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Tax Help for 2013
Old 03-08-2013, 01:53 PM   #1
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Tax Help for 2013

Hello my friends:

I retired last year with an adequate pension and upon turning 62 last Wednesday I decided to apply for early social security. I know that is a controversial decision; however, longevity in my family is not a strong suit.

Using Turbo Tax and my projected Social Security and Pension incomes, I calculated my tax liability for next year. Any work income would be negligible. I also understand with the circus happening in Washington, D.C. rates are always subject to change. If rates stay the same, I project a tax liability of about $3,000.00. I was wondering if anybody has any suggestions on how I can reduce my tax bill. I am a single filer with no home in the 25% bracket. I have no interest in owning a home.

I have a 403b account. Could increase the money that I pay that account. Is it possible now that I am retired? Would that increase that amount that I have to pay when I reach 70.5 years. Should I just consider myself lucky (which I do) and just pay the tax. Can I increase my withholdings this far into 2013? Any suggestions would be greatly appreciated.
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Old 03-08-2013, 02:02 PM   #2
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You may only contribute to a 403b out of earned income paid by the employer sponsoring the 403b. For example, if you are a teacher and the school district offers a 403b plan, you may contribute a percentage of your income to the 403b pre-tax, thus reducing your tax bill for the year. But now that you're retired, that's over and done. No more contribution to your 403b.

Money from a pension and SS is hard to shelter from being taxed or even to delay having it be taxed. You could donate it to a qualified charity of course, but I don't think that's what you have in mind.

With a tax liability of only $3k, it doesn't sound like you're too far into the 25% bracket. Rather than freting about a few hundred bux in fed taxes one way or the other, why not focus on enjoying your well deserved retirement?

Perhaps someone else will have some ideas for you.......
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Old 03-08-2013, 02:15 PM   #3
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Youbet just about said it all. If you are healthy and are paying for your health insurance, you could get a high deductible plan, and have a HSA set up. Of course at 65, you would not be able to do this.
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Old 03-08-2013, 04:33 PM   #4
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Maybe someone else can double check me but if you are in the 25% tax bracket, I can't figure out how your tax liability is only $3,000. Do you have credits to offset this? If so, you may not have a marginal rate of 25% despite being in that "bracket".
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Old 03-08-2013, 04:45 PM   #5
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If your income is all pension and SS, I can't think of much you can do. If your income includes interest income that you can convert to qualified dividend income that would not be taxed and that might make a difference.

Another idea if you have a high deductible health insurance plan is to make a contributions to a Health Savings Account to lower your AGI and taxable income.
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Old 03-08-2013, 05:10 PM   #6
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If you have bonds/bond funds that are throwing off taxable dividends then you could change them to tax free muni bonds and avoid paying the feds on that interest.
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Old 03-08-2013, 07:04 PM   #7
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Quote:
Originally Posted by jebmke View Post
Maybe someone else can double check me but if you are in the 25% tax bracket, I can't figure out how your tax liability is only $3,000. Do you have credits to offset this? If so, you may not have a marginal rate of 25% despite being in that "bracket".
jebmke.............good catch!
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Old 03-08-2013, 08:16 PM   #8
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Maybe I made a mistake. I do have a marginal rate of 25%. I thought that was implied by saying I was in the 25% bracket. The 3000 dollar amount was my tax liability after I deducted the FIT that I was already scheduled to pay in the 2013 tax year.
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Old 03-08-2013, 08:47 PM   #9
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You might want to look at what your future taxes look like when you start taking RMDs. If that pushes you past the 25% bracket (assuming some tax stability) you might actually want to take some now while you can pay just 25%. If you don't really need it, a Roth conversion would be nice. If it's 25% all the way, then a Roth might shelter a bit more value but the gains will probably be small. Might depend on which direction you see tax rates moving.
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Old 03-08-2013, 10:27 PM   #10
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Quote:
Originally Posted by johnrlawjr View Post
Maybe I made a mistake. I do have a marginal rate of 25%. I thought that was implied by saying I was in the 25% bracket. The 3000 dollar amount was my tax liability after I deducted the FIT that I was already scheduled to pay in the 2013 tax year.
They are close, but not the same thing. The bracket is the range of income that a tax rate applies to. The marginal rate is what your dollar of income was taxed at. Link.
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