Taxes after retirement?

[mountainsoft]

Why would you remain in the 15% capital gains tax bracket?

I've been running several calculators and most estimate around 8%-11% tax when we retire. So I think I'll err on the side of caution and use 12% for my estimations. That's slightly better than 15%.

Regarding additional taxes, we have no state income tax in Washington state. We do have sales tax, gas tax, and fairly high property taxes.

 

[gayl]

Great! Apparently my SSA will be subjected to both WEP and 85% taxable

 

[meierlde]

Great! Apparently my SSA will be subjected to both WEP and 85% taxable

Although WEP means that you will have less social security income to start with.

 

[gerntz]

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.

Agree, but already have 2016 software to estimate 2016 taxes.

 

[meierlde]

Agree, but already have 2016 software to estimate 2016 taxes.

You have to assume that things continue since there is no way of knowing what will happen to taxes as things change politically. A historical example, assume you had done the analysis based upon 2000 rates going forward then the results for 2004 would have been high.

 

[Sunset]

Great! Apparently my SSA will be subjected to both WEP and 85% taxable

I know the feeling

Good news is you will have less tax to pay on SS (since less SS).

I have calculated, there is depending upon your reason for WEP, various choices to be made, to optimize total income received. (meaning maximize the number of bread crumbs).

 

[Happyras]

Since they tax SS at 85% it makes a good check to see if drawing it early might offset some tax liability once RMD's kick in. In our case, it makes sense to consider the lower marginal tax rate currently versus after age 70.5 when our marginal rate will likely be much higher. We have special circumstance with a business and rental income that will push us higher with RMD's along with all the pensions and SS benefits.

With a 4% net return on reinvested benefits and an increasing marginal fed tax rate, it makes most sense to take it early, and pay tax now, reinvesting it than waiting to have more to tax at higher rates later on. Similar calc to a Roth conversion estimate.

 

[Happyras]

Breakeven age is 85 in our case, which at that point is a crap shoot.

 

[respond2u]

One other thing to think about for 2017 is that the healthcare premium is essentially a tax if you're at the 15% tax bracket.

Your ACA subsidy will be affected by your adjusted gross income.

Roughly speaking, the marginal tax rate for healthcare insurance is about 25%.

 

[Winemaker]

Since they tax SS at 85% it makes a good check to see if drawing it early might offset some tax liability once RMD's kick in.

They don't tax your SS 85%, they tax 85% of your SS.

 

[Sunset]

They don't tax your SS 85%, they tax 85% of your SS.

Maybe he was thinking of the future

 

[Happyras]

They don't tax your SS 85%, they tax 85% of your SS.

85% of (Social Security Income) x Marginal Tax Rate....geessh you have to spell it out so much? My point is the cash flow accrued by age 85 at a 4% net ROI, is equivalent for taking it at age 62 versus 66. The break-point is even more severe, rising to Age 90 for taking it at 62 versus 70.

This is primarily due to the marginal tax rate increasing so significantly for the many who have over saved in tIRA and will be forced to show $80K or more in additional income/yr at age 70.5. It is a point I believe many are ignoring who might be in the same comfortable boat.

The marginal rate spread I used was 12%, or a rate of 18% at age 62 versus a tax rate of 30% at age 70.5. The same spread could be used for other marginal rates such as 15% age 62, and 27% for age 70.5.

 

[gerntz]

You have to assume that things continue since there is no way of knowing what will happen to taxes as things change politically. A historical example, assume you had done the analysis based upon 2000 rates going forward then the results for 2004 would have been high.

I'm just estimating 2016 taxes with 2016 TT. Rates aren't going to change for 2016 in the next 32 days. Not trying to project beyond then.