Taxes in Retirement?

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CindyBlue

Full time employment: Posting here.
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Feb 28, 2017
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I'm starting to get worried about taxes when I retire (which is in about 9 days!) Here's the situation...any advice for me?
I will have residual "normal" work checks until mid-August. But then I'll have five and a half months of no income, plus I'll have to pay about $800/month extra for my COBRA health plan until January, when I'll get onto Medicare Advantage. I'll start getting my pension in January also (which will represent about 1/3 of my "full retirement income" when I finally get it all), then I'll have 14 months until I pick up Social Security at FRA. This means I'll have to withdraw funds from my 403b until March of 2021, at which point (when I get SS) I'll reevaluate how much I'll need to pull from the 403b.
How do I deal with taxes? I have a tax lady who started doing our taxes about three years ago (up until then, my DH had always done them.) Will she be able to help us figure out how to deal with taxes on the 403b funds, or, better yet, do it for us? Is there anything I should be doing? I don't even know how - or how often during a year - to withdraw from my 403b!
 
I retired last year, and am working through this too.

I ran a "dummy" return in my 2018 H&R Block tax program, because I'm assuming nothing drastic will change for 2019. I also track our finances in Quicken, and it has a tax planner. They're about $2,000 apart on what our liability will be.

I made withdrawals from our IRA's earlier this year, and had 10% withheld for federal taxes. I also filled out a W-4V to have 12% withheld from our SS checks. I am having the same amount withheld from my pension.

Give your tax lady your estimated "work" income for this year, and how much (if any) you estimate you'll withdraw from your 403(b). If she's been doing your taxes, she'll know what else to ask for, and just tell her you want a 2019 estimate so you can plan from there.

Many like to pay the piper at the end of the year, but I'm having at least something withheld wherever I can and the paying quarterly as needed. I'd rather get a little something back than write them a check.

Hope this helps.
 
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There are several ways to handle the 403b withdrawals (monthly, quarterly, annually). Since you will need it for expenses the easiest approach would probably be to take monthly withdrawals and have them direct deposited in your checking account. You can have taxes withheld from your monthly withdrawals, your tax lady should be able to tell you the best amount to have withheld based on your total taxable income.
 
I believe that retirement would also count as a qualifying event if you were to buy health insurance through the ACA marketplace. I'd suggest that you at least check it out, you may be able to get insurance at a cheaper cost after the subsidy than your Cobra. Last year after I lost my job, I assumed I would not qualify so did not bother to look into it and was paying $800 monthly for my Cobra and it was killing me especially when I didn't use the insurance for more than a couple of doctors visits. I finally looked into it in December and had to estimate my income for this year, and I'm only paying $159.00 a month now with the subsidy and have a Silver plan very similar to what I had when I was working.
 
Great idea, I Never thought of it!
But I will only do that if I can get Kaiser through the ACA. Do you know if I can? I am on it now, will be on it when I get Medicare Advantage, and I don't want a "gap' in Kaiser membership. My COBRA also includes dental, and I need to keep that due to bad teeth, though come to think of it, I've already used up my allowable for this year (and more...sigh...)
 
SumDay said:
I retired last year, and am working through this too.

I ran a "dummy" return in my 2018 H&R Block tax program, because I'm assuming nothing drastic will change for 2019. I also track our finances in Quicken, and it has a tax planner. They're about $2,000 apart on what our liability will be.

I made withdrawals from our IRA's earlier this year, and had 10% withheld for federal taxes. I also filled out a W-4V to have 12% withheld from our SS checks. I am having the same amount withheld from my pension.

Give your tax lady your estimated "work" income for this year, and how much (if any) you estimate you'll withdraw from your 403(b). If she's been doing your taxes, she'll know what else to ask for, and just tell her you want a 2019 estimate so you can plan from there.

Many like to pay the piper at the end of the year, but I'm having at least something withheld wherever I can and the paying quarterly as needed. I'd rather get a little something back than write them a check.

Hope this helps.
Click to expand...

Thank you! This is a silly question, but when the IRA people (I'm assuming that this means my 403b, too) withhold for federal income tax, do they pay it directly to the feds? How do I tell them to withhold?
And will the W-4V for work for both the Social Security and the pension? If so, do I need a separate W-4V form for each?
(As you can tell, I don't have a clue! I am so grateful for any information, so matter how simple it seems to you or anyone, it's complicated for me (smile!))
 
