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View Poll Results: I plan to take (or took) SS starting at age
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Re: When I'll Take SS
Old 09-17-2006, 03:34 PM   #41
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Re: When I'll Take SS

Quote:
If the IRA withdrawals come from a Roth then they're not even counted as income.
... wouldn't be surprised if the rules here change relative to both soc.sec. and medicare.
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Re: When I'll Take SS
Old 09-17-2006, 05:11 PM   #42
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Re: When I'll Take SS

Quote:
Originally Posted by MasterBlaster
So, for example, if you are in a federal bracket of 25 percent you get taxed for that extra dollar at 25 % regular income taxes plus 85 percent of the (over the threshold SS income) for a net tax rate on that extra income of 25 + 0.85 * 25% = 46.25 percent marginal tax rate.
I don't follow this example. For a married couple, the 25% bracket starts at a taxable income of $61,301. Assuming this couple took the standard deduction ($10,300) and 2 personal exemptions ($6,600), they would have to have a gross income of at least $78,201 (more if they itemized on Scedule A) to be in the 25% bracket, well above the SS taxability thresholds. At this level, a dollar of SS income (of which 85 cents is taxed) would have an effective marginal tax rate of 0.85*25% = 21.25%, not 46.25%

Usually, these "higher than you might think" marginal rates are the result of triggering something that causes a change in tax rate on a type of income or the disallowance of a deduction (e.g the AMT) or the phase out of a deduction or exemption. Now, if that $78,200 included qualifying dividends and LT capital gains (taxed at 5% in 2007 and 0% in 2008-2010), and extra income (SS or otherwise) were to fill up the 15% bracket bucket, thereby pushing some of the dividend/LT gain income into the 25% bracket where it would be taxed at 15%, you would see the effect you are talking about. However, that would "only" raise the effective marginal rate on that SS dollar to 21.25% in 2007 and to 25.5% in 2008-2010.
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Re: When I'll Take SS
Old 09-17-2006, 11:29 PM   #43
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Re: When I'll Take SS

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Originally Posted by Cut-Throat
Well by your logic, then having any income at all, if taxed, would defeat the benefit of that income! I'll still take my SS, even if I have to pay taxes on it.

The way I understand it, is that 85% of it is taxed, if you exceed the limit of 44K for a married couple.

Also, remember that the amount you earn in your IRAs is not counted as income, until you withdraw it. So only the amounts in the Taxable Accounts earning income(dividends, interest) would add to the $44K limit. Not the amount you withdraw from your taxable accounts!
I understand and appreciate the comments, and yes, although it's a good problem to have, nevertheless, I still will have that problem.
Or more specifically, in my taxable accounts I'll have significant short term capital gains, (a function of my options trading), that will exceed the amount I withdraw to use, but which will still be part of the AGI, as you point out. I'm just trying to minimize taxes as much as possible, and the combo of IRA withdrawels (whenever they occur), excess STCG on money going back into the taxable investing pool, pension, small amounts of Roth (too little, too late) and then SS with the supposed marginal rate jumping to 46% or so, I am trying to understand the ramifications of it all, and plan for the withdrawels.
I tried the calculaters on the other sites, but they seem to break when you add in the STCG at a higher rate then the required expenses. I know the obvious is don't incur the STCG, but the program I'm on, has a flow, and you don't want to break the rythem.
Anyway, the answers on the SS is what I was looking to find.
Thanks
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Re: When I'll Take SS
Old 09-18-2006, 09:49 AM   #44
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Re: When I'll Take SS

Quote:
Originally Posted by FIRE'd@51
I don't follow this example.* For a married couple, the 25% bracket starts at a taxable income of $61,301. Assuming this couple took the standard deduction ($10,300) and 2 personal exemptions ($6,600), they would have to have a gross income of at least $78,201 (more if they itemized on Scedule A) to be in the 25% bracket, well above the SS taxability thresholds.* At this level, a dollar of SS income (of which 85 cents is taxed) would have an effective marginal tax rate of 0.85*25% = 21.25%, not 46.25%

