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04-15-2017, 07:26 PM
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#21
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2011
Posts: 8,362
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Quote:
Originally Posted by MrLoco
I am just asking if it is not worth trying to mitigate this "problem."
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Problem? I wish I could have only 85% of all the rest of my income similarly taxed. At least in MA (which seems to find ways to tax everything else) they don't tax my SS.
So I think I'm good with the current tax situation for SS.
The tax on 85% of my SS is about $2900. If I took an equal amount of my SS from my IRA instead, I'd pay (including my State income tax) $4600.
$1700 in my pocket each year! If I gotta pay taxes, I like this plan betta.
__________________
Living well is the best revenge!
Retired @ 52 in 2005
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04-15-2017, 07:39 PM
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#22
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Moderator
Join Date: Feb 2010
Location: Flyover country
Posts: 25,198
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Quote:
Originally Posted by MrLoco
1) Perform Roth conversions to minimize RMD's from a Trad IRA beginning at 70 and a half.
[COLOR=Magenta]How is this supposed to provide any real benefit if it would be impossible ( not practical) to convert a meaningful amount every year before 70 and a half? Also this could mess with ACA subsidies.
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Seems like there is the option to convert a massive amount in one year, suck it up and pay the massive tax hit, and then be done with it.
That's basically what I did a while back. There was a special one-time deal where you could convert in 2010 but pay the associated taxes over two years (2011 and 2012). Painful but I'm glad I did it.
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04-15-2017, 08:31 PM
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#23
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2012
Posts: 6,129
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Quote:
Originally Posted by MrLoco
3) You have a pension ....maybe both spouses have decent pensions, inherited Trad. IRA's (which require immediate RMD's). These income streams become "unavoidable" and will continue for life and result in 85% of SS income being taxable.
This is probably the biggest roadblock to trying to avoid the SS tax torpedo.
So do those of you in the above scenarios simply resign yourselves to the fact that most likely for life your SS benefits will be taxed at the 85% level? I admit it is a "nice problem to have " in that it means you have significant income streams in retirement but I am just asking if it is not worth trying to mitigate this "problem."
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I can't think of a way to avoid the "problem". With a good pension, and if I delay SS for DW and I until our full retirement age (66), those alone will put our annual income at over $120K income, before counting interest, dividends, capital gains, and IRA/401K withdrawals (which we have to start taking before 70 1/2 to avoid having very large RMDs).
The only way I see eliminating the "problem" is a reduction or loss of my pension... so I'd rather have the "problem".
__________________
FIREd date: June 26, 2018 - "This Happy Feeling, Going Round and Round!" (GQ)
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04-15-2017, 09:41 PM
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#24
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Full time employment: Posting here.
Join Date: Sep 2008
Posts: 999
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Have been thinking about this lately. Have about 500k in an IRA.
If I take 24000 per year and average a 2.75% return it would go for 30 years.
56-86. This would keep me around 70k annually till SS at 62. Then at 62 100k annually to 86.
With rental depreciation I should be able to stay in the 15% bracket going forward as it should go up in time. Not an easy thing to figure out................
__________________
"I couldn't wait for success, so I went ahead without it." Ret. 2013 @ 51.
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04-15-2017, 09:42 PM
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#25
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,264
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I think you are confusing conversions and contributions. Contributions are limited to $5.5k a year in 2017 ($6.5k if you're over 50).
Conversions are not limited at all... do as much as you want as long as you pay the tax. I've converted almost $230k the last 4 years (and paid ~$17k in tax).
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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04-15-2017, 09:53 PM
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#26
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Thinks s/he gets paid by the post
Join Date: Aug 2013
Location: North
Posts: 4,029
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Quote:
Originally Posted by almost there
Have been thinking about this lately. Have about 500k in an IRA.
If I take 24000 per year and average a 2.75% return it would go for 30 years.
56-86. This would keep me around 70k annually till SS at 62. Then at 62 100k annually to 86.
With rental depreciation I should be able to stay in the 15% bracket going forward as it should go up in time. Not an easy thing to figure out................
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Tell me about it. I manage my dads strategy. He's 65, his roth was at like 6500 when he handed me his folio. 3 income properties, 3 pensions and of course SS and Spousal but over 1mil invested! I'm like dude you got a HUUUGE torpedo coming.
