SS and taxes

[CardsFan]

Sorry to stir up the hornet's nest regarding when to take SS and should I delay to convert to Roth. I was simply pointing out that there really is no EASY answer, and I was surprised when I looked at the tax consequences of SS. While I agree that I don't want to pay more in taxes than I need to, a break even point in my 80's seems pretty reasonable. Market returns will likely have a larger impact on our taxes at RMD time than any of these scenarios.

Maybe I need to read more from RobbieB and learn to blow the dough now. Then I won't have a tax problem.

[NW-Bound]

Quote:

Originally Posted by Fedup Also, I think $40k in SS is a low amount for a working couple. In today’s dollar for a working couple like my husband and I, it could be $70k-$80K...

Yes. I already computed what SS says I will get.

What we can get at 62 is already more than $40K, let alone delaying it to 70. No way to avoid the tax man. Just trying to salvage a few $K here and there.

Quote:

Originally Posted by CardsFan ... Maybe I need to read more from RobbieB and learn to blow the dough now. Then I won't have a tax problem.

The tax man does not care. To blow any dough, you have to withdraw it first. Ka ching, says the tax man.

You can withdraw the whole thing in one year, as long as he gets his cut.

[CardsFan]

Quote:

Originally Posted by NW-Bound The tax man does not care. To blow any dough, you have to withdraw it first. Ka ching, says the tax man. You can withdraw the whole thing in one year, as long as he gets his cut.

Good point. maybe I should have said I won't have a tax problem in my 80's?

[sengsational]

Quote:

Originally Posted by pb4uski That is the problem that I have been facing... even though over the last 6 years I have converted 25% of my retirement date tIRA balance, my balance is still the same as it was when I retired... but at least I have converted some of the growth and saved $38k as a result.

The violins are playing for you. You, who made money such that as much as you could drain, it magically got replenished

[pb4uski]

Yes, I know... a nice problem to have.

[SevenUp]

Quote:

Originally Posted by CardsFan If we wait to 70 for SS, at BEST we could convert 15% of my tIRA to Roth, and stay in the 12% bracket.

Why limit conversions to the 12% bracket? If you will be in the 22% bracket later, and have money outside of the tIRA to pay the tax, converting now to the top of the 22% bracket (or until the IRMAA tier kicks in) works out slightly better, due to moving money from taxable to Roth.

[pb4uski]

Yes, it does, I just have a real hard time writing a big check to the IRS.... illogical I know... and I'm working on getting over it.

[RobbieB]

I just dunno about all this worry about taxes. Don't you guys all read the "US is bankrupt" stuff? Obviously the government needs the dough.

So, don't worry, have fun, enjoy life and blow that dough! And send uncle sam his cut too -

[Fedup]

Quote:

Originally Posted by pb4uski Yes, it does, I just have a real hard time writing a big check to the IRS.... illogical I know... and I'm working on getting over it.

I think most people do not like to spend money now, prefer to pay tax later. I know it’s painful. I just mailed mine for the year today so I know the pain.
However, I’m still young and Roth conversion works best if you have long time horizon to let it grow. Never have to pay tax on that chunk again.

[CardsFan]

Quote:

Originally Posted by SevenUp Why limit conversions to the 12% bracket? If you will be in the 22% bracket later, and have money outside of the tIRA to pay the tax, converting now to the top of the 22% bracket (or until the IRMAA tier kicks in) works out slightly better, due to moving money from taxable to Roth.

Quote:

Originally Posted by pb4uski Yes, it does, I just have a real hard time writing a big check to the IRS.... illogical I know... and I'm working on getting over it.

I have the same problem writing the big check, hence my desire to minimize taxes, at least to 70.

Converting into the 22% bracket seems like paying a lot now to, maybe, save 2% later. Now, considering taxes when there is only one of us, then the bracket will be higher, maybe it makes sense.

Or, maybe we will take more after 70, while we are both here.

Now, if I could only find my crystal ball, i would know exactly what would be the right move for us.

Maybe RobbieB is right when he says: "So, don't worry, have fun, enjoy life and blow that dough! And send uncle sam his cut too ". I'm get a headache from all this mental exercise.

[pb4uski]

Quote:

Originally Posted by pb4uski Yes, it does, I just have a real hard time writing a big check to the IRS.... illogical I know... and I'm working on getting over it.

IF we move to a state with no income taxes after we are on Medicare, then I may be able to talk myself into converting into the 22% bracket... but with 7% for state tax a total of 29% is more than I can bear.

[bingybear]

Quote:

Originally Posted by CardsFan Sorry to stir up the hornet's nest regarding when to take SS and should I delay to convert to Roth. I was simply pointing out that there really is no EASY answer, and I was surprised when I looked at the tax consequences of SS. While I agree that I don't want to pay more in taxes than I need to, a break even point in my 80's seems pretty reasonable. Market returns will likely have a larger impact on our taxes at RMD time than any of these scenarios. Maybe I need to read more from RobbieB and learn to blow the dough now. Then I won't have a tax problem.

