tax planning - soc sec - RMD - I Bonds

[joesxm3]

I finally realized that there are a lot of tax implications to being retired. I have not hit them yet, but am now trying to model things going forward. I would like opinions on a few things.

I am filing as single.

I will be doing ROTH conversions up to the top of the 22% starting next year once I am off of ACA and until I turn 72. I will be delaying taking social security until I turn 70.

According to the social security statement I will be getting about $46,000 a year from social security and after the ROTH conversions my RMD will be around $12,000 to $11,500.

So it seems that half of social security plus RMD comes to $35,000 with the trigger for 85% of social security taxed being $34,000. That would mean I am over the limit even without taking any interest or dividends into account.

Should I just give up on trying to avoid having 85% of social security taxed?


I have some series I savings bonds with a relatively decent yield. The first of these will be 30 years old and stop paying interest when I am 74 in 2030. The gain on it will be enough to push me into the next higher marginal tax rate if I cash all of the bonds in the year that they mature.

I suppose the answer will really depend on what interest rates are available or what I might invest the I bond proceeds in, but I am wondering if I should hold some of the bonds past the maturity date to spread out the tax hit, even though they are not accruing interest, or if I should cash some before they mature to spread the hit, even if it means giving up a decent interest rate.

I am still working on my model, but I figured I would ask for some general opinions on this.

Thanks.

[Dash man]

Don’t let the tax tail wag the dog. Work on getting the most you can out of investments and choose investments that are tax friendly if it helps you. The iBonds won’t earn you any interest after they mature. Put them in something that will provide enough income to offset any tax.

[RunningBum]

I agree. Unless it's a cliff where $1 more can cost you hundreds or thousands, it's always worth earning income and paying part of it in taxes.

[HtownRose]

Is that even an option with I-Bonds? If they mature & you wait to cash them in the taxes are deferred? I was thinking I would owe the taxes based on the year of maturity no matter what.

I did learn here about being able to partially redeem I-Bonds & plan to do that so all the taxes don't hit in the same year, but I like your idea too.

[Dave J]

My wife and I have I-Bonds that mature in 2031. After realizing we had a big tax liability coming, about 3-4years ago we changed tax handling on hers from deferred to annual and paid tax on all interest to date. The next year we did mine. Now we report annual interest and pay taxes on it every year. No big tax hill for us when they mature. I don't know if you converted them to electronic or not. I think I read they pay them out at maturity automatically, but may be wrong on that. I did read all interest is taxable in year they mature. And they earn nothing after 30 years. So perhaps you should go to Treasury Direct and learn for sure all about that.

[Hermit]

For a single person it does not take a lot to get into the higher tax areas. You might want to consider a higher tax bracket at least until Medicare when you also have to consider costs of IMRAA fees while doing Roth conversions. You might run ORP (under links) to provide one approach in how best to do Roth conversions. I set up a spreadsheet that helped me figure out how best to move money out of tax deferred accounts in addition to running ORP. My conclusion was that I would pay a bunch of taxes!