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Old 04-15-2017, 07:26 PM   #21
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I am just asking if it is not worth trying to mitigate this "problem."
Problem? I wish I could have only 85% of all the rest of my income similarly taxed. At least in MA (which seems to find ways to tax everything else) they don't tax my SS.

So I think I'm good with the current tax situation for SS.

The tax on 85% of my SS is about $2900. If I took an equal amount of my SS from my IRA instead, I'd pay (including my State income tax) $4600.

$1700 in my pocket each year! If I gotta pay taxes, I like this plan betta.
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Old 04-15-2017, 07:39 PM   #22
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1) Perform Roth conversions to minimize RMD's from a Trad IRA beginning at 70 and a half.

[COLOR=Magenta]How is this supposed to provide any real benefit if it would be impossible ( not practical) to convert a meaningful amount every year before 70 and a half? Also this could mess with ACA subsidies.
Seems like there is the option to convert a massive amount in one year, suck it up and pay the massive tax hit, and then be done with it.

That's basically what I did a while back. There was a special one-time deal where you could convert in 2010 but pay the associated taxes over two years (2011 and 2012). Painful but I'm glad I did it.
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Old 04-15-2017, 08:31 PM   #23
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3) You have a pension ....maybe both spouses have decent pensions, inherited Trad. IRA's (which require immediate RMD's). These income streams become "unavoidable" and will continue for life and result in 85% of SS income being taxable.

This is probably the biggest roadblock to trying to avoid the SS tax torpedo.


So do those of you in the above scenarios simply resign yourselves to the fact that most likely for life your SS benefits will be taxed at the 85% level? I admit it is a "nice problem to have " in that it means you have significant income streams in retirement but I am just asking if it is not worth trying to mitigate this "problem."
I can't think of a way to avoid the "problem". With a good pension, and if I delay SS for DW and I until our full retirement age (66), those alone will put our annual income at over $120K income, before counting interest, dividends, capital gains, and IRA/401K withdrawals (which we have to start taking before 70 1/2 to avoid having very large RMDs).

The only way I see eliminating the "problem" is a reduction or loss of my pension... so I'd rather have the "problem".
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Old 04-15-2017, 09:41 PM   #24
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Have been thinking about this lately. Have about 500k in an IRA.
If I take 24000 per year and average a 2.75% return it would go for 30 years.
56-86. This would keep me around 70k annually till SS at 62. Then at 62 100k annually to 86.
With rental depreciation I should be able to stay in the 15% bracket going forward as it should go up in time. Not an easy thing to figure out................
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Old 04-15-2017, 09:42 PM   #25
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Same here! Because of RMD's SS will always be 85% taxable-not a bad problem to have
I looked into Roth conversions, but you can only convert $5K a year. If you have an IRA with 100K in it, it would take 20 years!
I think you are confusing conversions and contributions. Contributions are limited to $5.5k a year in 2017 ($6.5k if you're over 50).

Conversions are not limited at all... do as much as you want as long as you pay the tax. I've converted almost $230k the last 4 years (and paid ~$17k in tax).
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Old 04-15-2017, 09:53 PM   #26
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Have been thinking about this lately. Have about 500k in an IRA.
If I take 24000 per year and average a 2.75% return it would go for 30 years.
56-86. This would keep me around 70k annually till SS at 62. Then at 62 100k annually to 86.
With rental depreciation I should be able to stay in the 15% bracket going forward as it should go up in time. Not an easy thing to figure out................

Tell me about it. I manage my dads strategy. He's 65, his roth was at like 6500 when he handed me his folio. 3 income properties, 3 pensions and of course SS and Spousal but over 1mil invested! I'm like dude you got a HUUUGE torpedo coming.

We converted 26k to roth DEC31 to get his toes wet with the idea. Should be able to do a little more, 45k for next 6 years. Either way I am like trying to move the damn titanic here and I can see uncle sam's red, white and blue ass standing hands on hips, cape waving in the air on top of that fateful iceberg.
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Old 04-16-2017, 03:41 AM   #27
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DW has about $1.4M in her 401k and I have a little over $500k in a tIRA. We're both 60 and our taxable investments yield about $112k/year, not counting SS since we're not yet eligible. So we're going to be hit hard with RMDs in ten years. This year DW exercised some stock options left over from her work, so rolling over any IRA assets is a bad move. Hoping next year to begin moving money to Roth accounts. Maybe tax rates will be lower!
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Old 04-16-2017, 06:15 AM   #28
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The whole discussion is like the subsidy cutoff issue, it only matters if you are near the cutoff and can make some tweaks to save a few bucks in taxes. The same thinking applies as you approach major bracket cliffs.
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Old 04-16-2017, 06:27 AM   #29
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DW has about $1.4M in her 401k and I have a little over $500k in a tIRA. We're both 60 and our taxable investments yield about $112k/year, not counting SS since we're not yet eligible. So we're going to be hit hard with RMDs in ten years. This year DW exercised some stock options left over from her work, so rolling over any IRA assets is a bad move. Hoping next year to begin moving money to Roth accounts. Maybe tax rates will be lower!
I've been doing things today to reduce taxes from taxable investments and realizing capital gains on things I intended to sell anyway, so that I make "room" for higher future taxable income. I'm also keeping an eye on Medicare income brackets and trying to have reduced taxable income next year to avoid higher premiums for DH in 2020.

