Taxes time 2018 - what to expect ?

[pb4uski]

.... It’s not thevstatus quo I am upset with, it’s tax code changes that hurt the middle class and help the wealthy and corporations I am unhappy with.

I wouldn’t say the new tax code hurts the middle class. My kids have been paying a lot higher tax rate than I am for years. It’s about time they get a break. They have zero deductions period. One kid I consider middle class and single and self employed, so she pays through the nose. They are not hurt by this new tax code. In fact, they start to have some money to save.

+1 with you Fedup. I do 6 tax returns for ourselves and various friends and relatives with income from $20k (for a single) to $175k (working couple)... every single one will pay lower taxes in 2018 than in 2017 based on 2017 income and deductions.

$175k working couple..... 16.9% decrease
$95k single retiree.......... 9.4% decrease
$20k single worker.......... 20.2% decrease
$40k single worker.......... 20.2% decrease
$74k retired couple......... 20.5% decrease

+ us.... ours will be flat.

So IME I don't see the changes as having hurt the middle class at all.... in fact, just the opposite.

 

[Fedup]

I do 6 tax returns for ourselves and various friends and relatives with income from $20k (for a single) to $175k (working couple)... every single one will pay lower taxes in 2018 than in 2017 based on 2017 income and deductions.

$175k working couple..... 16.9% decrease
$95k single retiree.......... 9.4% decrease
$20k single worker.......... 20.2% decrease
$40k single worker.......... 20.2% decrease
$74k retired couple......... 20.5% decrease

+ us.... ours will be flat.

So IME I don't see the changes as having hurt the middle class at all.

+1, I’m tired of the rhetoric out there regarding the tax cut. One of my kids just told me her corporation gave her better increase than my husband and I had for years. Plus load up with RSUs. This kid has so much money and she’s only 22.

I want corporations to be wealthy. They will make my kids and me wealthy(as an investor) as well.

 

[pj.mask]

You obviously didn't read my response and have not read many of my posts.



Other than p.j.mask, it doesn't seem like you are getting much sympathy.

I think you confused empathy for sympathy.

Many people in early retirement just want to get out of rush hour traffic and spend more waking hours with people they care about.

Some just don’t function well around others and social interaction seems to be a significant burden for them to bear. Those people tend to go around picking fights and saying things like moving out of state away from your family is a simple “choice”, the same as buying Kirkland toilet paper vs chairmen.


While I don’t feel sorry for people who have to pay RMD or for those who got screwed over by the tax bill, as a decent human being, I understand that they have feelings about it that may differ from my own and I do not discount them because we have different situations.

Well if you have higher SALT, yes, you would fund more things in your state with it. SALT is a choice.



If a state receives less Fed $ because its SALT are higher, I'd like to see that cause & effect. But showing that a state with high SALT gets a lower % of the Fed tax it pays back doesn't show that c & e necessarily. The reason could as easily be that the lower SALT state is poorer than the high one. And the Feds do distribute more to poorer folks, in general.

Gerntz, not sure what you are trying to say here. I simply said high SALT states subsidize low SALT states. Your post seems to agree with what I said but it sounds like saying ‘well they may earn more money’ somehow makes my argument invalid? I didn’t discuss any cause or effect; simply said thank you to those in high SALT states for contributing more.

 

[pb4uski]

The RMDs are not the problem, nor are withdrawals from tax deferred accounts. In fact, taxable income is about the same as last year as I used the RMDs in lieu of making my usual 4% withdrawal from non Roth IRAs. Nothing forgotten. The simple fact is that the lower tax rates don’t make up for the deductions I lost that now force me to use the standard deduction.

I have no idea what my marginal tax rate was when I put money into IRAs and 401Ks. That was over a period of 30 years. If you are saying that I benefitted by paying lower taxes in prior years, of course I did. Everyone who contributed pre tax money is in the same situation. What I wasn’t aware of in the past that there would be such a large change in the tax code this year. Were you?

The way that I look at it... people expected to be in a lower tax rate in retirement than they were while working and that is why they deferred that income. In most cases, that will be the case and they'll have saved on taxes. For those that don't then they have been far more financially successful than they expected to be so they are winners too.

To answer your question, I was totally expecting a large change in the tax code for 2018.

Unfortunately, those expectations evolved in December of 2017.

Kidding aside, for most people, the changes are beneficial... though I concede that higher income people in high SALT states are taking it on the chin.

 

[Just_Steve]

True enough. On the bright side, I was pleasantly surprised to learn that NY does not tax Social Security income, unlike some states.

And if you are 59 1/2 20k of 401k withdrawals are not taxed.

