Taxes after retirement?

[mountainsoft]

Another dumb newbie question...

When we retire we should be in the 15% tax bracket (same as we are now).

Are there other taxes I should plan for in addition to the 15%?

Thanks,

Anthony

 

[travelover]

State income tax, local income tax, real estate taxes, sales taxes.

No more FICA or Medicare taxes

 

[pb4uski]

0% capital gains tax.

 

[mountainsoft]

Is it as simple as adding up the pension payments, social security payments, and IRA distributions and multiplying by 15% to determine the tax?

For example, if we received $5000/month from our pension, IRA, and SS; could we expect to receive $4250 net "take home" pay?

I'm trying to plan for taxes in my retirement estimates and want to make sure I'm not overlooking something. I realize this does not include property and sales taxes.

On a related note, how are the taxes actually paid after retirement? Are they deducted from the pension, IRA, and SS automatically like a regular paycheck? Or do I have to make separate tax payments myself?

 

[Gill]

Is it as simple as adding up the pension payments, social security payments, and IRA distributions and multiplying by 15% to determine the tax?

For example, if we received $5000/month from our pension, IRA, and SS; could we expect to receive $4250 net "take home" pay?

I'm trying to plan for taxes in my retirement estimates and want to make sure I'm not overlooking something. I realize this does not include property and sales taxes.

On a related note, how are the taxes actually paid after retirement? Are they deducted from the pension, IRA, and SS automatically like a regular paycheck? Or do I have to make separate tax payments myself?

It's not quite that simple. You are allowed personal exemptions, a standard deduction or itemized deductions, and certain income is not fully taxable such as Social Security. Your best way to calculate this is to work your way through a tax return.

With respect to payment of income tax, it can be through withholding from your income or it can be through estimated quarterly payments, whichever you find more convenient.
Bruce

 

[mountainsoft]

You are allowed personal exemptions, a standard deduction or itemized deductions, and certain income is not fully taxable such as Social Security.

So just like a standard "pre-retirement" tax return.

Still, those items should all reduce taxes, so for estimation purposes would the simple 15% math be sufficient?

If I over estimate and we end up paying less after retirement, that's great. I just don't want to UNDER estimate and end up with less "take home" pay than I was expecting.

 

[travelover]

Google "income tax estimator" and you will find a bunch of free web sites where you put in the pertinent information and it pops out the tax.

I used this one the other day and found it useful:
Income Tax Calculator - Tax-Rates.org

 

[pb4uski]

That is a good one, or https://turbotax.intuit.com/tax-tools/calculators/taxcaster/

You're in for a pleasant surprise. It'll probably be less than 10%. Let us know how it ends up.

 

[mountainsoft]

I used this one the other day and found it useful: Income Tax Calculator - Tax-Rates.org

I gave it a try, though I had to make some educated guesses on several things. Still, the tax worked out considerably less, about 8%.

So, I assume I'll be safe using a simple 15% tax deduction in my crude estimates. I would rather overestimate taxes than underestimate. A lot can change over the next 12 years anyway. I might end up blind, disabled, and deceased before I have to worry about it.

 

[pb4uski]

I think it would be better to use a reasonable estimate like 10% if the pro forma return shows 8%. Think of it this way... if you use 15% the conservatism in your analysis will require more money to retire so you may end up working longer than necessary!

 

[Gill]

Sure, you could pay 15% the first year of retirement and adjust in later years to an amount equal to the prior year tax which will avoid any penalties.

 

[mountainsoft]

I think it would be better to use a reasonable estimate like 10% if the pro forma return shows 8%. Think of it this way... if you use 15% the conservatism in your analysis will require more money to retire so you may end up working longer than necessary!

Yeah, I know what you're saying. Unfortunately, the cost of health care will probably prevent me from retiring before I'm 65 and can get medicare. I'll keep recalculating as retirement gets closer and I see how our accounts are doing in the real world as opposed to theoretical estimates.

 

[travelover]

Bear in mind that your tax bracket rate is the tax rate on the last dollar, not the average tax for your entire taxable income.

 

[Bamaman]

Our Social Security payments are taxable @ normal rate times 85%.

You might want to check into your state's income taxes--if applicable.

Our state doesn't tax defined pensions, teachers' pensions and social security income. As long as we don't have any 401K withdrawals, we have no state income taxes.

