Tax Strategies for IRA's and SS

[Chuckanut]

Here is an interesting article in today's WSJ:

How to Make Your Nest Egg Last Longer - WSJ.com

[Alan]

Quick summary:

Quote:

You probably know the conventional wisdom: When spending retirement savings, drain taxable accounts first, to give the money in tax-deferred 401(k)s and individual retirement accounts more time to grow, and leave tax-free Roth IRAs for last. But with many nest eggs today smaller than they should be, a better approach, some financial advisers say, is to tap these accounts simultaneously in order to minimize taxes over time. The key is to make full use of the lower federal and state income-tax brackets many retirees are in early in retirement. To further reduce taxes, it may make sense for those with after-tax incomes between $40,000 and $90,000 to defer Social Security, says James Mahaney, vice president of strategic initiatives at Prudential Financial Inc.

I think many of us are already taking this approach.

[Chuckanut]

True, some are. Balancing withdrawals to minimize future taxes and extend assets can be useful though tricky.

[LOL!]

The article describes the top ways that early retirees on this forum plan their withdrawals, convert to Roths, delay their SS benefits, and reduce their taxes substantially. Yet, even so, the forum will get tons of questions and disbelief in the future because folks claim to never have heard of these tactics.

The ideas are embodied in the online calculator www.i-orp.com as well.

[kaneohe]

Interesting article but readers might want to adopt the qualitative aspects and do the math themselves. Looks to me like the author is mixing the concepts of AGI and taxable income and would be Roth converting into the 25% bracket even tho professing to the strategy of staying in the 15% one.

[Chuckanut]

Quote:

Originally Posted by LOL! The article describes the top ways that early retirees on this forum plan their withdrawals, convert to Roths, delay their SS benefits, and reduce their taxes substantially. Yet, even so, the forum will get tons of questions and disbelief in the future because folks claim to never have heard of these tactics. The ideas are embodied in the online calculator www.i-orp.com as well.

Thank you for this link. I just ran it for a 4.5% annual return and, as far as one can trust these calculators, it indicates that ER is within my grasp. So, no change in plans at this time. Class of 2012 here I come!

[jIMOh]

Quote:

Originally Posted by kaneohe Interesting article but readers might want to adopt the qualitative aspects and do the math themselves. Looks to me like the author is mixing the concepts of AGI and taxable income and would be Roth converting into the 25% bracket even tho professing to the strategy of staying in the 15% one.

No substitute for doing math.

Do not read a technique and do it.

Read about a technique
then do the math
then read about another
then do the math

YMMV

[Koolau]

Quote:

Originally Posted by jIMOh No substitute for doing math. Do not read a technique and do it. Read about a technique then do the math then read about another then do the math YMMV

Rinse

Repeat

Then, if you still have questions, consider professional assistance from a tax professional or fee-only planner. The math and other pitfalls are tricky indeed. One thing I found out the hard way was missing the income cut-off for Medicare. This year DW and I will each be paying an additional $40/month for Medicare because we didn't do our homework well enough. We just missed it due to some income items we misjudged. YMMV.

[Ed_The_Gypsy]

LOL!,
Thanks for the link. I had lost it.

[tightasadrum]

Quote:

Originally Posted by Ed_The_Gypsy LOL!, Thanks for the link. I had lost it.

Ditto. I lost it too.

[tightasadrum]

Quote:

Originally Posted by Koolau Rinse One thing I found out the hard way was missing the income cut-off for Medicare. This year DW and I will each be paying an additional $40/month for Medicare because we didn't do our homework well enough. We just missed it due to some income items we misjudged. YMMV.

Hum... is this complicated, or could you elaborate some. I just started Medicare Advantage and don't recall any income limitations/penalty...Tight

[Koolau]

Quote:

Originally Posted by tightasadrum Hum... is this complicated, or could you elaborate some. I just started Medicare Advantage and don't recall any income limitations/penalty...Tight

I don't think it's complicated except how you have to figure your income. The income limitations are based on MAGI not AGI or any other "usual" measure of "actual, spendable" income, so they kind of get you coming and going. IIRC, if your MAGI is something like $171K - That's not exact but you can look it up on the Medicare site - you have to pay an additional $40/mo for your Medicare the next year. We'll probably never hit that magic number again, but for this year it's going to cost us.

Don't know about the advantage plan since I don't use it.

We just missed the cut off due to several moves we made this year - none of which made us FEEL like we had an income of $171K, but apparently, the way they look at it, we did have that much MAGI. YMMV, so be sure to check for yourself.

My point was to be certain to do the math up front. Our back-of-the-envelope calculation will cost us close to $1000 this year!

[pb4uski]

Quote:

Originally Posted by Ed_The_Gypsy LOL!, Thanks for the link. I had lost it.

+1 One of the better tools that I have seen. Seems similar to Firecalc.

[tightasadrum]

Quote:

Originally Posted by Koolau We just missed the cut off due to several moves we made this year - none of which made us FEEL like we had an income of $171K, but apparently, the way they look at it, we did have that much MAGI. YMMV, so be sure to check for yourself. My point was to be certain to do the math up front. Our back-of-the-envelope calculation will cost us close to $1000 this year!

$171K? No wonder it didn't hit my radar. Thanks.

[Chuckanut]

One thing I have noticed is that many of these retirment planners and advisors are based on a couple and their tax brackets. If one is single that trap needs to be avoided.

[mickeyd]

Quote:

Read about a technique then do the math then read about another then do the math

or "Measure twice. Cut once."

[unclemick]

Quote:

Originally Posted by Chuckanut One thing I have noticed is that many of these retirment planners and advisors are based on a couple and their tax brackets. If one is single that trap needs to be avoided.

Yep. Single me got nailed one year at a much lower number. Don't ask cause I don't remember and too lazy to look it up.

I do play games(what if scenarios) with ORP planner. Roth cuts in and out at strange(to me) times - my three balls are: % portfolio return, when to sell illiquid assets aka house and timberland, and spend early or not.

There are other things that can be varied but that's enough to boggle me.

Heh heh heh - after 18 years of ER , sometimes I just say screw the calculator and do what my bellybutton dictates.