 

[lucky penny]

... though I concede that higher income people in high SALT states are taking it on the chin.

Yup, that'll be me!!!

My only complaint is that I have a sense that the really rich folks are still not paying nearly enough.

 

[Just_Steve]

Can you elaborate? Wouldn't earnings that are contributed be taxed at the same rate as earnings that are not contributed? Or are you assuming that their state tax rate while working is higher than their state tax rate in retirement.

Also, to be clear, you only get taxed on pension payments in excess of contributions... you don't get taxed on the "return of principal' part.

My contributions were taxed and then contributed to the pension plan at whatever tax bracket I was in at that time as opposed to the lower tax bracket I am in now. I would have preferred it be deferred to my current bracket. On the federal side the taxes are deferred and I think the state should do the same.
Also if I move to a state that taxes pensions I will have to pay taxes on money I already paid taxes on.

 

[MarieIG]

I went back to one of my high income years while working and my SALT deduction, including property taxes for two homes was only $22k... IMO if your SALT is $40-70k you're living pretty high on the hog and are unlikely to get much sympathy.

While I live in a relatively high SALT state, it is not as near as high as the NY metro area.

This is just insulting. I am asked how the tax law will effect us, provide a response, and get this?

 

[pb4uski]

Whatever.... if you go back to my post that you quoted it was a response to another poster and had nothing to do with your post.

That said, I stand by what I said that someone with $40-70k of SALT deductions (state income tax and property taxes) are unlikely to get much sympathy, though I conceded in an earlier post that they were taking it on the chin, which I suppose could be inferred to be some sympathy.

 

[Helena]

Complaining that you have to pay taxes on RMDs on this board will likely help little as none of us control that.

We don't control RMD laws... but our lawmakers do. And all of us have a voice we can use to make our views known to our representatives.

A few weeks ago Trump made an EO mandating current RMD rules be reviewed. Both the House and the Senate have current retirement bills that may also affect RMDs. I encountered hostility to a topic I posted about this and it was closed. But the hostility against me by the same poster continues on other topics.

.

 

[bingybear]

We don't control RMD laws... but our lawmakers do. And all of us have a voice we can use to make our views known to our representatives.

A few weeks ago Trump made an EO mandating current RMD rules be reviewed. Both the House and the Senate have current retirement bills that may also affect RMDs. I encountered hostility to a topic I posted about this and it was closed. But the hostility against me by the same poster continues on other topics.
.

Absolutely. Voice you concerns and desires to your representatives as the congress can change the laws or make new ones.
IIRC we can't discuss legislation until it is mostly or all the way thru congress -- sorry I forget the moderator's rules

I caught EO review news and read threads her and articles elsewhere. If I understood it correctly the review was mainly for longevity changes ( changing the RMD table if I understand correctly)

I'm all ears if you have something authoritative that indicates I'm mistaken. I have not looked at legislation in the house or senate. But I'm looking at doing roth conversions to help manage taxes in retirement as I don't see other likely options.

I'm not trying to be mean or disrespectful. I'm just trying to keep up on information that will help me make better decisions for our retirement years. Understanding what will likely happen in future legislation is useful, but betting on what I wish (all my assets would never be taxed) just does not seem believable... but I can hope! I will have to see what I can find on current legislation passing thru congress related to retirement funding.

pax

 

[Souschef]

Strangely, I am paying more taxes in retirement than when I was working. Of course, the reason is I have more taxable income now with SS being taxed and my RMD's.
I looked at my effective tax rate for the last 3 years and it is around 12%, even though I am in the 25% bracket.
Here is my strategy for my RMD this year
Gift some to our 4 sons
Make charitable QCD gifts
Pay part of estimated taxes
Pay for a cruise
Next year the excess over what I need will be rolled over into a Roth.

 

[pb4uski]

....I am in the 25% bracket.
Here is my strategy for my RMD this year
.....Next year the excess over what I need will be rolled over into a Roth.

You can't roll RMD to a Roth. You need to first do RMD as a withdrawal, and then do any Roth conversions desired... since you're in a high tax bracket I wouldn't think that Roth conversions on top of RMDs would be prudent.

 

[Fedup]

You can't roll RMD to a Roth. You need to first do RMD as a withdrawal, and then do any Roth conversions desired... since you're in a high tax bracket I wouldn't think that Roth conversions on top of RMDs would be prudent.

+1, I didn’t think we could when I first read it. Otherwise it would not be called RMD, it would be called have your cake and eat it too kind of thing.

 

[Souschef]

I will do more research on the subject. OOPS I just did and you are correct.
Q: Can I convert the required minimum distribution from my regular IRA into a new Roth IRA account after paying the income taxes if I am not working?