Our big expenses are car/truck insurance, boat insurance, homeowners insurance and property taxes.

 

[Coolius]

If you remain in the 15% Federal Tax Bracket, dividends from companies that are categorized as " QDI ", or Qualified Dividend Income, is free of tax.

You will need to check with your broker if a particular company's dividends are QDI.

 

[Souschef]

RMD!

I have been kicked up in bracket by the RMD on my IRA's. Those of you in ER do not have to worry about that for a while, but when you hit 70 and 1/2, it will kick in.
The RMD is initially about 4% of you previous year end IRA balance, so if you have 1 Mil in IRA's your taxable income will be bumped about 40K. This may also put you up into the 85% taxable on your Social Security.
To give you a snapshot of last year.
My AGI was 138K
My taxable income was 115K
My tax was 18K
My effective tax rate was 13%

 

[RobbieB]

Good to see you have lots of dough, keep flying that plane and have fun!

 

[Options]

I gave it a try, though I had to make some educated guesses on several things. Still, the tax worked out considerably less, about 8%.

So, I assume I'll be safe using a simple 15% tax deduction in my crude estimates. I would rather overestimate taxes than underestimate. A lot can change over the next 12 years anyway. I might end up blind, disabled, and deceased before I have to worry about it.

The best way to estimate taxes is to use tax software, such as TT, TaxAct, etc. I've used last year's software to estimate taxes for the remainder of my retirement. It helped sway me to to Roth conversions while delaying SS to 70.

I used a calculator to guesstimate taxes on RMD's after delayed SS starts and after completing Roth conversions from 60-70. If I end up paying more as a result of RMD's being higher than guessed it will be because the PF is larger than I guesstimated--not a bad problem to have.

My effective tax rate is and will be 0 throughout retirement, as presently estimated. As stated elsewhere, if you have a combination of after-tax, tax-free, and tax-deferred, much can be done to minimized taxes.

 

[mxisland]

Why would you remain in the 15% capital gains tax bracket? Will you continue to see significant ordinary income? Otherwise, I think as one previous poster said you actually will have 0% capital gains tax up to the first $85k-ish of long term capital gains per couple (it's the stated threshold in the tax bracket plus your standard deductions).

 

[mountainsoft]

Why would you remain in the 15% capital gains tax bracket? Will you continue to see significant ordinary income?

I assumed our taxes would be about the same since I'm planning for our income to be the same from pension/IRA/SS.

I guess I didn't realize there was a lower tax bracket than the 15% level.

I obviously have more research to do. Lower taxes could make a big difference in our plans.

 

[mxisland]

I assumed our taxes would be about the same since I'm planning for our income to be the same from pension/IRA/SS.

I guess I didn't realize there was a lower tax bracket than the 15% level.

I obviously have more research to do. Lower taxes could make a big difference in our plans.

Best of luck! Maybe through deductions (standard deduction or itemized mortgage deduction, etc) there's more room for your capital gains dollars to be taxed at 0% before they jump to the next bracket. I had a face-palm moment when I realized I had estimated my nest egg target was 15% higher than it needed to be because I assumed status quo taxes. My situation may be slightly different as I anticipate zero income except for selling some long term capital gains each year to fund my lifestyle, but hopefully there's something useful in that for your own analysis.

 

[pb4uski]

I assumed our taxes would be about the same since I'm planning for our income to be the same from pension/IRA/SS.

I guess I didn't realize there was a lower tax bracket than the 15% level.

I obviously have more research to do. Lower taxes could make a big difference in our plans.

As I think someone else mentioned, also keep in mind that at most, only 85% of SS is taxable.

 

[RunningBum]

As I think someone else mentioned, also keep in mind that at most, only 85% of SS is taxable.

Currently. Making 100% of SS taxable seems to me like the kind of easy change to raise more taxes without actually changing tax rates. Not trying to open a political topic, but for long term planning I figure all SS will be taxed, and if it isn't, it'll be a nice bonus.

 

[RockyMtn]

you may have state income taxes as well!

 

[GravitySucks]

State IncomeTax
County Property Tax
School Property Tax
Village Tax
Sales Tax
Fuel Tax
Utilities Tax
Vehicle Fees
Recycling Fees
....but I'm still in NY [emoji3]