We converted 26k to roth DEC31 to get his toes wet with the idea. Should be able to do a little more, 45k for next 6 years. Either way I am like trying to move the damn titanic here and I can see uncle sam's red, white and blue ass standing hands on hips, cape waving in the air on top of that fateful iceberg.
__________________
Time > $$$ ~ 100% equities ~ FIRE @2031
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04-16-2017, 03:41 AM
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#27
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2013
Location: Limerick
Posts: 5,637
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DW has about $1.4M in her 401k and I have a little over $500k in a tIRA. We're both 60 and our taxable investments yield about $112k/year, not counting SS since we're not yet eligible. So we're going to be hit hard with RMDs in ten years. This year DW exercised some stock options left over from her work, so rolling over any IRA assets is a bad move. Hoping next year to begin moving money to Roth accounts. Maybe tax rates will be lower! [emoji13]
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04-16-2017, 06:15 AM
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#28
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2006
Location: Washington, DC
Posts: 11,317
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The whole discussion is like the subsidy cutoff issue, it only matters if you are near the cutoff and can make some tweaks to save a few bucks in taxes. The same thinking applies as you approach major bracket cliffs.
__________________
Idleness is fatal only to the mediocre -- Albert Camus
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04-16-2017, 06:27 AM
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#29
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,006
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Quote:
Originally Posted by Dash man
DW has about $1.4M in her 401k and I have a little over $500k in a tIRA. We're both 60 and our taxable investments yield about $112k/year, not counting SS since we're not yet eligible. So we're going to be hit hard with RMDs in ten years. This year DW exercised some stock options left over from her work, so rolling over any IRA assets is a bad move. Hoping next year to begin moving money to Roth accounts. Maybe tax rates will be lower! [emoji13]
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I've been doing things today to reduce taxes from taxable investments and realizing capital gains on things I intended to sell anyway, so that I make "room" for higher future taxable income. I'm also keeping an eye on Medicare income brackets and trying to have reduced taxable income next year to avoid higher premiums for DH in 2020.
And in the future, we might have more expenses to deduct such as medical expenses, and/or have opportunities for tax loss harvesting, and/or give more to charity, all of which can lower our tax liability.
__________________
Retired since summer 1999.
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04-16-2017, 06:44 AM
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#30
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Recycles dryer sheets
Join Date: Sep 2009
Posts: 353
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Quote:
Originally Posted by audreyh1
today we usually pay 26% AMT on our lowish ordinary income, and we would pay that rate on any Roth conversions we undertook, so it doesn't benefit us to do any conversions right now.
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When you pay 26%, your actual AMT true marginal rate is 26*1.25 or 32.5% because of how exemption is calculated. I.e. for each extra $1, exemption is reduced in addition to the tax of 26%. You could try adding $100 to your income if you want to see that effect.
Quote:
Originally Posted by samclem
The first approx $18,550 of that is taxed at just 10%, and above that and through about $75,000 they'll pay at just the 15% rate (and pay zero taxes on long term cap gains and qualified dividends).
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Have not checked for a couple. For a single person, similar to AMT case above, tax rate quickly rises to 22.5% (when 50% of SS is taxable). Then, once you have ~$28k ( aside from SS) in income and so 85% of SS is taxable, you marginal rate becomes 1.85*15%=27.75%. Finally, at only $35k (non-SS income), your marginal federal tax rate is 1.85*25%=46.25%.
The rates are high because in addition to $1 extra income being taxed, $0.85 of extra SS dollar becomes taxable too.
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04-16-2017, 06:54 AM
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#31
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gone traveling
Join Date: Mar 2015
Posts: 3,508
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Quote:
Originally Posted by almost there
Have been thinking about this lately. Have about 500k in an IRA.
If I take 24000 per year and average a 2.75% return it would go for 30 years.
56-86. This would keep me around 70k annually till SS at 62. Then at 62 100k annually to 86.
With rental depreciation I should be able to stay in the 15% bracket going forward as it should go up in time. Not an easy thing to figure out................
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What happens after 86? Can you live on 30k per year?
