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View Poll Results: What tax bracket are you?
10 16 8.38%
15 50 26.18%
25 55 28.80%
28 30 15.71%
33 16 8.38%
35 7 3.66%
39.6 17 8.90%
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Old 04-21-2015, 06:42 PM   #41
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I'll never be below the 25% bracket. Pensions are wonderful things, so I certainly won't complain about paying the taxes.
I can sympathize. I'm in the same boat. With high pension, I get hit with 85% taxable on the late DW's SS account. It will be worse when I reach 70.5 with RMD and switching to my SS account. I'll be crying all the way to the bank.

25% for me.
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Old 04-21-2015, 07:10 PM   #42
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I also did a Roth conversion over the top of the 15% bracket, then recharacterized down to the limit. According to TT my effective tax rate was 4.14%. Not sure exactly how they get that.
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Old 04-21-2015, 08:20 PM   #43
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15% here, and it should stay that way for a long time..........
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Old 04-21-2015, 08:31 PM   #44
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Not at all. You can easily be in within the 15% tax bracket but pay the NIIT if most of your income is from long-term capital gains and qualified dividends. You won't pay the higher income tax brackets on ordinary income. You might even get 0% tax on some of your cap gains/qual dividends. You'll probably be driven to pay some AMT though. That acts like a 26% tax bracket on part of your ordinary income - but only applies to ordinary income.
Thanks Audreyh1 - I can now see that if a single taxpayer with $150,000 in qualified dividends earns $10,000 in additional income, regardless of the source, the additional tax due will be 15%. Therefore his/her marginal tax rate is 15%.

This is counterintuitive in that his taxable income puts him squarely in the 28% tax bracket of the standard IRS rate schedules (for income that does not contain LTCGs or qualified dividends.)

It would take a significant amount of additional non-qualified income to displace all the qualified dividends before a marginal rate other than 15% shows up, and by that time he may be in yet another standard tax bracket.

I guess the moral of the story is that the preferred tax effects on qualified dividends/LTCGs go way beyond the actual dividend/cg income.

-gauss
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Old 04-21-2015, 08:34 PM   #45
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28% bracket; 13% effective. Cannot escape 40K SS and 80K RMD in a couple of years plus dividends and LTCGs. Effective tax rate will then be much higher.
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Old 04-21-2015, 09:39 PM   #46
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Pls deduct 1 vote from the 10% poll. Wanted to look.
No state or federal taxes since 1989.
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Old 04-21-2015, 09:40 PM   #47
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15% while working, should be 15% going forward into retirement. It's a beautiful thing!
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Old 04-21-2015, 09:51 PM   #48
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I am generously curious about how you ended up paying the 3.8% Net Investment Income Tax while remaining in the 25% bracket. Perhaps you have many Schedule A deductions or you are effected by the (cryptic) MAGI calculation for NII described below.

I was under the impression that NII only applies to taxpayers with MAGI over 200,000/250,000 for single/married returns, which I thought would usually imply a nominal marginal tax bracket of at least 28% or 33%.

-gauss
AGI includes capital gains, which don't count towards the regular tax bracket amounts.

The basics were $41k DW income for last partial year, $100k Roth conversion, $4k interest, $12k non-qualified dividends, $19k qualified dividends, $110k LTCG (active mutual funds went crazy for the most part), $7.5k HSA deduction and $24k itemized deduction. MFJ.

Regular taxable income was about $120k, right in the 25% tax bracket. AGI was about $279k, so $29k was subject to the 3.8% tax. Roth conversions brought us right up to where we would have started to pay AMT, which we purposely avoided. LTCG taxes filled in the rest.

Tax/AGI = 13.9%
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Old 04-21-2015, 11:09 PM   #49
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I also did a Roth conversion over the top of the 15% bracket, then recharacterized down to the limit. According to TT my effective tax rate was 4.14%. Not sure exactly how they get that.
I think that TT calculates the effective rate as the total tax (line 56) divided by AGI (line 37).

3.29% for me even though my TI was $73,800 (top of the 15% tax bracket) because ~40% of our income is qualified dividends and LTCG and therefore 0% tax.
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Old 04-21-2015, 11:10 PM   #50
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I answered 15% because that is my federal marginal rate (more or less, read on) for an additional dollar of ordinary, fully taxable income. But......about half of my income, which is all investment income, is not taxable at the federal level. That includes LTCG, Qualified Dividends (QD), and muni bond fund dividends. So the type of source I get that extra dollar from greatly determines my marginal rate.


Another thing I realized a few years ago was that a 0% rate on LTCG and QD does not always translate to no change to my total federal tax bill. If I were deducting my medical expenses, then the 7.5% (back then) or 10% (now) of AGI exclusion from deductible medical expenses would rise and increase my taxable income slightly.


All of this doesn't include the impact of the ACA on MAGI and the total tax credit/subsidy. Last December, I had a spike in my investment income and it decreased my ACA credit whether or not it increased the rest of my tax bill.
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Old 04-21-2015, 11:20 PM   #51
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Oh boy. Meaningless number time! If we go by what federal income tax bracket our last dollar earned nominally places us in, we are in the 15% bracket. If we go by our effective federal tax rate, or what percentage of our adjusted gross income is sent to the federal government as income tax, we have a rate of -2%. Negative two percent.

