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retirement and taxes
Old 01-29-2011, 10:48 AM   #1
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retirement and taxes

I have been running different scenarios with the various taxable and tax deferred accounts I have and realize that at some point I will be pulling from the deferred accounts and obviously will have to pay taxes. In order to minimize that tax I am trying to figure out the best method for it. Do I just simply pull out what I will need each year or should I gradually be putting a small amount of money into a taxable account for a number of years preceding when I will need it? I am married and will file joint so what do you guys think is the best way to handle this one? I hope what I am asking makes sense! Sometimes I can even confuse myself.
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Old 01-29-2011, 11:46 AM   #2
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I think it is mostly about tax brackets for each individual or household.

Lots of folks will "fill up" their 15% bracket by converting some amount from a tax-deferred account to a Roth IRA and paying taxes in the year of distribution. That is, if your marginal tax bracket falls $5000 short of kicking you up into a higher bracket, convert $5000k of 401k to a Roth, pay income taxes now.
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Old 01-29-2011, 12:56 PM   #3
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This might help: Optimal Retirement Calculator and Retirement Decision Support System

The Optimal Retirement Planner (ORP) is a retirement decision support system (RDSS) that optimally schedules retirement savings and withdrawals to maximize the amount of after-tax money available for spending throughout retirement.
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Old 01-29-2011, 01:09 PM   #4
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Quote:
Originally Posted by Rustward View Post
This might help: Optimal Retirement Calculator and Retirement Decision Support System

The Optimal Retirement Planner (ORP) is a retirement decision support system (RDSS) that optimally schedules retirement savings and withdrawals to maximize the amount of after-tax money available for spending throughout retirement.
What a wonderful site. TY
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Old 01-29-2011, 04:59 PM   #5
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Originally Posted by Rustward View Post
This might help: Optimal Retirement Calculator and Retirement Decision Support System

The Optimal Retirement Planner (ORP) is a retirement decision support system (RDSS) that optimally schedules retirement savings and withdrawals to maximize the amount of after-tax money available for spending throughout retirement.
Thanks. I wonder what the negative numbers mean in the report? I couldn't find anything about it.
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Old 01-29-2011, 06:23 PM   #6
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Thanks. I wonder what the negative numbers mean in the report? I couldn't find anything about it.
The reports can take a little figuring to understand them. If you can tell me which report and which column(s) have negative numbers I'll see if I can come up with a rational explanation.
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Old 01-30-2011, 10:02 AM   #7
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One of the spots was in the withdrawal report under the column taxes.
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Old 01-30-2011, 10:05 AM   #8
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Wow. ORP is great! I was having a hard time estimating my income taxes post-retirement. While ORP does not purport to be a crystal ball, it is very helpful in enabling me to get a better handle on that item as well as over-all spending.
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Old 01-30-2011, 10:07 AM   #9
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One of the spots was in the withdrawal report under the column taxes.
I think that the negatives for taxes are the amounts that the calculator predicts that you will pay, for the periods in question, in income taxes.
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Old 01-30-2011, 10:44 AM   #10
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I think that the negatives for taxes are the amounts that the calculator predicts that you will pay, for the periods in question, in income taxes.
That is what it looks like. I guess taxes have a negative effect on spending.

In my scenario, on the Tax-Deferred Account Report I get negatives in the distribution column, and in the IRA2Roth columns when the tool recommends a Roth conversion. I understand the distribution column is negative, but not the IRA2Roth.

I would suggest not getting too hung up in the "signage".
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ORP's Negative Number
Old 02-12-2011, 02:43 PM   #11
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ORP's Negative Number

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One of the spots was in the withdrawal report under the column taxes.
Negative numbers are amounts leaving the system, either into your pocket of to the tax man.
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Old 02-13-2011, 12:02 AM   #12
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The RMD schedule is at IRS.gov. Basically it starts at 1/17 at 70 goes to 1/10 at 80, 1/5 at 90 and the remainder at 100. So you can get the schedule at the web site, and build a spread sheet to see what your rmd's might be at various assumptions of growth. Then compare starting out withdrawals at 59.5 to 70.5. Likley the worst case would be at 70 to loose 50% at the margin between the medicare part B gross up, and the likley 40% max tax rate if you get to 326k per year. (But at that level of income it should not be a big problem anyway)
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Old 02-27-2012, 10:06 PM   #13
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I have run some more scenarios with the ORP and now I notice that the calculator suggest a much larger conversion amount from ira to roth ira the year I want to start SS. For instance in one run it says to convert 104K at age 62 and it was only suggesting 38K at 61. This of course results in a tax of 14K for that year as opposed to 2k the year before. Any idea why it might be wise to convert such a larger amount at the first year of SS
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Old 02-28-2012, 04:50 AM   #14
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I have run some more scenarios with the ORP and now I notice that the calculator suggest a much larger conversion amount from ira to roth ira the year I want to start SS. For instance in one run it says to convert 104K at age 62 and it was only suggesting 38K at 61. This of course results in a tax of 14K for that year as opposed to 2k the year before. Any idea why it might be wise to convert such a larger amount at the first year of SS
Is this using the same data as before or are you using new data? It is difficult to understand what is happening without seeing the data.
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Old 02-28-2012, 06:37 AM   #15
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I suggest that one use ORP only for rough numbers. I then run TurboTax with my exact situation to get very specific numbers. They are often quite a bit different than ORP, but that makes sense since ORP know little about my tax return except filing status.
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Old 02-28-2012, 07:33 AM   #16
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Is this using the same data as before or are you using new data? It is difficult to understand what is happening without seeing the data.
I am using similar data I just think I never noticed it before. When I change timing on SS to 66 from 62 it does a similar spike but only at the year I start SS. I can't see the advantage in doing that as it causes a spike in tax for that particular year. I just took a closer look and it has this spike every time in the year I say I will draw my SS but only from 62 to 66. After 66 it is a smooth amount of money. Strange.
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Old 02-28-2012, 08:02 AM   #17
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I suggest that one use ORP only for rough numbers. I then run TurboTax with my exact situation to get very specific numbers. They are often quite a bit different than ORP, but that makes sense since ORP know little about my tax return except filing status.
+1. Very good advice.

Also see TurboTax® TaxCaster - Free Tax Calculator - Free Tax Estimator
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Old 02-28-2012, 08:21 AM   #18
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The RMD schedule is at IRS.gov. Basically it starts at 1/17 at 70 goes to 1/10 at 80, 1/5 at 90 and the remainder at 100. So you can get the schedule at the web site, and build a spread sheet to see what your rmd's might be at various assumptions of growth. Then compare starting out withdrawals at 59.5 to 70.5. Likley the worst case would be at 70 to loose 50% at the margin between the medicare part B gross up, and the likley 40% max tax rate if you get to 326k per year. (But at that level of income it should not be a big problem anyway)
I believe the factors you give are too large. The correct factors for owners
are here Uniform Distribution Table

I think the ones you gave are for beneficiaries here
Single Life Expectancy Table for Inherited IRAs

Note that the correct one begins at age 70 when normal RMDs for owners start while the other
for beneficiaries starts at age 0.
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