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Lets talk tax torpedos: Pension, QBI, RMD and SS
11-11-2021, 08:17 PM
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#1
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Thinks s/he gets paid by the post
Join Date: Aug 2013
Location: North
Posts: 4,031
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Lets talk tax torpedos: Pension, QBI, RMD and SS
Trying to figure out a tax problem...or better yet the optimal way to fund RMD.
Let's say a person has the following in terms of income come RMD time this year at 72/RMD date:
$20k Pension (income tax rate)
$30k QBI (income tax rate)
$50k RMD where 30K comes from Qualified Dividends, 20k from selling stock shares...
$50k SS ($33.335 + $16.665)
Total income = 150k
I am trying to check my math on this but I believe we need to make some assumptions:
1. Capital Gains Tax Threshold is $83,350 MFJ for 0% & anything greater is 15% rate
2. Up to 85% of a taxpayer's benefits may be taxable if they are: MFJ with more than $44,000 income.
3. Its currently a bear market and we want to "avoid selling low"
4. the 20k stock shares gets transferred "in-kind"
What is the tax liability for this 72 yr old?
20k pension income taxed at 12% - 20(.12)= 2.4
30k QBI taxed at 12% - 30(.12)= 3.6
30k RMD from Divvies taxed at 0% - 0
20k RMD from stock sales - 30(.12)= 3.6
50k SS - 50(.85)*0.12= 5.1
TOTAL TAX = 2.4+3.6+0+3.6+5.1 == $14,700 federal income tax
Am I missing anything? and am I using the right bracket at 12% err would this really be the 22% bracket (re the TAX TORPEDO)??
83,500( .12) + (120-83.5).22 = 10.02 + 8.03 == $18,500 ??
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Time > $$$ ~ 100% equities ~ FIRE @2031
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11-11-2021, 08:21 PM
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#2
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Full time employment: Posting here.
Join Date: Jul 2014
Posts: 860
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A Required Minimum Distribution (RMD) from an IRA or 401k will be treated as ordinary income, regardless of how it was held in the IRA or 401k.
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11-11-2021, 08:21 PM
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#3
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Thinks s/he gets paid by the post
Join Date: Aug 2013
Location: North
Posts: 4,031
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There is no way the above solution could be correct. I think I am missing something with that 1st assumption...
1. Capital Gains Tax Threshold is $83,350 MFJ for 0% & anything greater is 15% rate But my head is spinning trying to figure out my errors.
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Time > $$$ ~ 100% equities ~ FIRE @2031
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11-11-2021, 08:22 PM
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#4
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Thinks s/he gets paid by the post
Join Date: Aug 2013
Location: North
Posts: 4,031
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Quote:
Originally Posted by SevenUp
A Required Minimum Distribution (RMD) from an IRA or 401k will be treated as ordinary income, regardless of how it was held in the IRA or 401k.
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Aha! That changes EVERYTHING! Taxman wants his taxes!
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Time > $$$ ~ 100% equities ~ FIRE @2031
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11-11-2021, 08:24 PM
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#5
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Thinks s/he gets paid by the post
Join Date: Aug 2013
Location: North
Posts: 4,031
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Based on SevenUp's response my math must have to be :
83,500( .12) + (150-83.5).22 = 14.63 + 10.02 == $24,650 ??
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Time > $$$ ~ 100% equities ~ FIRE @2031
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11-11-2021, 08:31 PM
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#6
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Full time employment: Posting here.
Join Date: Jul 2014
Posts: 860
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Assuming the $30K is net Schedule C income, the case study spreadsheet suggest the following:
Code:
AGI $140,381
Std. Deduct. $ 27,800
QBI ded. $ 5,576
Taxable $107,005
1040 Tax $ 15,038
You could download that tool for your own what if?s.
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11-11-2021, 08:37 PM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2007
Posts: 13,202
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I'd run it through a tax calculator or get your 2021 tax program soon and run it through there, rather than trying to piece it together like this. You're missing the small 10% bracket you go through before you hit 12% for one thing. It doesn't look like you're using the standard deduction for another.
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11-11-2021, 08:43 PM
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#8
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Thinks s/he gets paid by the post
Join Date: Dec 2016
Location: DC area
Posts: 2,479
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QBI is a 20% deduction, so in the 12% bracket your effective tax on the QBI income is 80%x12%=9.6%. That assumes it is not self-employment income. If it is you have another 15.4% self employment tax, but get to deduct a portion of that.
Aside from the QBI, I don't see the standard deduction or the 10% bracket accounted for in your math. The later won't make much difference - it is only 2% delta on the first ~$10K.
You should probably enter your numbers in an online tax estimator like https://www.irscalculators.com/tax-calculator or https://turbotax.intuit.com/tax-tool...tors/taxcaster
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FI and Semi-ER March 24, 2017
Consulting to stay engaged
"All models are wrong, some are useful." - George Box
“There is always a well-known solution to every human problem: neat, plausible, and wrong.” - H.L. Mencken
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11-12-2021, 05:46 AM
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#9
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Thinks s/he gets paid by the post
Join Date: Oct 2017
Location: Tellico Village
Posts: 2,607
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I ran the numbers here, not knowing if the Business income is subject to SS and Medicare taxes and assuming MFJ under age 65.
https://www.mortgagecalculator.org/c...calculator.php
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Retired May 13th(Friday) 2016 at age 61.
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11-12-2021, 11:06 AM
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#10
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Thinks s/he gets paid by the post
Join Date: Aug 2013
Location: North
Posts: 4,031
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Quote:
Originally Posted by RunningBum
I'd run it through a tax calculator or get your 2021 tax program soon and run it through there, rather than trying to piece it together like this. You're missing the small 10% bracket you go through before you hit 12% for one thing. It doesn't look like you're using the standard deduction for another.
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Good call! just got my copy ot TT Premier so I should be able to run it through the gambit Totally forgot about that sliver of 10% bracketed income lol. It was late when I posted this, but more a ponder for a future scenario my DF will be running into.
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Time > $$$ ~ 100% equities ~ FIRE @2031
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11-12-2021, 11:06 AM
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#11
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Thinks s/he gets paid by the post
Join Date: Aug 2013
Location: North
Posts: 4,031
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Quote:
Originally Posted by VanWinkle
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Super helpful tool! Thanks VW!
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Time > $$$ ~ 100% equities ~ FIRE @2031
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11-12-2021, 05:09 PM
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#12
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Thinks s/he gets paid by the post
Join Date: Jul 2011
Location: Reading, MA
Posts: 1,714
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Quote:
Originally Posted by VanWinkle
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Earned income is subject to SS and Medicare taxes regardless of your age and status receiving those benefits...
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11-12-2021, 10:16 PM
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#13
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,266
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Quote:
Originally Posted by USGrant1962
QBI is a 20% deduction, so in the 12% bracket your effective tax on the QBI income is 80%x12%=9.6%. That assumes it is not self-employment income. If it is you have another 15.4% self employment tax, but get to deduct a portion of that.
Aside from the QBI, I don't see the standard deduction or the 10% bracket accounted for in your math. The later won't make much difference - it is only 2% delta on the first ~$10K.
You should probably enter your numbers in an online tax estimator like https://www.irscalculators.com/tax-calculator or https://turbotax.intuit.com/tax-tool...tors/taxcaster
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I get $15,411 using the first calculator above based on MFJ both over 65, $94k of unearned income ($20k pension, $30k QBI, -$6k QBI deduction, $50k RMD) and $50k of SS (only 85% is taxable). For some reason the tool only puts in a $27,700 standard deduction and I change it to $27,800.
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