Retirement year tax joy!

[2017ish]

Quote:

Originally Posted by catotx If I read your message correctly, you are suggesting I should convert more aggressively? The reason I am taking it "easy" on the conversion is that I have about 20 years to do the conversion after I ER. So I don't need to convert so much as to reach the top of the 28% bracket. I only planned to reach the top of the 15% bracket.

Oh no, not that you necessarily should--just that it sometimes may be more prudent to do so, while at other times, your approach is best. As is being discussed on another thread, this is an area with very few certainties, a wide range of possible "best/prudent/safe" approaches among people, and in many cases it doesn't make much difference which way one approaches it.

[pb4uski]

Here's the way I look at it. The real benefit of doing Roth conversion is arbitrage between the 15% and 25% tax brackets... so if you take your SS, pension, taxable account investment income and RMDs based on your current tax-deferred balances (at 60 in my case) and are in the 25% bracket (or higher) then it is likely that you will be in the 25% bracket when you are 70 (assuming you have a normal WR). So if you are currently in the 15% bracket then Roth conversions are saving you at least 10% and quite often more depending on your situation. YMMV.

If you are now in the 25% tax bracket and will later be in the 28% tax bracket then there is much less benefit.

If you're in the 28% tax bracket and expect to be in a higher bracket you can afford to go hire a PFS CPA to advise you.


If your taxable income is between... your tax bracket is:

0 and 18,550 10%
18,550 and 75,300 15%
75,300 and 151,900 25%
151,900 and 231,450 28%
231,450 and 413,350 33%

[hnzw_rui]

Quote:

Originally Posted by pb4uski If your taxable income is between... your tax bracket is: 0 and 18,550 10% 18,550 and 75,300 15% 75,300 and 151,900 25% 151,900 and 231,450 28% 231,450 and 413,350 33%

Note, that's for married filing jointly.

Single is as follows:

0 and 9,275 10%
9,725 and 37,650 15%
37,650 and 91,150 25%
91,150 and 190,150 28%
190,150 and 413,350 33%

Definitely one thing to keep in mind in case one spouse passes away first.

[pb4uski]

Good point... in that case early Roth conversions are even more valuable because without them the widow is more likely to get kicked into even higher tax brackets so the ultimate tax savings are even greater.

[2017ish]

Quote:

Originally Posted by hnzw_rui Note, that's for married filing jointly. Single is as follows: 0 and 9,275 10% 9,725 and 37,650 15% 37,650 and 91,150 25% 91,150 and 190,150 28% 190,150 and 413,350 33% Definitely one thing to keep in mind in case one spouse passes away first.

Yes. This is what is really driving my analysis. If I could safely assume my living to 90, it would be easier--overall stats are good, but my family history is a black box because all males died before 70 due to smoking related diseases.... Thus, DW could have quite a few years drawing her RMDs without me there to minimize the tax hit.

[RenoJay]

Feeling jealous...I'm expecting a total tax bill ~$120k for 2015, and I didn't even keep a lot of the income! (I have to pay tax on a land sale profit even though that profit was reinvested in improving other land and also some some tax deferral techniques from 2014 for another business are coming home to roost in 2015.). I guess one of life's certainties is making itself clear. I'll have to be careful crossing the street to avoid life's other certainty!!


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[hnzw_rui]

Quote:

Originally Posted by 2017ish Yes. This is what is really driving my analysis. If I could safely assume my living to 90, it would be easier--overall stats are good, but my family history is a black box because all males died before 70 due to smoking related diseases.... Thus, DW could have quite a few years drawing her RMDs without me there to minimize the tax hit.

Yup. It's a potential double-whammy, too as it's possible there might be a significant reduction in income (e.g. SS, pension) at the same time the taxes increase. Isn't there a saying 2 can live for the price of 1.5? So expenses are reduced by 33% but then the taxes double and there's a possible loss of additional income sources.

[meleana]

Do you add the tax free dividends that were reinvested into an 2015 AMT-Tax free Muni Bond ETF (ISHARES) into the purchase price for the cost basis when it liquidates? I got a 1099 Div form from the Brokerage, but not a 1099B and I think I still have to report the distribution as a gain/loss even though I didn't get a 1099B for it- just the 1099 DiIV.

I swear I can't take these tax returns. Please let the next President get rid of the IRS and institute a flat tax!

This one thing is holding up my whole return!

[audreyh1]

Quote:

Originally Posted by meleana Do you add the tax free dividends that were reinvested into an 2015 AMT-Tax free Muni Bond ETF (ISHARES) into the purchase price for the cost basis when it liquidates? I got a 1099 Div form from the Brokerage, but not a 1099B and I think I still have to report the distribution as a gain/loss even though I didn't get a 1099B for it- just the 1099 DiIV. I swear I can't take these tax returns. Please let the next President get rid of the IRS and institute a flat tax! This one thing is holding up my whole return!

Did you sell any shares in 2015? Otherwise no gains or loss to report.

Any reinvested distributions raise your cost basis.

[pb4uski]

Quote:

Originally Posted by RenoJay Feeling jealous...I'm expecting a total tax bill ~$120k for 2015, and I didn't even keep a lot of the income! (I have to pay tax on a land sale profit even though that profit was reinvested in improving other land ......

Sorry, I'm having trouble finding my violin. Who made the decision to reinvest the profit? Off with their heads!!!

[scrabbler1]

Quote:

Originally Posted by meleana Do you add the tax free dividends that were reinvested into an 2015 AMT-Tax free Muni Bond ETF (ISHARES) into the purchase price for the cost basis when it liquidates? I got a 1099 Div form from the Brokerage, but not a 1099B and I think I still have to report the distribution as a gain/loss even though I didn't get a 1099B for it- just the 1099 DiIV.

The shares you buy with reinvested dividends, be they tax-free or taxable, will have a cost basis which will be compared to the sale price of those shares when you sell them later. If you sell those shares at a gain, you will pay a tax on them. If you sell those shares at a loss, your tax bill will decrease.

[DrRoy]

Just finished my second to last full working year taxes. Never got this close before. $117 federal refund and $98 state payment. I expect in RE the income taxes will fall about $20K.

[ExFlyBoy5]

Quote:

Originally Posted by Fermion +1 We paid over the $50k mark per year on federal taxes for at least the past 5 or 6 years, and above $20k for probably 20 years. (That is what you get for not having kids or a big fancy home with huge mortgage). I am guessing we have paid in around $500k or more in federal taxes...maybe closer to $750k. That is a lot of $800 toilet seats.

Or...you paid for about 50 hours of flight time for me to fly the gigantic C-5 airplane. In my heyday, that would be about 12 training sorties.

Sent via mobile device. Please excuse any grammatical errors.