I have my withdrawals spread out through the year. For estimated taxes for 4 quarters, and for our 4 sons' birthdays June through September. I also have some QCD's scheduled.
 
CindyBlue said:
Great idea, I Never thought of it!
But I will only do that if I can get Kaiser through the ACA. Do you know if I can? I am on it now, will be on it when I get Medicare Advantage, and I don't want a "gap' in Kaiser membership. My COBRA also includes dental, and I need to keep that due to bad teeth, though come to think of it, I've already used up my allowable for this year (and more...sigh...)
Click to expand...
Cindy - I'm not sure about your state, but in Hawaii, you can purchase Kaiser insurance either in the ACA marketplace, or without the government subsidy. Lots of (confusing) plans to choose from!

You can easily check here: https://healthy.kaiserpermanente.org/shop-plans#individual-and-family-plans

Enjoy your retirement!
 
zinger1457 said:
There are several ways to handle the 403b withdrawals (monthly, quarterly, annually). Since you will need it for expenses the easiest approach would probably be to take monthly withdrawals and have them direct deposited in your checking account. You can have taxes withheld from your monthly withdrawals, your tax lady should be able to tell you the best amount to have withheld based on your total taxable income.
Click to expand...

Thank you so much!
Do you know what information I need to give my tax lady to get this information started? Does it have to be an "official" paper? Because I don't have it yet, for either the pension of the 403b. I am assuming I have to give her the information as to how much I'll be getting per month for the pension, but that process hadn't officially started yet due to the deadline given to me by the financial person at work not being able to start her process until a certain date that isn't here yet. (I tried to start everything rolling in January, because I like to plan ahead, both for cobra and for the pension and for the 403B, but she said we can't do it yet. I am quite frustrated, but there's nothing I can do. I do have estimates, and I do have enough in savings to cover me until I can get the pension and the 403b withdrawal straightened out.)
I've never had to understand any of this - I just put my money into the 403b and got my paycheck. I am very nervous and frankly anxious about all this. And my husband is about to be in the same position, as he works at the same place as I do, and he will be retiring at the same time, and we each have a defined benefit (the pension, up to 2014) a defined contribution 403b (when they froze the defined benefit in 2014) and our own 403b. And he's already taking Social Security. That means seven income sources (with one more added when I finally get to Social Security.) It's almost difficult enough to keep working so I don't have to deal with it! :(
 
CindyBlue said:
Thank you! This is a silly question, but when the IRA people (I'm assuming that this means my 403b, too) withhold for federal income tax, do they pay it directly to the feds? How do I tell them to withhold?
And will the W-4V for work for both the Social Security and the pension? If so, do I need a separate W-4V form for each?
(As you can tell, I don't have a clue! I am so grateful for any information, so matter how simple it seems to you or anyone, it's complicated for me (smile!))
Click to expand...
Yes, they forward your money to Uncle Sam. You should contact your HR department to get info on contacting the plan administrator. Each is different, so call and talk through the process with them. They would probably have you fill out a regular W4 for your pension. They surely have a process for withholding elections. The W4V is only for SS.

Wish I could be more specific but I don't have enough to do so.

Good luck, you can do it!
 
Thank you - I will stop into the office tomorrow and try to figure it out for the pension (defined benefit) and hopefully the defined contribution plan, too.
I appreciate your confidence that I can do it! Come to think of it, I HAVE to do it, don't I (smile!)
 
I am very nervous and frankly anxious about all this.
Click to expand...


Calm down.


No need to be nervous/anxious. This is something that millions of your citizen-neighbors are dealing with already. When you receive a distribution from your PLAN just request that they withhold taxes. Your investment company will send you a form 1099R next January. take that form to your tax gal and she will know how to handle it.
 
mickeyd said:
Calm down.


No need to be nervous/anxious. This is something that millions of your citizen-neighbors are dealing with already. When you receive a distribution from your PLAN just request that they withhold taxes. Your investment company will send you a form 1099R next January. take that form to your tax gal and she will know how to handle it.
Click to expand...

