Personal Income Tax Calculator

[Rianne]

Much to my ignorance, I entered some numbers in the IRS & State Tax Calculator. Many of our posters do their own taxes. We use an accountant.

https://www.irscalculators.com/tax-calculator

I also refigured our SS at age 70. It turns out that if both of us live to 70+ our combined SS will be approx $75k. We could live on that. But if I add capital gains of $20k, we have an income of $95k. Plugging in those numbers for 2023, we pay 0 federal taxes and $760 state taxes in IL.

I realize tax law will change in 2027, but this surprised me, to say the least.

Edit: I added RMDs of $60k and got $14,746k federal tax and got $3730 state tax. The Roth contribution rollover strategy is on. It just got serious.

 

[jazz4cash]

$14746/$155000 is a tax rate of 9.5%. What tax rate would have to pay on conversions?

 

[MarieIG]

$14746/$155000 is a tax rate of 9.5%. What tax rate would have to pay on conversions?

Rianne can play with different amounts. But, if she has room in a 0 bracket . . .

 

[Al18]

I would not trust the state tax amount reported by that calculator. I found the NJ tax amount was way, way off.

 

[GenXguy]

I would not trust the state tax amount reported by that calculator. I found the NJ tax amount was way, way off.

Illinois doesn't tax SS and retirement income and has a flat tax with a small deduction.

 

[pb4uski]

Rianne can play with different amounts. But, if she has room in a 0 bracket . . .

Exactly, obviously too late for 2022, but if they have room in the 0% or even the 12% tax bracket then they should be doing Roth conversions now to take advantage of those low tax brackets. With $0 conversions our federal income tax would be $0, but we fill up the 10% and 12% tax brackets with Roth conversions and pay about 11.5% of the converted amount rather than a combination of 12%/22% or 15%/25% later.

 

[pb4uski]

I would not trust the state tax amount reported by that calculator. I found the NJ tax amount was way, way off.

Yes, it doesn't capture all the various nuances of state income.

 

[pb4uski]

Illinois doesn't tax SS and retirement income and has a flat tax with a small deduction.

Does "retirement income" include tIRA withdrawals and Roth conversions?

 

[SevenUp]

The Roth contribution rollover strategy is on. It just got serious.

In that case, the Roth IRA conversion and Tax estimation tools Bogleheads wiki articles may interest you.

 

[N02L84ER]

Does "retirement income" include tIRA withdrawals and Roth conversions?

Yes, it does.
What I found weird was that I could do a tIRA contribution and not pay IL tax, but if I did a Roth contribution is was taxable, so there were a few years where I did tIRA contributions and immediately Roth converted some dollars without paying additional IL taxes.

 

[VanWinkle]

Does "retirement income" include tIRA withdrawals and Roth conversions?

Yes SS. conversions, and tira withdrawals, pensions. It does not include annuity payments-anything with a D code in box 7 on the 1099R.

VW

 

[target2019]

I would not trust the state tax amount reported by that calculator. I found the NJ tax amount was way, way off.

We have NJ Retirement Income Exclusion that kicks in at 62.

https://www.state.nj.us/treasury/taxation/njit7.shtml

 

[pb4uski]

Yeah, irscalculator isn't going to be able to capture many of those state income tax nuances.

 

[Exchme]

$14746/$155000 is a tax rate of 9.5%. What tax rate would have to pay on conversions?

Since the tax only happens as a result of the RMDs, the relevant tax rate comparison is to the RMD, not the total income.

OP should examine the $20K referred to as capital gains. That may include non-qualified dividends, which would be taxed as ordinary income.

This calculator uses the current tax law, but TCJA is scheduled to expire after 2025 and rates will go up, exemptions change, etc.

If OP will have $60K in RMDs, that implies around $1.5M in tax deferred, that is in the range where Roth Conversions would typically be a good idea, especially in the next few years prior to claiming SS and while the lower TCJA brackets are in force.

 

[Rianne]

Since the tax only happens as a result of the RMDs, the relevant tax rate comparison is to the RMD, not the total income.

OP should examine the $20K referred to as capital gains. That may include non-qualified dividends, which would be taxed as ordinary income.

This calculator uses the current tax law, but TCJA is scheduled to expire after 2025 and rates will go up, exemptions change, etc.

If OP will have $60K in RMDs, that implies around $1.5M in tax deferred, that is in the range where Roth Conversions would typically be a good idea, especially in the next few years prior to claiming SS and while the lower TCJA brackets are in force.

Our capital gains are LTCG, but yes those would be non-qualified dividends which put us in the 9% tax bracket. How much would you Roth convert? I understand everyone wants to stay near the 12% tax bracket, but looking at future possibilities we trying to guestimate a 5-6 year plan of Roth conversions while being tax efficient.

Edit: The accountant was not specific about the best strategy. I'm trying to get an idea from the IRS tax calculator. We're comforable with $80-90k spending including taxes.

 

[SevenUp]

Our capital gains are LTCG, but yes those would be non-qualified dividends which put us in the 9% tax bracket. How much would you Roth convert? I understand everyone wants to stay near the 12% tax bracket, but looking at future possibilities we trying to guestimate a 5-6 year plan of Roth conversions while being tax efficient.

Edit: The accountant was not specific about the best strategy. I'm trying to get an idea from the IRS tax calculator. We're comforable with $80-90k spending including taxes.

Using a spreadsheet (Excel in particular) may be more helpful that one-at-a-time web tools. See the example at that link.

The marginal tax rates you will pay on RMDs when you are taking SS and have qualified dividends may be much higher than 9%. If you give the spreadsheet approach a try, what do you get?

 

[Rianne]

I just saw this thread. Answers a lot of my questions.
https://www.early-retirement.org/forums/f28/roth-conversions-and-the-tax-torpedo-116839.html