A: Sorry, no. According to IRS publication 590-A, the annual required minimum distribution (RMD) from your traditional IRA cannot be converted to a Roth IRA,

 

[pb4uski]

Yes, where you move it to a taxable account it is the same as taking cash and then reinvesting the cash in the taxable account. You could not take that cash and contribute it to a Roth unless you have earned income (which you presumably do not as a retiree).

Your broker is wrong.

 

[TrvlBug]

... ...
Kidding aside, for most people, the changes are beneficial... though I concede that higher income people in high SALT states are taking it on the chin.

I thought that would be me, but was pleasantly surprised when our tax man did a 2017/2018 calculation using 2017 income/deductions which resulted in a $1K tax savings. We're high income in a high SALT state. As many of the SALT deductions are thrown out when calculating AMT, we actually benefited with the tax law changes.

That said, because our income is increasing about 10% in 2018 thanks to the market, our taxes in 2018 will be higher. But as DH likes to say "I'm glad I'm paying more in taxes...it means I made more $$$" .

Our philosophy is that we are very fortunate and we don't mind paying our fair share. We would be happier if the gov would spend our money more wisely and tax everyone more fairly.

 

[Fedup]

It’s not taking it by the chin here either. Most likely about $200 per year for the same income. My property tax is high but not $70k high.

 

[bingybear]

If you take more than your RMD, they you can roth convert the amount that exceeds the RMD.

I expect the 2018 taxes will be among the highest taxes we've had. I expect to start larger roth conversions. converting to the top of the 12% bracket will do little with the other taxable investment income.

 

[roaming2]

When the tax law went into effect, for the DINK family with income around 170K, the experts said the amounts would go done. Since the itemized deductions have gone away, I did our calculations last night based on the new rates and are taxes will be going up

 

[pb4uski]

When the tax law went into effect, for the DINK family with income around 170K, the experts said the amounts would go done. Since the itemized deductions have gone away, I did our calculations last night based on the new rates and are taxes will be going up

Interesting. I do a return for DINKs with $175k of income and their tax bill will go down 16.9%... see post #76 in this thread... they don't itemize even though they own a home, so that may be the difference.

 

[eytonxav]

I am not sure if its been mentioned, but if you and your spouse are both 65 or more you can tack on an addition age deduction on top of the standard deduction at $1300 per each spouse, so if applicable to both, your standard deduction increases to $26,600.

 

[RunningBum]

I'll tell you what I expect, it's more stress, trying to get my Roth conversion close to the cliff without going over, knowing there is no recharacterization safety net. This means I have to make sure I don't miss any interest or dividends, and also account for the way Vanguard reports estimated dividends for their total international funds, not including the part taken out for foreign taxes. The way I understand it, and I asked them last year, if they have $100 in dividends and pay $7 in foreign taxes, they will give you an estimate of $93 (probably because that's the actual distribution), but the 1099 will report $100. You can get that $7 back with the foreign tax credit, but the whole $100 is counted towards the ACA calculation.

I just updated my 2017 spreadsheet for 2018 and felt a pang of stress about it. I'll put it aside and start worrying about it mid-December, and I guess I'll figure out how much buffer I want, to make sure I don't go over.

 

[SecondCor521]

Here's my situation:

Overall, my taxes will change more because of changes in my life situation than due to the tax code, although both are changing quite a bit.

I'll be switching from single to HOH, so that will help a lot.

I personally appreciate the mild simplification of the bigger standard deduction - I haven't itemized in a few years but with the TCJA I can probably completely forget about even the chance of itemizing, which means fewer receipts to save and a couple fewer entries to make.

I would like the higher CTC but I won't qualify for that because my youngest aged off that credit this year. Oh well.

My state lowered their marginal rates, so I should see some relief from that, as well as the lower federal rates / brackets.

Overall for me the focus is more on what my strategy should be. I can either have a *really* low AGI and get all the goodies but give up some non-refundable credits, or I can go for a moderately low AGI and lose out on some goodies but absorb and use all the non-refundable credits. If I do deliberately increase my AGI, the next question is what amount of that should be Roth conversions and what amount should be 0% LTCG harvesting.

Right now I'm leaning towards moderately low AGI, and about a 50/50 mix of 0% LTCG and Roth conversion. This is more due to cash flow considerations rather than any really superb tax planning.

 

[zedd]

And if you are 59 1/2 20k of 401k withdrawals are not taxed.

Really? At 59 1/2 withdrawals from 401k and IRAs are exempt from the 10% penalty - yes, but otherwise not subject to tax? News to me. Please share your cite