|
|
09-19-2015, 11:12 AM
|
#21
|
Thinks s/he gets paid by the post
Join Date: Jan 2008
Posts: 1,495
|
Quote:
Originally Posted by DEC-1982
+1
This is pretty close to my plan. At some point I may use some Roth IRA withdrawals to ensure my taxes remain at the 15% level. However, I have no idea how the tax regime will change over the next 30-40 years.
|
Question: what's your logic behind taking from taxable first (versus tax-deferred)? I ask because my intention now at 60 is to use up as much tax-deferred space as possible (while remaining below 15% tax rate) before taking SS at 70 in order to minimize SS and RMD tax torpedo.
|
|
|
|
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!
Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!
You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!
|
09-19-2015, 12:32 PM
|
#22
|
Thinks s/he gets paid by the post
Join Date: Jun 2007
Posts: 2,657
|
I've heard similar advice elsewhere - use taxable first, then tax deferred, then tax free (Roth) in that order. I think the intention is to defer taxes as long as possible and preserve tax free money most of all. But I agree that this logic is too simple and needs to be adapted based on sizes of accounts and the possibility of RMD (and SS) causing a big tax in later years.
|
|
|
09-19-2015, 02:14 PM
|
#23
|
Thinks s/he gets paid by the post
Join Date: Jun 2014
Posts: 1,069
|
To those that don't understand double taxation roth, consumption taxes would be expected to replace some portion of income taxes. It just one of a litany in risks that need considered. I like some in the roth, but only after i've maxed the 401.
Sent from my iPhone using Early Retirement Forum
|
|
|
09-19-2015, 02:24 PM
|
#24
|
Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,366
|
Quote:
Originally Posted by dallas27
To those that don't understand double taxation roth, consumption taxes would be expected to replace some portion of income taxes. It just one of a litany in risks that need considered. I like some in the roth, but only after i've maxed the 401.
Sent from my iPhone using Early Retirement Forum
|
That's more complex. But in that case I would also expect an extra tax on tIRA's to make sure they paid the old income tax instead of the new reduced amount. I'm sure a switch like that would be a real tangle.
|
|
|
09-19-2015, 05:17 PM
|
#25
|
Thinks s/he gets paid by the post
Join Date: Jun 2007
Posts: 2,657
|
They have been talking about this potential tax change for more than 40 years, yet it is no more likely now than it was when the idea was first floated. I'm not saying it cannot happen, but this is a lot more consideration than the idea deserves. If you arrange your affairs to avoid problems with potential future legislation you will be paralyzed as people are always proposing all kinds of contradictory and unlikely things.
|
|
|
09-19-2015, 05:37 PM
|
#26
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,374
|
+1 I certainly would not base my tax-deferral strategy on something as unlikely as a consumption tax when there are much more likely alternatives.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
|
|
|
09-19-2015, 05:38 PM
|
#27
|
Recycles dryer sheets
Join Date: Nov 2014
Posts: 150
|
For the OP, another strategy for covering until 59.5 (or 55 if you have a 401k with such a retirement feature included) is to planfully employ a SEPP on your IRA funds. SEPP == Substantially Equal Periodic Payments and is also referred to as the 72-T rule, due to where it is defined in the IRS tax codes. A SEPP entails prescribing a fixed amount to be distributed, and not deviated from, annually from an IRA until 59.5 at which time the SEPP can be broken (I believe). No contributions can be made to a SEPP'd IRA and there are other rules as well as steep penalties for getting this wrong. Definitely something to be undertaken only after close planning, but it is a way to get at some of that Traditional IRA and/or 401k money you may have squirreled away before the age of 59.5 (or 55 for 401k plans with that early access feature).
__________________
The kids used to call me Captain Slow; now they also use Captain Cheap. I tell them, "Talk to the portfolio!"
|
|
|
09-19-2015, 06:05 PM
|
#28
|
Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
|
Quote:
Originally Posted by pb4uski
+1 I certainly would not base my tax-deferral strategy on something as unlikely as a consumption tax when there are much more likely alternatives.
|
Very true. A dollar devaluation might be more likely...
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
|
|
|
09-19-2015, 07:48 PM
|
#29
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,588
|
We have no taxable assets. Our case is very simple. I suspect we are not alone.
Sent from my SM-G900V using Early Retirement Forum mobile app
__________________
I have outlived most of the people I don't like and I am working on the rest.
|
|
|
09-20-2015, 04:46 AM
|
#30
|
Thinks s/he gets paid by the post
Join Date: Dec 2012
Location: Georgia
Posts: 2,240
|
Quote:
Originally Posted by bingybear
LTCG and Q-divys are not taxable until you exceed the 15% bracket.
|
Quote:
Originally Posted by growing_older
I've heard similar advice elsewhere - use taxable first, then tax deferred, then tax free (Roth) in that order. I think the intention is to defer taxes as long as possible and preserve tax free money most of all. But I agree that this logic is too simple and needs to be adapted based on sizes of accounts and the possibility of RMD (and SS) causing a big tax in later years.
