally or hold regular part-time jobs (whether because they want or need to). So if you're retired and have earned income, you may be able to qualify for this tax credit (which is also refundable).

But there are two caveats you need to be aware of. First, the credit begins phasing out once your income exceeds $75,000 ($100,000 if married) and disappears once your income exceeds $100,000 ($200,000 if married).

Second, if you also get the $250 Social Security benefit, you must deduct it from whatever you qualify for under Make Work Pay. So, if you would receive a $400 credit under Make Work Pay, you subtract the $250 you'll get for being on Social Security, leaving you with a $150 Make Work Pay credit. That brings your total benefit to $400 (the one-time $250 payment plus $150 left on your Make Work Pay credit).

If, on the other hand, you qualified for $250 or less under Make Work Pay, subtracting your $250 one-time payment would leave you with zip from Make Work Pay. In which case you would get just the $250 one-time payment.

First-time homebuyer credit: On the face of it, it might seem unlikely that a retiree could qualify for a program aimed at first-time homebuyers. But, hey, we're talking about first-time homebuyers as defined by the U.S. Congress. And for the purposes of the stimulus package, you qualify as a first-time buyer as long as you (or your spouse, if you're married) haven't owned a primary residence in the U.S. the last three years.

That opens up some possibilities. Let's say you sold your home three or more years ago to free up some cash or to relocate and that since then you have been renting. Well, if you think house prices have reached the point where you can scoop up a bargain, you may be able to buy and qualify for a refundable first-time homebuyer tax credit of up to $8,000.

Naturally, there are restrictions. The house must be your primary residence (so no second homes) and must have been purchased between Jan. 1 and Nov. 30 2009. The credit begins phasing out once your income hits $75,000 ($150,000 if married) and disappears at $95,000 ($170,000 if married). And you must repay the credit if you sell the house or stop using it as your principal residence within three years of buying.

By the way, if you meet the three-year ownership test and bought a home between last April 8 and the end of 2008, you may be able to qualify for an earlier version of this credit. The 2008 credit maxes out at $7,500, however, and you must repay the credit over 15 years even if you stay in the home three or more years.

Energy-conservation credit: Even if you don't buy a home, you may be able to grab a tax credit by boosting the energy efficiency of your current one, as the legislation increases the value of several existing energy-related credits. For example, the bill allows you to take tax credits of up to $1,500 between 2009 and 2010 for energy-efficient home improvements that can include everything from new windows to a water heater, even a new central air-conditioning system. The package has even more generous alternative energy provisions, allowing for annual tax credits of 30% of the cost of solar-energy heating systems, geothermal heat pumps and wind energy systems for 2009 through 2016. These credits are not refundable, however, which means you must owe income tax to take advantage of them.

New-car sales tax deduction: If you're thinking of capitalizing on sagging auto sales by buying a new car, you may also be able to grab a nifty tax break at the same time. The bill allows you to deduct sales or excise taxes on the first $49,500 of the sales price of a "qualified motor vehicle" (which includes cars, light trucks and, yes, motorcycles and RVs!) bought between February 17 and the end of the year. To get the full deduction, your income can't exceed $125,000 ($250,000 for married couples).

You can take this as an "above the line" deduction, which means you'll get it even if you don't itemize expenses when you file your tax return. That's a plus for retirees, as many may no longer have enough deductible expenses to allow them to itemize.

Education credit: The stimulus package renames the HOPE education credit (it's now the American Opportunity Tax Credit) and, more importantly, expands it from a maximum of $1,800 to $2,500 per year. Like other parts of the bill, this one isn't really designed for retires. But if you're retired and taking a course at a local college, you may be able to capitalize on it. To qualify, however, your income must be less than $80,000 ($160,000 if married), you must be enrolled at least half time in a program leading to a degree and you cannot have already completed the first two years post-secondary education. The credit is 40% refundable. (PS: Although the stimulus bill didn't expand the Lifetime Learning credit, you may want to check it out if you can't take advantage of the new version of HOPE.)

The rest: There are a few other parts of the package that, while not necessarily inserted with retirees in mind, could nonetheless provide relief. For example, the bill expands the earned income tax credit, which is designed to help low-income workers, in a way that would make it apply more easily for married couples, including seniors, with low levels of earned income.

Conversely, high-income seniors could benefit from a provision that prevents more middle-to-upper-middle income Americans from falling prey to the incredible expanding alternative minimum tax, or the dreaded AMT, as it's better known.

And while the administration's proposals to stem housing foreclosures by making it easier for certain homeowners to refinance or renegotiate the terms of their home loans aren't part of the stimulus bill itself, retirees who are struggling to stay current on their mortgages may be able to lower their housing costs and, in so doing, improve their retirement prospects.

Finally, let's not forget that retirees could also benefit from the stimulus package and related efforts to revive the economy in a less direct way. To the extent the bill and other government measures get people working again and boost economic activity, such efforts could restore confidence in the markets and eventually help battered 401(k)s and other retirement accounts regain lost ground.

Of course, it's still far too early to say whether the stimulus bill will actually stimulate and, even if it does, how long it may take for longer term benefits to materialize. In the meantime, though, you and other retirees can count on getting an extra $250 at the very least, and, depending on your particular situation, possibly much more. To top of page

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