Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Re: MIT Lecture
Old 01-25-2005, 05:55 PM   #21
Thinks s/he gets paid by the post
BigMoneyJim's Avatar
 
Join Date: Feb 2003
Location: DFW
Posts: 2,627
Re: MIT Lecture

Quote:
BMJ,

Didn't you know that up to 85% of your SS income
is subject to income taxes under certain conditions?
I know SS benefits have taxes taken out, but that doesn't change based on how much you withdraw from tax-deferred vehicles, does it? In the executive summary it sounds like he's saying that my saving in a 401(k) now negatively impacts my SS benefits in retirement, and I don't see how.
__________________

__________________
BigMoneyJim is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: MIT Lecture
Old 01-25-2005, 07:49 PM   #22
Thinks s/he gets paid by the post
charlie's Avatar
 
Join Date: Mar 2004
Location: Dallas
Posts: 1,211
Re: MIT Lecture

BMJ,

Remember that money drawn from an IRA is
taxable income (except for a ROTH). If your
total adjusted gross income is high enough,
you pay tax on up to 85% max of your SS
income.

Ain't life grand? Tax on tax via an insidious
"means" test. Soak the rich .... they can afford it.

Cheers,

Charlie
__________________

__________________
charlie is offline   Reply With Quote
Re: MIT Lecture
Old 01-26-2005, 07:35 AM   #23
 
Posts: n/a
Re: MIT Lecture

This should really be under "post-ER surprises", but
Charlie got me thinking about it. I first planned to start
drawing
down my IRA in 1993, when I semiretired (age 49). I
have been fortunate enough to have not yet touched
the money, even 11 years later. If I started to draw
on it now (age 60 years and 5 months) I would run the risk of putting myself in the position of having to pay
federal income taxes, which I have not had to do
(very low income) for years now. Since I am so close to SS, I am now thinking I can just let the IRA grow
indefinitely. After all, I've made it this far. I could
make it another 13 months. Anyway, paying -0-
federal taxes is delicious.

JG
__________________
  Reply With Quote
Re: MIT Lecture
Old 01-26-2005, 08:12 AM   #24
Thinks s/he gets paid by the post
BigMoneyJim's Avatar
 
Join Date: Feb 2003
Location: DFW
Posts: 2,627
Re: MIT Lecture

Quote:
Since I am so close to SS, I am now thinking I can just let the IRA grow
indefinitely. After all, I've made it this far. I could
make it another 13 months. Anyway, paying -0-
federal taxes is delicious.
That seems an odd way of looking at it. First of all, you have RMDs starting at age 70.5. You will pay taxes on that IRA money sooner or later excepting extraordinary circumstances. If you die before paying another penny of tax then Uncle Sam will take his bite post mortem anyway, and you didn't get to enjoy the money.

Of course I'm not familiar with your situation, but might it not benefit you to take some of that IRA money out now at 10% federal tax and save it after tax, or do you not envision surpassing the 10% tax bracket for the rest of your life?
__________________
BigMoneyJim is offline   Reply With Quote
Re: MIT Lecture
Old 01-26-2005, 09:12 AM   #25
 
Posts: n/a
Re: MIT Lecture

Hello BMJ. Good question. Re. "envisioning not surpassing the 10% tax bracket for the rest of my life",
I honestly don't know. I sure would hate to "not have use of the money" just in order to brag that I paid no taxes. I expect this will become more clear as time passes, and as usual it is a bit more involved here than
what I posted, as you suggested.

JG
__________________
  Reply With Quote
Re: MIT Lecture
Old 01-26-2005, 09:49 AM   #26
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,408
Re: MIT Lecture

Wellllll! - I've started to play the game (with 85% of portfolio in Trad IRA) - did a partial Roth conversion last year. Expect to do a series of small conversions age 61 - 70 trying minimize RMD/ the 85% potential back door tax.

This is a new area for me and the guesses/tradeoffs can get -chewy.
__________________
unclemick is offline   Reply With Quote
Re: MIT Lecture
Old 01-26-2005, 10:19 AM   #27
Dryer sheet aficionado
 
Join Date: Apr 2005
Posts: 49
Re: MIT Lecture

Ok, enlighten me if you would.... Roth IRAs are exempt from federal tax and SS tax, but what about state taxes?

Trad IRAs/ 401Ks- just exempt from SS tax?
__________________
Janie is offline   Reply With Quote
Re: MIT Lecture
Old 01-26-2005, 11:23 AM   #28
Moderator Emeritus
Martha's Avatar
 
Join Date: Feb 2004
Location: minnesota
Posts: 13,212
Re: MIT Lecture

Since all your investments in a Roth IRA are after-tax, your withdrawals of your contributions , whenever you make them, are free of state and federal income tax. Earnings on your contributions are completely tax-free if the earnings are withdrawn in qualified distributions. These are withdrawals meeting these conditions:

1. At least 5 years have elapsed since the first year a Roth IRA contribution was made or, in the case of a conversion, since the conversion occurred and
2. At least one of these additional conditions is met:

* The owner is age 59 and a half .
* The owner is disabled.
* The owner has died (but a qualified distribution is to estate or heir, with option by spouse to convert to own roth).
* Withdrawal is for a first-time home purchase (I believe there is a dollar limit).

If a distribution isn't qualified under these rules, then the distribution will be treated first as return of your contributions, with no income tax on those sums. Income tax would be due on any earnings you withdraw.

Don't forget there is a 10% penalty on early withdrawls from any retirement account.


__________________
.


No more lawyer stuff, no more political stuff, so no more CYA

Martha is offline   Reply With Quote
Re: MIT Lecture
Old 01-26-2005, 12:54 PM   #29
Moderator Emeritus
Martha's Avatar
 
Join Date: Feb 2004
Location: minnesota
Posts: 13,212
Re: MIT Lecture

Quote:
Ok, enlighten me if you would.... Roth IRAs are exempt from federal tax and SS tax, but what about state taxes?

Trad IRAs/ 401Ks- just exempt from SS tax?

Janie, to expand on my last post a bit more, qualified distributions from a Roth IRA are not considered income so there is no income tax either on a state or federal level. Because it isn't income, the distributions are also not considered when determining if you owe any taxes on your social security benefits. In contrast, distributions from other IRAs and 401(k)s are income and thus you pay income taxes and this income might cause you to have to pay taxes on your social security.

So, some try to minimize the tax consequences by doing conversions to Roth IRAs.
__________________

__________________
.


No more lawyer stuff, no more political stuff, so no more CYA

Martha is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
MIT Open University Hyperborea Other topics 8 01-06-2005 06:37 PM

 

 
All times are GMT -6. The time now is 12:12 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.