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04-16-2017, 07:48 AM
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#32
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Moderator Emeritus
Join Date: Sep 2007
Posts: 17,773
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The bigger torpedo for many married couples, I believe, will be when one spouse passes away. Our income will fall only ten to fifteen percent with the loss of my SS (a little more than half of DH's) as the pension has full survivor benefits, but the surviving spouse's income will be taxed as a single vs married filing jointly for us.
It is what it is.
__________________
“Would you like an adventure now, or would you like to have your tea first?” J.M. Barrie, Peter Pan
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04-16-2017, 11:58 AM
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#33
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Thinks s/he gets paid by the post
Join Date: Mar 2017
Location: New York City
Posts: 2,838
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i dont remember the exact number, but my 91 year old mom pays taxes on her social security, its not a big number maybe 35 thousand in interest and boom she pays on the full amount, nothing we could do, just write the check to uncle sam, the alternative would be to get lower paying bonds, id rather her pay the taxes, its a good problem to have in my opinion,
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04-16-2017, 12:11 PM
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#34
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Thinks s/he gets paid by the post
Join Date: Apr 2013
Location: Gosport, IN
Posts: 1,214
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A single person hits the 85% SS taxable threshold with income over $34000
Combined income of AGI + 1/2 of SS = over $34K
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04-16-2017, 12:17 PM
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#35
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Thinks s/he gets paid by the post
Join Date: Feb 2008
Location: Indialantic FL
Posts: 1,330
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Quote:
Originally Posted by samclem
T
...For most of us, reducing taxable income when in retirement and/or gaining flexibility on when to take it are the major reason to take the steps identified in the OP, rather than the goal of avoiding having 85% of SS taxed--because that's just going to happen and is unavoidable.
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Exactly.
__________________
JimnJana
"The four most dangerous words in investing are 'This time it's different.'" - Sir John Templeton
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04-16-2017, 12:30 PM
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#36
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Thinks s/he gets paid by the post
Join Date: Feb 2008
Location: Indialantic FL
Posts: 1,330
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Quote:
Originally Posted by Bestwifeever
The bigger torpedo for many married couples, I believe, will be when one spouse passes away. Our income will fall only ten to fifteen percent with the loss of my SS (a little more than half of DH's) as the pension has full survivor benefits, but the surviving spouse's income will be taxed as a single vs married filing jointly for us.
It is what it is.
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True. For DW and I, we did not take survivor benefits in our pensions because of the 10 yr age gap. Unlike most on the board, we are using 30 yr term insurance as a hedge against the early death of either of us. For us, it is also another reason to try and defer taking SS.
__________________
JimnJana
"The four most dangerous words in investing are 'This time it's different.'" - Sir John Templeton
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04-16-2017, 01:03 PM
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#37
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2005
Location: Chicago
Posts: 13,151
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Quote:
Originally Posted by audreyh1
We are well past the 85% income cutoff already, and it will probably only get worse.
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This is a case where getting worse is actually getter better!
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
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04-16-2017, 02:20 PM
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#38
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,006
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Quote:
Originally Posted by youbet
This is a case where getting worse is actually getter better!
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Well, yeah!
__________________
Retired since summer 1999.
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04-16-2017, 07:52 PM
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#39
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Full time employment: Posting here.
Join Date: Sep 2008
Posts: 999
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Quote:
Originally Posted by joeea
What happens after 86? Can you live on 30k per year?
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Where did 30k come from?
I just listed the (3 then 4 then 3) possible auto revenue streams I will be using. There is still the Roth's and rental Real-estate that were not added in. Just need to figure out the best way to rid my self of that pesky IRA. lol lol. More roth conversions, or a long small slow draw down.........
Un like most folks, I am not really using the stock market for retirement.
Used it to get here. But no real interest in the risk these days.....
https://financialmentor.com/calculat...wal-calculator
__________________
"I couldn't wait for success, so I went ahead without it." Ret. 2013 @ 51.
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04-17-2017, 12:55 AM
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#40
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Recycles dryer sheets
Join Date: Jan 2014
Posts: 456
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Quote:
Originally Posted by audreyh1
Damn the torpedos, full speed ahead!
Our SS benefits will be mostly eaten by taxes and Medicare payments. At least they should cover Medicare! We are well past the 85% income cutoff already, and it will probably only get worse.
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What a great problem to have. If that's the OP's situation, don't sweat the SS tax. Just take what you can and enjoy your retirement.
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