Possible to receive both SS payments and RMDs and have Fedl bracket <25%?

[haha]

By 2013 I will have paid all taxes on Roth conversion made in 2010. I am trying to decide whether to make additional Roth conversions this year. I know that the entire conversion will be at least 25%, and I will keep it below 27.5%. Even without the conversion I can't get any of LTCGs at 0%.

So the only way I can lose with the conversion is if I should be taxed in the future at <25%. As best I can remember, I have never had a marginal rate less than 25%. I use standard deduction, and I am my only exemption.

I am wondering if any members who are getting both SS and taking RMDs are able to say below 25%?

Ha

 

[FIREd]

I suppose it depends on the size of your SS benefit and IRA.

My MIL's total income (~32K/year) is composed of a reverse mortgage (non-taxable), return of capital (non taxable), SS benefits (non taxable at her income level), and RMDs from her IRA. So the RMDs are her only taxable income and after taking the standard deduction and claiming one exemption, the RMDs are basically non-taxable.

But... For the first time since 2008, she received a few thousand dollars of alimony in January and that will be enough to propel her in the 25% tax bracket for 2013 (part of her SS, RMDs, and alimony all become taxable income).

 

[haha]

I suppose it depends on the size of your SS benefit and IRA.

My MIL's total income (~32K/year) is composed of a reverse mortgage (non-taxable), return of capital (non taxable), SS benefits (non taxable at her income level), and RMDs from her IRA. So the RMDs are her only taxable income and after taking the standard deduction and claiming one exemption, the RMDs are basically non-taxable.

But... For the first time since 2008, she received a few thousand dollars of alimony in January and that will be enough to propel her in the 25% tax bracket for 2013 (part of her SS, RMDs, and alimony all become taxable income).

Thanks. I know that people who are living relatively little may be in the 15% bracket, but although I am a long way from well off, I do have a fair amount of investments outside my IRAs. It's hard to predict the future!

My SS does not amount to much, and the RMDs either.

Ha

 

[donheff]

I would think you could just estimate your RMDs in a presumed OK but fairly conservative market scenario going forward and calculate the taxes against today's rates to see where you will likely be. If the market tanks big time maybe your RMDs will be enough lower to make a difference. But, what the hey - you ERd so you are an optimist, right?

 

[grasshopper]

I have 8 years before RMD's Ms G has 11. My projections show that it will be very close to 25% when both are taking SS and RMD's. My spreadsheet shows bracket creep keeping most of our income under 25%, but paying taxes on SS. I started converting to Roths, but may stop as Ms G will have a 7 figure tIRA, and able to convert hers at 59.5. I use a savings planner

Compound Savings Calculator

and RMD calculator Required Minimum Distribution (RMD)

to quess RMD's in 11 years.

 

[gerrym51]

this is one reason to take ss as early as possible. 1/2 of ss is used in the calculation how much ss is taxable. obviously a higher ss at 70 means a higher calculation.

i figured the extra taxes to be about 2000 dollars for us

 

[RetiringAt55]

I think it is important for people to do the calculation to see what bracket they will be in after one of the couple is widowed, when you shift to the single bracket. When one of us is widowed and over age 70, our RMDs would definitely push the survivor into the 28 percent bracket. We are planning to convert as much of my DHs tax-deferred to Roths as we can now without exceeding the 25% bracket, as his RMDs kick in first as he is older. We are assuming that no matter what 85% of our SS will be taxed. There really seems to be no way for us to avoid that.

 

[RunningBum]

this is one reason to take ss as early as possible. 1/2 of ss is used in the calculation how much ss is taxable. obviously a higher ss at 70 means a higher calculation.

i figured the extra taxes to be about 2000 dollars for us

Does that help? I was thinking that delaying until 70 gives me 8 more years to do partial Roth conversions and have a lower RMD at 70.

 

[RetiringAt55]

Does that help? I was thinking that delaying until 70 gives me 8 more years to do partial Roth conversions and have a lower RMD at 70.

+1 That is our plan as well.

 

[Lsbcal]

Here is what I do for a our planning.
1) create a spreadsheet with assumptions about spending, equity/bond returns, inflation, and how those affect our tIRA's and Roth's.
2) from that get an estimate of what RMD's might be at age 70.5
3) for our yearly tax planning I create a table with varying amounts of IRA withdrawals for spending and with our taxed SS also shown

The tax table is easy to construct if you use TurboTax. The result for us is that we will most likely be in the 26 to 33% marginal tax bracket when RMD's kick in. But even though this sounds high the overall tax rate can still be kept rather low, maybe around 11%. So that is the good news. Maybe one can get too caught up in the marginal tax rate game.

Because we have substantial Roth's we only will need to take the minimum RMD's.

 

[Animorph]

We are close to starting about 12 years of Roth conversions. The first few years will be to the top of the 25% bracket. The rest will be to the top of the 15% bracket. That should allow us to stay within the 15% bracket when RMD's and late SS hit, although we won't manage to convert all of our pretax accounts before then (unless there's a big market dip). The 25% taxes early on are made up by time in the Roth accounts and avoidance of 25% rates later during RMD's.