And in the future, we might have more expenses to deduct such as medical expenses, and/or have opportunities for tax loss harvesting, and/or give more to charity, all of which can lower our tax liability.
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Old 04-16-2017, 06:44 AM   #30
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today we usually pay 26% AMT on our lowish ordinary income, and we would pay that rate on any Roth conversions we undertook, so it doesn't benefit us to do any conversions right now.
When you pay 26%, your actual AMT true marginal rate is 26*1.25 or 32.5% because of how exemption is calculated. I.e. for each extra $1, exemption is reduced in addition to the tax of 26%. You could try adding $100 to your income if you want to see that effect.

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Originally Posted by samclem
The first approx $18,550 of that is taxed at just 10%, and above that and through about $75,000 they'll pay at just the 15% rate (and pay zero taxes on long term cap gains and qualified dividends).
Have not checked for a couple. For a single person, similar to AMT case above, tax rate quickly rises to 22.5% (when 50% of SS is taxable). Then, once you have ~$28k (aside from SS) in income and so 85% of SS is taxable, you marginal rate becomes 1.85*15%=27.75%. Finally, at only $35k (non-SS income), your marginal federal tax rate is 1.85*25%=46.25%.

The rates are high because in addition to $1 extra income being taxed, $0.85 of extra SS dollar becomes taxable too.
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Old 04-16-2017, 06:54 AM   #31
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Have been thinking about this lately. Have about 500k in an IRA.
If I take 24000 per year and average a 2.75% return it would go for 30 years.
56-86. This would keep me around 70k annually till SS at 62. Then at 62 100k annually to 86.
With rental depreciation I should be able to stay in the 15% bracket going forward as it should go up in time. Not an easy thing to figure out................
What happens after 86? Can you live on 30k per year?
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Old 04-16-2017, 07:48 AM   #32
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The bigger torpedo for many married couples, I believe, will be when one spouse passes away. Our income will fall only ten to fifteen percent with the loss of my SS (a little more than half of DH's) as the pension has full survivor benefits, but the surviving spouse's income will be taxed as a single vs married filing jointly for us.

It is what it is.
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Old 04-16-2017, 11:58 AM   #33
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i dont remember the exact number, but my 91 year old mom pays taxes on her social security, its not a big number maybe 35 thousand in interest and boom she pays on the full amount, nothing we could do, just write the check to uncle sam, the alternative would be to get lower paying bonds, id rather her pay the taxes, its a good problem to have in my opinion,
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Old 04-16-2017, 12:11 PM   #34
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A single person hits the 85% SS taxable threshold with income over $34000

Combined income of AGI + 1/2 of SS = over $34K
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Old 04-16-2017, 12:17 PM   #35
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T
...For most of us, reducing taxable income when in retirement and/or gaining flexibility on when to take it are the major reason to take the steps identified in the OP, rather than the goal of avoiding having 85% of SS taxed--because that's just going to happen and is unavoidable.
Exactly.
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Old 04-16-2017, 12:30 PM   #36
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The bigger torpedo for many married couples, I believe, will be when one spouse passes away. Our income will fall only ten to fifteen percent with the loss of my SS (a little more than half of DH's) as the pension has full survivor benefits, but the surviving spouse's income will be taxed as a single vs married filing jointly for us.

It is what it is.
True. For DW and I, we did not take survivor benefits in our pensions because of the 10 yr age gap. Unlike most on the board, we are using 30 yr term insurance as a hedge against the early death of either of us. For us, it is also another reason to try and defer taking SS.
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Old 04-16-2017, 01:03 PM   #37
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We are well past the 85% income cutoff already, and it will probably only get worse.
This is a case where getting worse is actually getter better!
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Old 04-16-2017, 02:20 PM   #38
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This is a case where getting worse is actually getter better!
Well, yeah!
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Old 04-16-2017, 07:52 PM   #39
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What happens after 86? Can you live on 30k per year?
Where did 30k come from?
I just listed the (3 then 4 then 3) possible auto revenue streams I will be using. There is still the Roth's and rental Real-estate that were not added in. Just need to figure out the best way to rid my self of that pesky IRA. lol lol. More roth conversions, or a long small slow draw down.........
Un like most folks, I am not really using the stock market for retirement.
Used it to get here. But no real interest in the risk these days.....

https://financialmentor.com/calculat...wal-calculator
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Old 04-17-2017, 12:55 AM   #40
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Damn the torpedos, full speed ahead!

Our SS benefits will be mostly eaten by taxes and Medicare payments. At least they should cover Medicare! We are well past the 85% income cutoff already, and it will probably only get worse.
What a great problem to have. If that's the OP's situation, don't sweat the SS tax. Just take what you can and enjoy your retirement.
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