There are so many knobs to the problem and local marginal rates that pop up that some people focus on. How do you invest? Do you put higher yielding investments in Roths and lower yielding (bonds?) in TIRAs or do you treat all accounts having the same AA? Personally I look at all my investment accounts as one AA, but I don't have each sub account having the same allocation. If you are part of a couple, have you considered the tax effect of when one passes and now is filing as a single. And what if you have a chunk of after tax assets?

Lots of knobs and inputs. If you over simplify you may not model your situation.

[Fedup]

I put bonds, MM, Brokered CDs in TIRA. Roth is all stocks. It’s going to be a rising glide path for me in equities. But I’m a gardener so I plan well ahead, when I sow seeds and when I get to harvest my vegetables requires lots of planning. So the same trait carries over to retirement.

[corn18]

Quote:

Originally Posted by Fedup I put bonds, MM, Brokered CDs in TIRA. Roth is all stocks. It’s going to be a rising glide path for me in equities. But I’m a gardener so I plan well ahead, when I sow seeds and when I get to harvest my vegetables requires lots of planning. So the same trait carries over to retirement.

I'm not a gardener, but I have the same approach. I screwed up and kept bonds in my Roth and stocks in my 401k throughout 2017. Roth was flat, 401k grew 15% IRR. Now I get to pay tax on that 15% growth in my 401k. If I had swapped the two, it would have been tax free. Oh well, lesson learned.

[Fedup]

Quote:

Originally Posted by corn18 I'm not a gardener, but I have the same approach. I screwed up and kept bonds in my Roth and stocks in my 401k throughout 2017. Roth was flat, 401k grew 15% IRR. Now I get to pay tax on that 15% growth in my 401k. If I had swapped the two, it would have been tax free. Oh well, lesson learned.

There is no such thing as screwed up, it’s called experience.
Just kidding aside, I read a lot of bogglehead posts. The trick is to know who to believe. I listen to one bogglehead and lost some money investing in bonds this year. I never invested in bonds, so technically a newbie, so I chuck that to experience or lessons learned.

[RetireBy90]

You might consider changing the conversions up to top of 22% bracket. If most will pass, then you can pass more tax free. I also believe that income tax rates will rise within the near future. For me, it is the certainty and freeing up the $$ from other restrictions. In the Roth I can take it all tomorrow if I wanted, without any worry about taxes.

[NW-Bound]

Quote:

Originally Posted by CardsFan The current thread on taking SS early got me thinking (again) about when to take and the tax implications. So.. I used this calculator to run some scenarios: https://www.olt.com/main/home/taxestimator.asp ... So, the questions for this group: 1. Has anyone used the referenced calculator, and have you found it to be fairly accurate? 2. Does taking SS at 65 make sense in this scenario? I just don't see the benefit of waiting any longer 3. Am I missing something and letting the tax tail wag the dog?

Nobody has answered the 1st question. I did not know about this calculator. Tried it, and did not see anything wrong with it for some simple test cases.

[CardsFan]

Quote:

Originally Posted by NW-Bound Nobody has answered the 1st question. I did not know about this calculator. Tried it, and did not see anything wrong with it for some simple test cases.

Thanks for trying it. Actually that was my first concern. Is this a reliable estimate? I will eventually plug it all into Turbotax, but I was only looking for a ball park, and didn't want to get down in the weeds.

No decisions made yet. Still have a few years, but do grow tired of trying to save the last 1%. If my biggest concern is saving a few % in taxes when I am over 80, then I won the game! Some times, I don't think we see the forest for the trees.

[Souschef]

Quote:

Originally Posted by pb4uski Yes, it does, I just have a real hard time writing a big check to the IRS.... illogical I know... and I'm working on getting over it.

I feel for you, seriously. Because of my RMD's my SS is taxed at 85% But, as much as I hate to pay taxes, I remember my dad saying, "You made the money, pay the tax".
We have been totally blessed in the market. In the nine years since I had to take RMD's, my next year balance is higher after taking out the money
I have been gifting some of it to our 4 children, and spending some on travel.

[NW-Bound]

Quote:

Originally Posted by CardsFan ... If my biggest concern is saving a few % in taxes when I am over 80, then I won the game! Some times, I don't think we see the forest for the trees.

I often feel the same thing, and in fact I often think I will not live till 80.

But it's interesting as an academic exercise. Something to exercise your brain on. There are worse things to think about.

Quote:

Originally Posted by Souschef I feel for you, seriously. Because of my RMD's my SS is taxed at 85% But, as much as I hate to pay taxes, I remember my dad saying, "You made the money, pay the tax"...

But paying less is better. If it is only a few $K, then it does not matter. I hate to miss something that may cost me a lot more. And we do not know until we give it some thought, particularly for people who are in their early 60s and can change their plan.