Usually, these "higher than you might think" marginal rates are the result of triggering something that causes a change in tax rate on a type of income or the disallowance of a deduction (e.g the AMT) or the phase out of a deduction or exemption.* Now, if that $78,200 included qualifying dividends and LT capital gains (taxed at 5% in 2007 and 0% in 2008-2010), and extra income (SS or otherwise) were to fill up the 15% bracket bucket, thereby pushing some of the dividend/LT gain income into the 25% bracket where it would be taxed at 15%, you would see the effect you are talking about.* However, that would "only" raise the effective marginal rate on that SS dollar to 21.25% in 2007 and to 25.5% in 2008-2010.
Just a few points

1) The $61301 threshold for the 25 percent tax bracket includes one half of your SS income. So if you are one of the heavy hitters and get upwards of $2k a month from SS then the effective 25% threshold starts at under $50k/year income.

2) So any non exempt, non-SS income you have above $50k gets taxed at the marginal federal rate of 46.25%. Plus whatever your state wants to tax you.

3) Now the above discussion is just for the 85% tax rate on SS income. The 50% tax rate on SS income starts at just $32k. If you are a higher level SS receipient then the effective 50% tax rate starts at under $20k of non SS income.

4) The marginal federal tax rate for the $32k to $44k income including half of your SS check is 15% + 0.5*15% is 22.5%

* * *The marginal federal tax rate for the $44k to $61.301k income including half of your SS check is 15% + 0.85*15% is 27.75%

* * * The marginal federal tax rate for the income over $61.301k* including half of your SS check is 25% + 0.85*25% is 46.25% <Note corrected for typo>

* * * Plus whatever your state wants to tax you for SS income.


I believe that if you have income separate from SS above any of these thresholds that you just may want to think about when you start taking SS income.
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Re: When I'll Take SS
Old 09-18-2006, 10:52 AM   #45
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Re: When I'll Take SS

Quote:
Originally Posted by MasterBlaster

4) The marginal federal tax rate for the $32k to $44k income including half of your SS check is 15% + 0.5*15% is 22.5%

The marginal federal tax rate for the $44k to $61.301k income including half of your SS check is 15% + 0.85*15% is 27.75%

The marginal federal tax rate for the income over $61.301k including half of your SS check is 25% + 0.85*15% is 46.25%
I admit I haven't been following this whole discussion as I am still several years away from earliest SS claim but I am having a problem with the third formula shown above. The way I do math, .25 + (.85*.15) does not equal .4625 (it equals .3775). The result you show is not consistent with the other two formulas. What am I missing here?

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Re: When I'll Take SS
Old 09-18-2006, 10:56 AM   #46
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Re: When I'll Take SS

Grumpy:

That was a typo. It should read...

25 + (.85*.25) is .4625

I'll fix the original post so that I don't confuse anyone else
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Re: When I'll Take SS
Old 09-18-2006, 11:05 AM   #47
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Re: When I'll Take SS

The other thing to remember is that the for each "threshold" UP TO 50% or UP TO 85% is taxed. It's actually the smallest of a three part test. For example under the second threshold (up to 85% of SS can be taxed), it is actually the smaller of:

1) 85 percent of the benefits; or
2) 50 percent of the benefits plus 85 percent
of any excess over the second threshold; or
3) 50 percent of the excess over the first
threshold, plus 35 percent of the excess
over the second threshold.

So, if you delay SS and get a much higher amount, you could greatly eliminate taxes under option 3. Let's say you were married and the first threshold is $32,000. You could earn up to $64,000 of SS before ever paying ANY taxes because SS counts at a 50% rate.
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Re: When I'll Take SS
Old 09-18-2006, 11:13 AM   #48
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Re: When I'll Take SS

New Thinking:

That's the game plan for a delayed SS start. Be tax smart about how you take that SS income.