Thank you for the good advice - if millions of other people have done it and are doing it, I guess I can. It's the unknown that is getting to me. I've got a lot of other things going on right now (dad getting harder to deal with as he shows more and more signs of dementia, dealing with the last days of work, etc.) so this was sort of the final straw. I need to think positively! :)
 
Yup... calm down.

Your earnings, including residual checks will be income subject to tax, as will your pension and 403b withdrawals.

A portion of your Social Security will be taxed depending on your other income.... between 0% and 85% depending on yor other income... if you have a pension my guess would be 50% or 85%.

You can have taxes withheld on earnings and 403b withdrawals.

First thing is to sketch out on paper your sources of income for 2019, 2020, 2021 and 2022 (at which point you'll be steady state because it is your first full year of SS). Then either plug those earnings into a tax calculator if you're up to it or go talk with your tax lady.
 
I looked up the Kaiser websites (both of them) and in each case, they seem to only let me enroll in ACA if my Cobra is exhausted - am I missing something??
 
Finally got in to the Kaiser website to see what plans I would be qualified for, and the least expensive was $848, without dental, so I guess I'm stuck with Cobra...but thanks everyone!
 
Does the $848 consider your income level and any available subsidies?

Many people here manage their income to qualify for subsidies that dramatically reduces their net cost of health insurance.
 
Yeah $848 monthly for California in general appears on the high side.
At what income does that rate apply to?
 
Dtail said:
Yeah $848 monthly for California in general appears on the high side.
At what income does that rate apply to?
Click to expand...

We are still trying to figure out our "income" for the year 2019, assuming we are paid through August 15th and not after. Hubby will still get his SS (he's already taking it) and he will start his pension since he's older than I am. Being as part of that pension goes to his ex-wife (divorced 30 years ago) we can't figure out what he will be bringing home - still waiting on the results of the paperwork we submitted.
So guessing, I entered about 75% of what the two of us earn during a normal year. And no subsidy, no help...sigh...The problem is for me - my income is way down, while my spending will be way up due to having to pay my medical, while his income will only be down about 1/4.
I think that paying the Cobra, since it's still Kaiser anyway, is the way to go.
 
CindyBlue said:
How do I deal with taxes? I have a tax lady who started doing our taxes about three years ago (up until then, my DH had always done them.) Will she be able to help us figure out how to deal with taxes on the 403b funds, or, better yet, do it for us?
Click to expand...
Is your tax lady a CPA? Is she any good?

Good tax experts or financial advisers can help you plan properly.
 
The best way to deal with taxes is to at least figure out how much you'll owe, yourself, IMHO.

1) Determine all sources of income (taxable equity sales, tax-deferred investement sales, dividends, pension, SS, interest, etc.)

2) For taxable investments, you need to know the cost basis (you pay taxes on the difference between the purchase price, and the sale price). If you've held the invetstment over a year, these are considered Long Term Capital Gains, and taxed at the LTCG tax rates (currently, as low as 0%).

3) For tax-deferred investments, except for ROTH, they are generally taxed as ordinary income.

4) Dividends are generally taxed as ordinary income.

5) Determine your standard deduction (single or married filing jointly), and whether you're abel to itemize deductions.

Put all of this into Turbo Tax or a spreadsheet, if you want to figure out how the taxes are calculated. I prefer the latter approach, as it helps me determine which assets to sell when. If that's too much, just hire a highly rated tax preparer!

P.S. Don't consider the above tax advice. I've left out all kinds of possible sources of income, and the IRS tax rules are so complex, that even two different competent tax preparers would come up with a different answer for those with complex situations.
 
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joeea said:
Is your tax lady a CPA? Is she any good?

Good tax experts or financial advisers can help you plan properly.
Click to expand...

We don't have a financial advisor.
I don't know much about our tax lady (stupid of me, I know.) We only started using her about three years ago - she was my grandmother's tax lady and we needed to deal with her when my grandmother passed away, so we just took our taxes to her that year because of the possible issues with inheritance, and then just kept going to her.
I think that waiting until I have the final financial papers (I am trying hard to figure out how to get them but the office isn't able to yet, and patience has never been one of my virtues!) and taking them to the tax lady would be good. Once I know how to access my 403b and defined contribution plan and the pension, I'll feel better. I just hate the not knowing!!!
I suspect that all of your advice will be much more useful once I get all the papers! :)
 
Qualified dividends receive the same favorable treatment as long term capitol gains.
 
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