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Old 02-24-2016, 07:51 AM   #21
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Originally Posted by pb4uski
Yes, but it is better to pay 10% on that 70k each year in your 60s than 25% in your 70s (when SS, pensions and RMDs kick your income into a higher tax bracket).

Except MFJ tax rate on the 70 K is 15%
And 70K likely pushes some of your cap gains and dividends from 0% to 15% taxable, making that portion an effective 30% rate. It's impossible to accurately advise someone how much to convert without knowing their deductions and CGs+Divs + any other income.

Also, that IRA is presumably growing. But I think pb's message is that anything you can convert at 15% or less helps.
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Old 02-24-2016, 07:55 AM   #22
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Except MFJ tax rate on the 70 K is 15%
15% is the marginal tax rate but not the effective tax rate. The effective tax rate is ~10%.

For example, MFJ with standard deductions and $30k of qualified dividend income or LTCG.... tax = $0. Leave all else the same and add in $70k of Roth conversions and tax is $7,166 or 10.2% of the $70k roth conversion. Check it out with Taxcaster. It is substantially less than 15% because ~$21k is 0% tax because it is covered by deductions and exemptions, ~$18k is at 10% rate and only $31k is at 15% rate. The $30k of qualified dividends is added on after the ordinary tax is calculated and is 0% since total taxable income is less than $74,900 (even though total income is $100k).

But RunningBum had a good point in that you don't want to exceed the top of the 15% tax bracket of $74,900 in 2015 since any little excess is taxed at 30%....but that is easy to manage by just doing a recharacterization of a portion of the Roth conversions once your tax return is complete. For 2015 and 2016 my taxable income was exactly the top of the 15% bracket because I recharacterized the excess.... no way I'm paying 30%!
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Old 02-24-2016, 08:43 AM   #23
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$0 in Federal income tax for me this year, but I did still have to pay a little self-employment tax. I kept my MAGI below the Federal poverty level so that I get a health insurance premium subsidy of $430/month and qualify for winter fuel assistance.
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Old 02-24-2016, 08:45 AM   #24
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$0 in Federal income tax for me this year, but I did still have to pay a little self-employment tax. I kept my MAGI below the Federal poverty level so that I get a health insurance premium subsidy of $430/month and qualify for winter fuel assistance.
I assume you mean above the Federal poverty level, as you would not get a subsidy if you were below poverty.
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Retirement year tax joy!
Old 02-24-2016, 09:19 AM   #25
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Retirement year tax joy!

I've been paying very little tax but looking forward to this year. But in retirement, I'm hoping it will be below $2000 for federal, $0 on state, according to Taxcaster. Kudos for people who are still working and paying tax. I'm enjoying my moocher's phase, I think this is one reason why I decide working is not worth it.


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Old 02-24-2016, 09:47 AM   #26
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I've been paying very little tax but looking forward to this year. But in retirement, I'm hoping it will be below $2000 for federal, $0 on state, according to Taxcaster. Kudos for people who are still working and paying tax. I'm enjoying my moocher's phase, I think this is one reason why I decide working is not worth it.
+1. This has been a subjective part of our decision process. Paying more in income and payroll taxes each year than we spend on everything else has gotten irritating. (Even though, I grant, it is indicative of being in a good position overall.)

Can't wait to see what returns will show in retirement--even with big Roth conversions.
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Old 02-24-2016, 09:53 AM   #27
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Congrats, I had a very similar experience this year. By only working 2 months I actually qualified for the savers credit which seems really wrong.. but oh well. I'll take it. Maxed out all the tax havens I could find and since I paid for insurance out of pocket I actually qualified for medical tax credits this year too... had to read up on parts of the tax code I ignored for decades as it just didn't apply... kid in a candy store..

Now I just need to move to a better state for taxes as my state tax bill will be far greater than my federal one.
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Old 02-24-2016, 10:15 AM   #28
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+1. This has been a subjective part of our decision process. Paying more in income and payroll taxes each year than we spend on everything else has gotten irritating. (Even though, I grant, it is indicative of being in a good position overall.)

Can't wait to see what returns will show in retirement--even with big Roth conversions.
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Congrats, I had a very similar experience this year. By only working 2 months I actually qualified for the savers credit which seems really wrong.. but oh well. I'll take it. Maxed out all the tax havens I could find and since I paid for insurance out of pocket I actually qualified for medical tax credits this year too... had to read up on parts of the tax code I ignored for decades as it just didn't apply... kid in a candy store..

Now I just need to move to a better state for taxes as my state tax bill will be far greater than my federal one.
My overall income tax burden was a factor in my decision to retire.... not a big factor but nonetheless. Similar to karen1972, in my first year of retirement my state income tax exceeded my federal income tax due to LTCG trading which was 0% tax for federal but ordinary income for state tax purposes. Currently my state tax bill is ~40% of my federal taxes, much higher than the 25% or so when I was working.
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Old 02-24-2016, 04:39 PM   #29
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It almost seems like there are some people who would rather make $90K and pay 0% taxes than make $1M and pay 90% taxes. I don't get it.
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Old 02-24-2016, 04:53 PM   #30
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I think you could include me in that list, especially if it takes twice as much (or more) effort to make $1m as to make $90k. Why should I bust my tail without seeing any benefit?

You need to take effort into consideration as well. I guess if it was the same effort to make $90k and net $90k and to make $1 million and net $100k then I would select the latter. But in the real world I live in it would require a lot more effort to make $1 million then to make $90k.

