Join Early Retirement Today
Reply
 
Thread Tools Display Modes
retirement and taxes
Old 01-29-2011, 09:48 AM   #1
Recycles dryer sheets
 
Join Date: Sep 2010
Posts: 95
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.
afntrn56 is offline   Reply With Quote
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!

Old 01-29-2011, 10:46 AM   #2
Moderator Emeritus
Rich_by_the_Bay's Avatar
 
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
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.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.

As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
Rich_by_the_Bay is offline   Reply With Quote
Old 01-29-2011, 11:56 AM   #3
Thinks s/he gets paid by the post
Rustward's Avatar
 
Join Date: Apr 2006
Posts: 1,684
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.
Rustward is offline   Reply With Quote
Old 01-29-2011, 12:09 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
freebird5825's Avatar
 
Join Date: Feb 2008
Location: East Nowhere, 43N Latitude, NY
Posts: 9,037
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
__________________
"All our dreams can come true, if we have the courage to pursue them." - Walt Disney
freebird5825 is offline   Reply With Quote
Old 01-29-2011, 03:59 PM   #5
Recycles dryer sheets
 
Join Date: Sep 2010
Posts: 95
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.
Thanks. I wonder what the negative numbers mean in the report? I couldn't find anything about it.
afntrn56 is offline   Reply With Quote
Old 01-29-2011, 05:23 PM   #6
Thinks s/he gets paid by the post
Rustward's Avatar
 
Join Date: Apr 2006
Posts: 1,684
Quote:
Originally Posted by afntrn56 View Post
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.
Rustward is offline   Reply With Quote
Old 01-30-2011, 09:02 AM   #7
Recycles dryer sheets
 
Join Date: Sep 2010
Posts: 95
One of the spots was in the withdrawal report under the column taxes.
afntrn56 is offline   Reply With Quote
Old 01-30-2011, 09:05 AM   #8
gone traveling
 
Join Date: Jan 2011
Posts: 49
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.
Loop Lawyer is offline   Reply With Quote
Old 01-30-2011, 09:07 AM   #9
gone traveling
 
Join Date: Jan 2011
Posts: 49
Quote:
Originally Posted by afntrn56 View Post
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.
Loop Lawyer is offline   Reply With Quote
Old 01-30-2011, 09:44 AM   #10
Thinks s/he gets paid by the post
Rustward's Avatar
 
Join Date: Apr 2006
Posts: 1,684
Quote:
Originally Posted by Loop Lawyer View Post
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".
Rustward is offline   Reply With Quote
ORP's Negative Number
Old 02-12-2011, 01:43 PM   #11
gone traveling
 
Join Date: Jul 2007
Posts: 8
ORP's Negative Number

Quote:
Originally Posted by afntrn56 View Post
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.
gneeby is offline   Reply With Quote
Old 02-12-2011, 11:02 PM   #12
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 3,361
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)
meierlde is offline   Reply With Quote
Old 02-27-2012, 09:06 PM   #13
Recycles dryer sheets
 
Join Date: Sep 2010
Posts: 95
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
afntrn56 is offline   Reply With Quote
Old 02-28-2012, 03:50 AM   #14
Administrator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 40,586
Quote:
Originally Posted by afntrn56 View Post
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.
MichaelB is offline   Reply With Quote
Old 02-28-2012, 05:37 AM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 10,252
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.
LOL! is offline   Reply With Quote
Old 02-28-2012, 06:33 AM   #16
Recycles dryer sheets
 
Join Date: Sep 2010
Posts: 95
Quote:
Originally Posted by MichaelB View Post
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.
afntrn56 is offline   Reply With Quote
Old 02-28-2012, 07:02 AM   #17
Full time employment: Posting here.
 
Join Date: Dec 2009
Posts: 526
Quote:
Originally Posted by LOL! View Post
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
zedd is offline   Reply With Quote
Old 02-28-2012, 07:21 AM   #18
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 4,172
Quote:
Originally Posted by meierlde View Post
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.
kaneohe is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
How to model taxes in retirement maldini FIRE and Money 16 09-05-2008 07:08 AM
Possible to estimate taxes in retirement? utrecht FIRE and Money 10 05-31-2008 06:10 PM
Taxes in retirement modhatter FIRE and Money 9 06-10-2007 06:30 AM
Taxes during retirement (+ or -) smileydog FIRE and Money 3 06-05-2007 11:52 PM
Taxes in Retirement HockeyMike35 FIRE and Money 26 06-22-2005 05:08 PM

» Quick Links

 
All times are GMT -6. The time now is 03:13 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.