Some early retirees are placed in an unusual position by the existing tax laws and income tax code. I don't write the laws. I just follow them, with this odd result.
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Old 04-22-2015, 09:00 AM   #52
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I'll never be below the 25% bracket. Pensions are wonderful things, so I certainly won't complain about paying the taxes.
I'm still far from retirement but yes, I'd rather pay taxes and get a guaranteed pension with annual COLA than be reliant on just my 401k (or 457b in my case). I'm hopeful I won't need the IRA and 457b account apart from discretionary spending. That said, since it's early days for me, I'm trying to hedge my bets in minimizing the tax hit from now until retirement.
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Old 04-22-2015, 09:30 AM   #53
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So if I make 10,000 more than planned in 2015, I lose ~7500 in ACA premium credits. Doesn't that put me effectively in the 75% marginal tax bracket? That isn't even figuring the actual income taxes and self-employment taxes on that extra 10,000
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Old 04-22-2015, 09:43 AM   #54
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I answered 25% as well, because that's the top rate my wage income is taxed at. But my total AGI, which included a lot of dividends, capital gains, etc, came out to a number that, if it was all wage income, would have landed me well into the 28% bracket.
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Old 04-22-2015, 10:28 AM   #55
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I manage income through Roth conversions to consume the 28% bracket and avoid the hidden 30% bracket.
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Old 04-22-2015, 03:33 PM   #56
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So if I make 10,000 more than planned in 2015, I lose ~7500 in ACA premium credits. Doesn't that put me effectively in the 75% marginal tax bracket? That isn't even figuring the actual income taxes and self-employment taxes on that extra 10,000
Welcome to the infamous Obamacare cliff.

After ACA credits, FICA and OADI, federal tax and state taxes are considered your taxes on that extra $10,000 of earnings might be close to 100%.
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Old 04-22-2015, 04:11 PM   #57
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Thanks Audreyh1 - I can now see that if a single taxpayer with $150,000 in qualified dividends earns $10,000 in additional income, regardless of the source, the additional tax due will be 15%. Therefore his/her marginal tax rate is 15%.

This is counterintuitive in that his taxable income puts him squarely in the 28% tax bracket of the standard IRS rate schedules (for income that does not contain LTCGs or qualified dividends.)

It would take a significant amount of additional non-qualified income to displace all the qualified dividends before a marginal rate other than 15% shows up, and by that time he may be in yet another standard tax bracket.

I guess the moral of the story is that the preferred tax effects on qualified dividends/LTCGs go way beyond the actual dividend/cg income.

-gauss
What it means is that the "tax brackets" applies only to ordinary income such as wages or interest. Long-term cap gains and qualified dividends are taxed in a different way, although even they have brackets that are influenced by the total taxable income.

AMT introduces yet a third set of brackets on ordinary income once your total income minus AMT exemption crosses a certain threshold. Essentially overriding the "normal" tax brackets for ordinary income.

Quite a few retirees with most of their investments in taxable accounts receive more income in long-term cap gains and qualified dividends than they do in ordinary income. Sometimes far more. That has been our situation ever since we retired.

Anyway - ordinary income "tax brackets" kind of lose their meaning.
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Old 04-22-2015, 05:01 PM   #58
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Year BRCK EFR
2010 35 27.72
2011 35 27.85
2012 35 27.78
2013 39.6 31.01 (last year - retired EOY)
2014 28 15.46 (some consulting work)

Add state of CA tax and other taxes to that and net income was drastically reduced.
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Old 04-23-2015, 12:02 AM   #59
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Thanks Audreyh1 - I can now see that if a single taxpayer with $150,000 in qualified dividends earns $10,000 in additional income, regardless of the source, the additional tax due will be 15%. Therefore his/her marginal tax rate is 15%.

This is counterintuitive in that his taxable income puts him squarely in the 28% tax bracket of the standard IRS rate schedules (for income that does not contain LTCGs or qualified dividends.)

It would take a significant amount of additional non-qualified income to displace all the qualified dividends before a marginal rate other than 15% shows up, and by that time he may be in yet another standard tax bracket.

I guess the moral of the story is that the preferred tax effects on qualified dividends/LTCGs go way beyond the actual dividend/cg income.

-gauss
This is an interesting example of how intuitions have to be trained before something becomes intuitive. Your example of a 15% marginal rate for a 10K addition of any kind of income works only because the 10K addition is less than the std deduction/exemption by just a bit. That means that if the 10K you added was ordinary income and you add just a bit more ordinary income , you will encounter a 25% marginal bracket and then if you add still more ordinary income, you will find the 30% marginal bracket. Thanks for the training.
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Old 04-23-2015, 04:32 AM   #60
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i just looked at our numbers for last year since they were one of the worst tax wise for us in a few years and about as bad as it can get for us since we had a very large capital gain sale..

after subtracting out maxing out 401k's, and pretax medical , agi was 461,136.00 with 424,659 being taxable income . that included a 307,000.00 long term capital gain on the lease rights we sold, about 60k in distributions from fidelity in long term capital gain items and us working part time.

federal taxes were 72,384.00 PLUS the AMT penalty of 17,003.00 for a total federal bill of 89,387.00

that is 21% from dollar one . overall not to bad

new york state and nyc taxes were 42,027.00

total federal and local taxes on 424,659.00 were 131,414.00


that is a 31% effective rate .


i don't think an effective rate of 31% is to bad on that kind of income at all. and we are one of the highest tax states and cities in the country .

but keep in mind most of that did get special tax treatment as a long term capital gain t . if it was earned income it would have been taxed a bit higher.

what i found interesting is that the state and local taxes were almost 1/2 the federal amount and that is because state taxes do not reflect the fact the federal taxes have a special long term capital gains rate while states do not.


boy , if i could have an income like that every year instead of these sales being once in a while i would gladly pay those taxes,

this year taxable income in retirement will likely be in the 15% bracket , perhaps with just a touch extending in to 25% but that is marginal rate not effective rate like the above.
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