Also by by delaying your SS start you could spend down your stash. So for every extra dollar of SS income you get by delaying SS you could spend $25 out of your stash (using the 4% SWR rule).
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Re: When I'll Take SS
Old 09-18-2006, 12:56 PM   #49
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Re: When I'll Take SS

Quote:
Originally Posted by MasterBlaster
Also by by delaying your SS start you could spend down your stash. So for every extra dollar of SS income you get by delaying SS you could spend $25 out of your stash (using the 4% SWR rule).
Besides collecting an increased monthly amount at 66 to 70, the above quote was going to be the 2nd reason for delaying my SS payments. Even though, the government took my SS contribution out of my salary, I don't have this strong urge to recoup my money as soon as possible since I am single and having no immediate heirs except nieces and nephews, to leave my estate to.
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Re: When I'll Take SS
Old 09-18-2006, 01:04 PM   #50
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Re: When I'll Take SS

I have found this thread confusing. But to feed back what I think I am hearing:

If your taxable income will be leading up to or within the range that SS becomes taxable your net take home from each SS dollar received (or each additional other taxable dollar received) is less than the basic marginal tax rate would lead you to believe. So watch the situation carefull and plan your withdrawals and SS start accordingly.

But if you already have taxable income over the thresholds (e.g. pension and RMDs) then you can evaluate SS income in a straightforward fashion based on your marginal tax rate (ie. 25%, 28%, 33%). I am riht about the later, correct?
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Re: When I'll Take SS
Old 09-18-2006, 01:15 PM   #51
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Re: When I'll Take SS

Since the tax gurus are gathered here, how about a little hijack. DW and I have itemized and used an accountant for as long as I can remember (we have/had a lot of mortgage deductions, she files in four states, etc) When she pulls the plug in a couple of years we will be in a vastly simplified situation and I will begin doing the taxes. Until now for SWAGs I just generously estimated how much of our income will be taxable, subtracted the standard deduction and two withholdings, and ran the remainder against the current year tables to get a feel. But I want to do a more detailed analysis to match our expense budget which is fairly detailed.

If we use the standard deduction do we still get to deduct real property and state taxes like we do when itemizing?
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Re: When I'll Take SS
Old 09-18-2006, 01:35 PM   #52
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Re: When I'll Take SS

Quote:
Originally Posted by donheff
If we use the standard deduction do we still get to deduct real property and state taxes like we do when itemizing?*
Sorry. You can't have it both ways. Either you deduct your actual expenses like real estate taxes and state taxes and so on or you take the standard deduction.

The only caviot is that if the real estate and state taxes are part of a business deduction then they can be claimed against the business income.

That's just the way it is
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Re: When I'll Take SS
Old 09-18-2006, 03:20 PM   #53
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Re: When I'll Take SS

Quote:
Originally Posted by donheff
But if you already have taxable income over the thresholds (e.g. pension and RMDs) then you can evaluate SS income in a straightforward fashion based on your marginal tax rate (ie. 25%, 28%, 33%).* I am right about the later, correct?
If you have income that cannot be defered that is above the sum of the appropriate SS income threshold and your SS income then you are correct.

That is not such a bad problem to have !
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Re: When I'll Take SS
Old 09-18-2006, 04:28 PM   #54
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Re: When I'll Take SS

DH took an "accelerated" annuity thru our state's pension plans and must start SS at age 62.

I have a somewhat complicated state pension and wil wait til 70 unless I'm forced to take it earlier.
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Re: When I'll Take SS
Old 09-19-2006, 08:24 AM   #55
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Re: When I'll Take SS

DH
"But if you already have taxable income over the thresholds (e.g. pension and RMDs) then you can evaluate SS income in a straightforward fashion based on your marginal tax rate (ie. 25%, 28%, 33%). I am riht about the later, correct?"

I think this is correct but also for couples the fact that SS is a govt supported inflation adjusted joint annuity is an important consideration in choosing when the higher earning couple member begins taking.
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Re: When I'll Take SS
Old 09-19-2006, 08:40 AM   #56
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Re: When I'll Take SS

Quote:
Originally Posted by kz
DH took an "accelerated" annuity thru our state's pension plans and must start SS at age 62.

I have a somewhat complicated state pension and wil wait til 70 unless I'm forced to take it earlier.
The "accelerated" annuity assumes you are going to take SS at 62 but as far as I have seen, it does not require you do so. It comes down to your own financial cash flow needs. Taking SS payments is not a requirement at any age.
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Re: When I'll Take SS
Old 09-20-2006, 01:20 AM   #57
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Re: When I'll Take SS

After age 70, there is no more bonus for delaying SS.
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