2017 tax and beyond

[F4mandolin]

Currently about to start withdrawals from my TSP Govt account. My goal is to drain the account in as short a period of time as possible and still avoid going into the 25% bracket. 2017 won't actually be the problem since it will be at least March before the payments begin. But....since the TSP only takes adjustments to the amount of money you want once a year.....I'm trying to get it as close as possible to the limit for 2018 onward....even going a hair into the 25% is not a big deal. I took a look online thinking about downloading a copy of TurboTax (Alan suggested this)...but there is a comment about being only available to those that live in the US......I live in the UK. I "think" the following withdrawal plan is ok.....but just want to know if anybody sees a big boo-boo I don't see.

*TSP Currently $535,000
*Monthly withdrawal of $5800=$69,600 yearly gross.
*$69,600 minus the married jointly deduction/exemptions ($20,700)= $48,900 taxable?
*Pension currently $26,500 yearly (taxable amount from 2015 taxes). This will go down $850 a month($10,200 yearly) in 2.5 years when I hit 62.....so I can raise the TSP monthly $850 a month that following year.
*Will go on social security at that time....but it is only taxed in the UK.
*Pension of $26,500 + $48,900= $75,400 taxable?
*Account is drained in around 8 years. I would prefer to drain it sooner.....just don't want to pay the higher taxes.

Anything big I am missing?

Fred

 

[kaneohe]

Perhaps you could use Taxcaster (baby sibling of TT) to do your estimates.
It suggests you are just a tad over the 25% boundary for 2016 but maybe ok for 2017. Not sure how being international affects you but have you considered doing a Roth conversion instead of just a withdrawal. In the US tax consequences would be the same but you would have a Roth instead of a taxable account.
https://turbotax.intuit.com/tax-tools/calculators/taxcaster/

 

[F4mandolin]

Perhaps you could use Taxcaster (baby sibling of TT) to do your estimates.
It suggests you are just a tad over the 25% boundary for 2016 but maybe ok for 2017. Not sure how being international affects you but have you considered doing a Roth conversion instead of just a withdrawal. In the US tax consequences would be the same but you would have a Roth instead of a taxable account.
https://turbotax.intuit.com/tax-tools/calculators/taxcaster/

Thanks. I've played around with the Taxcaster a little bit (thanks Alan). I figured I had the numbers pretty close but was just wondering if there was something I was missing. If I started the withdrawals in March there shouldn't be a problem for 2017 since I would be missing a couple of months of payments. Once I start them....I can only make an adjustment during the Open Season which begins at the end of November and the changes are made for the beginning of the next year.

I totally changed my retirement plan a couple of months ago. Now that I have been ER'd since June 2011.....the amount that we are spending is less than we thought. If I just pull the money out as fast as I can, several things happen that I like....
-I can get my UK wife off my US taxes earlier before she starts into her UK pension in 10 years.
-my estimate of our money situation 8-10 years from now...at least £450,000 cash in the bank/under the bed....wherever.
-my pension/social security- combined it should be about $2700 a month at todays prices......about £2100 at current exchange rates (which, like the markets will go up or down..who knows). More than we are spending.
-wife's pensions at that time should bring in about £700 a month on top of that.
-wife should get half of my SS......so even taking early adds another £300+ a month.
-on our deaths, much much easier for her kids here in the UK to get what's left.
-we own our house......worth around £270,000.

If we can't live on that......there is something wrong. ROTH conversion just not worth it for us....in fact, in the next week I will probably be selling the only thing I have left at Vanguard, which is my ROTH (I turned 59 1/2 earlier this month). Trying to get as much of our financial "stuff" over here and making it really really simple for my wife in case I get hit in the head by a golf ball....or a heart attack from missing another easy putt .

 

[fosterscik]

The only thing that raises a flag to me is your statement "Will go on social security at that time....but it is only taxed in the UK". It doesn't take much income to make SS taxable in the US. For 2016, 50% of your SS becomes taxable if your annual "SSI combined income" (AGI +0.5*SSI+non-taxed interest)" is above $32k. 85% is taxable if above $44k.

When I run my projections I always assume 85% of my future SS will be taxed and compute tax brackets accordingly.

 

[F4mandolin]

The only thing that raises a flag to me is your statement "Will go on social security at that time....but it is only taxed in the UK". It doesn't take much income to make SS taxable in the US. For 2016, 50% of your SS becomes taxable if your annual "SSI combined income" (AGI +0.5*SSI+non-taxed interest)" is above $32k. 85% is taxable if above $44k.

When I run my projections I always assume 85% of my future SS will be taxed and compute tax brackets accordingly.

If I understand the Treaty between the US+UK correctly.....and have been told by a number of other people (nun/Alan/theOAP)......social security won't be taxed in the US, but will be in the UK. The UK won't tax my US Govt pension/TSP by agreement as well.

 

[fosterscik]

Interesting about SS taxability in the UK. I'm another UK expat - that is a fact to keep in the back of my mind. In my case, I'm unlikely to return to the northeast (my "home" was near Rowlands Gill in what was Co Durham but became Tyne & Wear) because of adult kids living and working in the US.

 

[ABQ2015]

You don't mention if there is a FERS supplement included in the pension until age 62 but the supplement is taxed the same as social security (e.g., a maximum of 85% of the supplement is taxed in the USA).

 

[F4mandolin]

You don't mention if there is a FERS supplement included in the pension until age 62 but the supplement is taxed the same as social security (e.g., a maximum of 85% of the supplement is taxed in the USA).

Yep....mentioned it at the beginning.....although I didn't call it the supplement. My $26,500 number is pension+supplement and was on my taxes as "taxable" for 2015. It will be the same or "near-as-dammit" for the next couple of years. I got a letter a couple of weeks ago noting my supplement was going up $1 a month this year!!!! My pension doesn't move until I turn 62 so I have been locked into the same amount since I retired in 2011. Supplement goes bye-bye in 2.5 years (about $850 a month/$10,200 yr) and that year I plan to add that $850 to what I take out of the TSP. At that time (in 2.5 years) the $26,500 will drop to around $16,300 a year and that will allow me to withdraw more from the TSP. Who knows what it will actually be until they drop that supplement.....but my pension "take home" is only $1289 a month until 62. The social security (unless they change the rules as I believe them to be) will only be taxed in the UK.....which will push me a little over their beginning taxing limit, but not much. Because the UK will ignore my income from the US Govt pension....that will not count against me here in the UK.

Part of the reason I am trying to get rid of the TSP and in the next week or two the last of my Vanguard ROTH is to make my taxes soooooo simple that even I can do them.....and also make it easy for my wife if I am not around. There is a site called UK Yankee that I am on (there are a few people on the ER forum on this site) that have gone over this a bunch. My taxes seem to be fairly simple compared to most of the other people. The rules confused the hell out of me for a while.....but once people pounded the rules into my head I think I have a decent idea of what's going to happen. Luckily, we seem to be in a situation where Pound/Dollar rate if VERY much in our favour for now....and likely into the next few years at least.....so changing $ to £ is desirable.