|
I suppose if RMDs later in life could shift one into the 28% or 33% tax brackets, then it does make sense to consider filling the 25% tax bracket earlier in retirement, even though it boosts the capital gains tax rate. However, I need to understand a bit more about that. If you're $1 over the limit into the 25% tax bracket, do all your LTCG get taxed at 15%. (I think so.) As such, I think it would be really hard to find a scenario where one does have significant taxable investments and could do much better than the "simple" approach of filing the 15% tax bracket as long as you're able. Perhaps an example with numbers will help make the point clearer?
|
|
|
09-20-2015, 12:00 PM
|
#31
|
Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,366
|
Quote:
Originally Posted by bUU
I suppose if RMDs later in life could shift one into the 28% or 33% tax brackets, then it does make sense to consider filling the 25% tax bracket earlier in retirement, even though it boosts the capital gains tax rate. However, I need to understand a bit more about that. If you're $1 over the limit into the 25% tax bracket, do all your LTCG get taxed at 15%. (I think so.) As such, I think it would be really hard to find a scenario where one does have significant taxable investments and could do much better than the "simple" approach of filing the 15% tax bracket as long as you're able. Perhaps an example with numbers will help make the point clearer?
|
I've definitely modeled it both ways for my case. My calculations showed I could spend more by Roth converting up to about the AMT level now, well into the 25% bracket, even though I'm living off my taxable accounts and could fit that within the 15% tax bracket with 0% capital gains. I do avoid 25% income tax later when I hit 70.
For the 15% 0% LTCG "bracket", both income and CG's must fit within the 15% tax bracket. If you add $1 of income after it's full, that $1 is taxed 15% and $1 of CG now falls outside the bracket and is taxed at 15%. That's the 30% marginal tax rate that has been discussed on the forum before. If you add $1 of CG after the tax bracket is full you just owe 15% of that $1 for taxes. There is not a case where $1 over the bracket causes all CG's (>$1) to be taxed.
|
|
|
09-20-2015, 02:16 PM
|
#32
|
Thinks s/he gets paid by the post
Join Date: Sep 2007
Posts: 1,214
|
Quote:
Originally Posted by bUU
However, I need to understand a bit more about that. If you're $1 over the limit into the 25% tax bracket, do all your LTCG get taxed at 15%. (I think so.)
|
No, it doesn't. I used to think so, a long time ago, but an expert set me straight.
That portion of your LTCG & dividends that falls into the 15% bracket is not taxed. Only the porttion that is in the 25%+ bracket(s) get taxed.
Add up all your income *except* LTCG and dividends. The difference between that and the top of the 15% bracket is the amount of CG & div that is not taxed.
Example: for 2015, filing as MFJ, pension, SS, STCG, interest, deductions, etc. netting to $40,000, you can have $34,900 ($74, 900 - $40,000) of LTCG & dividends that are not taxed. If you have $35,900, you pay LTCG/div tax on $1,000. 15% of $1000 = $150.
|
|
|
09-20-2015, 04:44 PM
|
#33
|
Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 4,172
|
Quote:
Originally Posted by rayvt
No, it doesn't. I used to think so, a long time ago, but an expert set me straight.
That portion of your LTCG & dividends that falls into the 15% bracket is not taxed. Only the porttion that is in the 25%+ bracket(s) get taxed.
Add up all your income *except* LTCG and dividends and then subtract deductions/exemptions/adjustments. The difference between that and the top of the 15% bracket is the amount of CG & div that is not taxed.
Example: for 2015, filing as MFJ, pension, SS, STCG, interest, deductions,exemptions,adjustments etc. netting to $40,000, you can have $34,900 ($74, 900 - $40,000) of LTCG & dividends that are not taxed. If you have $35,900, you pay LTCG/div tax on $1,000. 15% of $1000 = $150.
|
I can tell that you know your stuff but I think your brain was going a million mph and left a few words behind. I added a few words above to clarify .
|
|
|
09-20-2015, 06:47 PM
|
#34
|
Thinks s/he gets paid by the post
Join Date: Dec 2014
Posts: 2,511
|
Quote:
Originally Posted by bUU
I suppose if RMDs later in life could shift one into the 28% or 33% tax brackets, then it does make sense to consider filling the 25% tax bracket earlier in retirement, even though it boosts the capital gains tax rate. However, I need to understand a bit more about that. If you're $1 over the limit into the 25% tax bracket, do all your LTCG get taxed at 15%. (I think so.) As such, I think it would be really hard to find a scenario where one does have significant taxable investments and could do much better than the "simple" approach of filing the 15% tax bracket as long as you're able. Perhaps an example with numbers will help make the point clearer?
|
Yes this is possible for some situations. But one with Q-divys and LTCG will also start paying a 30% marginal rate when they exceed the 15% bracket (--- tax on each $ of new ordinary income, STCG, NQ-divy (at the 15% bracket + 15% of the LTCG/Qdivy that is pushed out of the 15% bracket.) So the benefit really has to be weighed on the individual case as you could be paying more tax now than later based on local marginal rates.
|
|
|
|
|
Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
|
|
Posting Rules
|
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts
HTML code is Off
|
|
|
|
» Recent Threads
|
|
|
|
|
|
|
|
|
|
|
|
|
» Quick Links
|
|
|