It was a discussion that I had occasionally with DW when I was working. She is of a different mindset/make up than me. She would often prod that I was working too much or too hard. I would point out to her that while that may be true that it was necessary to provide the lifestyle to which we had become accustomed and that if I had been a 9 to 5 worker that we could not have afforded some of the niceties of life that we enjoyed. But I digress.....
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Old 02-24-2016, 05:53 PM   #31
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It almost seems like there are some people who would rather make $90K and pay 0% taxes than make $1M and pay 90% taxes. I don't get it.
To be so blessed to pay $60k in federal tax took 12 hour work days and 45 min to 1 hour commutes to work each way.

So yeah, I would rather make a lot less, sit on the back deck watching the eagles on the river at 10am with a 2nd cup of coffee, and pay 0% taxes than bust my butt to pay $60k in taxes so I can drive a really nice car back and forth on that 2 hours of commute. I could then pay someone to make me several cups of coffee during my 12 hour work day.

Choices.
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Old 02-24-2016, 06:13 PM   #32
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I meant, but neglected to say, same effort on that $1M or $90K. Not a real life situation, I know.


I just think in terms of how much money I clear, rather than how much money I pay in taxes. I'm happy to be retired because I have enough money to not have to go to work. It has nothing to do with not paying as much in taxes. The only time taxes came into consideration was to figure out how much future taxes would deplete my nest egg in terms of cap gains and regular income tax on IRA distributions or conversions to Roth, and how much to budget for tax on dividends.


I guess taxes don't bother me as much as some. I know there is some waste, and things I'd rather not see my taxes go towards, but there are lots of things like education, roads, police, fire, inspections for health and safety type things, etc, that I think are needed.
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Old 02-24-2016, 08:13 PM   #33
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$0 in Federal income tax for me this year, but I did still have to pay a little self-employment tax. I kept my MAGI below the Federal poverty level so that I get a health insurance premium subsidy of $430/month and qualify for winter fuel assistance.
No, below poverty level. I don't get an ACA subsidy. I qualify for Medicare, but because I also have access to employer retiree healthcare my state gives me the option of going on Medicare or taking a state subsidy to pay for my retiree health plan.
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Old 02-24-2016, 08:48 PM   #34
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Not a good tax year for us as posted before in other thread we earned 16k more in 2015 and ended up with 14k more in total tax bill that included federal, state, local and FICA, that is after estimated 2k refund that we should get.
87.5% marginal tax rate is not helping to stay heavily engaged and bust my butt at work, HCE limit is a killer
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Old 02-24-2016, 10:36 PM   #35
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Yeah, I remember. My first year tax return after retiring, I was shocked at how low our total taxes were, after decades of paying a lot. I wrote about it here. I actually felt guilty, but I got over it...
I remember your amazed disbelief, and I'm so glad you got over it.

Even though retired for a long while, I was also shocked the first time the 0% cap gains tax kicked in. I ended up way overpaying estimated taxes because I hadn't taken that major change into account.
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Old 02-24-2016, 10:39 PM   #36
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Last year was my first full year retired.
We were hit hard last year because I'd worked half of 2014. DH went back to work, which screwed up his SS and they ended up clawing back some (since he made too much), and we weren't withholding enough. Plus there was the vacation pay, that comes at the end of a job.

2015 - gunshy after 2014's giant tax bill, I had more withheld from DH's SS and my inherited IRA RMD to make sure we had enough to cover for the rental income we get. Plus we paid full premiums for our ACA plans (only way to get 2 separate plans for DH and me&kids.) Plus it was our first year with HSA contributions. Our refund will be HUGE. A very nice surprise. Now I'm making adjustments to withholdings to make sure I don't repeat the surprise....
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Old 02-24-2016, 11:37 PM   #37
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We are paying ~500k in taxes this year.

There, EVERYONE can feel better now in this thread.
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Old 02-25-2016, 12:21 AM   #38
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I meant, but neglected to say, same effort on that $1M or $90K. Not a real life situation, I know.


I just think in terms of how much money I clear, rather than how much money I pay in taxes. I'm happy to be retired because I have enough money to not have to go to work. It has nothing to do with not paying as much in taxes. The only time taxes came into consideration was to figure out how much future taxes would deplete my nest egg in terms of cap gains and regular income tax on IRA distributions or conversions to Roth, and how much to budget for tax on dividends.


I guess taxes don't bother me as much as some. I know there is some waste, and things I'd rather not see my taxes go towards, but there are lots of things like education, roads, police, fire, inspections for health and safety type things, etc, that I think are needed.

I remember back when I was young and doing taxes.... there was a client who made estimated tax payments in the $2 mill to $2.5 mill PER QUARTER range... it was funny as most people said they would hate to have to pay that much in taxes.... I was the only one who said I would LOVE to have this tax level as a problem... it meant that I made a ton of money....

BTW, this was in the early 80s, so tax rates were much higher...
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Old 02-25-2016, 09:21 AM   #39
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No, below poverty level. I don't get an ACA subsidy. I qualify for Medicare, but because I also have access to employer retiree healthcare my state gives me the option of going on Medicare or taking a state subsidy to pay for my retiree health plan.
Oops.......That should be Medicaid, NOT MEDICARE, I have a lot of years to go before I qualify for that.
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Old 02-25-2016, 09:28 AM   #40
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15% is the marginal tax rate but not the effective tax rate. The effective tax rate is ~10%.
Don't forget that the other thing to factor in with conversions is your state's income tax rate. This could almost double your effective tax in some states (I realize this doesn't apply to you).

I live in GA and our state net income was right at the top of the 15% fed bracket last year with the severance pay I got after ER. GA's tax added another 5.6% to the 10.9% we paid to the feds.
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