Taxes in a retirement year

[Third Son]

Good morning: This question may be obvious but I thought I would ask anyway.

I retired Feb 29th 2020. I was paying taxes in the 22% bracket prior to then. Since my income for the two months is below the 12% bracket ($103K; MFJ), I assume I may get a refund for the year since I was still taxed at 22%?


Hope this makes sense......thank you.

 

[SevenUp]

Depends on your other income (pension? capital gains? tIRA withdrawals? etc.) and total withholding.

 

[sengsational]

I always answer these kinds of questions for myself by running the tax software from the previous year. Sure, the tax laws might change, but usually only slightly.


Plug in your entire retirement year figures. The guesses you make about your W-2 will be good enough. You can also see if you qualify for Premium Tax Credit for health insurance and earned income tax credit. Based on what you learn, you might find tax saving moves to take in 2020 to save on taxes.

 

[Third Son]

answers...

Depends on your other income (pension? capital gains? tIRA withdrawals? etc.) and total withholding.

In a nutshell: Lump sum pension rolled into TIRA, no capital gains, no TIRA withdrawls, Total withholding @ 22% (Federal/FICA/State of Michigan). I moved most of my first three paychecks into Roth space and maxed out TIRA.

I am fortunate to have a company subsidy for retirement insurance for the next 5 years until I turn 65 and will use Medicare.

 

[SevenUp]

In a nutshell: Lump sum pension rolled into TIRA, no capital gains, no TIRA withdrawls, Total withholding @ 22% (Federal/FICA/State of Michigan). I moved most of my first three paychecks into Roth space and maxed out TIRA.

If your only income for 2020 is the two monthly paychecks, then yes you can expect a refund because withholding assumes that pay rate for the entire year.

Do you have tax software available as sengsational mentioned?

 

[LakeRat1]

I always answer these kinds of questions for myself by running the tax software from the previous year. Sure, the tax laws might change, but usually only slightly.


Plug in your entire retirement year figures. The guesses you make about your W-2 will be good enough. You can also see if you qualify for Premium Tax Credit for health insurance and earned income tax credit. Based on what you learn, you might find tax saving moves to take in 2020 to save on taxes.

x2 you will get very close

 

[pb4uski]

Good morning: This question may be obvious but I thought I would ask anyway.

I retired Feb 29th 2020. I was paying taxes in the 22% bracket prior to then. Since my income for the two months is below the 12% bracket ($103K; MFJ), I assume I may get a refund for the year since I was still taxed at 22%?


Hope this makes sense......thank you.

Most likely you will get a refund.

If you prepare your own taxes with TurboTax, then open up your 2019 return and open a form called What-If Worksheet, click the little box to use 2020 tax attributes and plug in your numbers.

If you don't use TurboTax you can use this calculator: https://www.dinkytown.net/java/1040-tax-calculator.html

You'll also be eligible to make a Roth contribution for the higher of your earned income or the maximum contribution in 2020.

 

[SevenUp]

You'll also be eligible to make a Roth contribution for the higher of your earned income or the maximum contribution in 2020.

Typo. Should be "...the lower of..."

 

[Third Son]

I always answer these kinds of questions for myself by running the tax software from the previous year. Sure, the tax laws might change, but usually only slightly.


Plug in your entire retirement year figures. The guesses you make about your W-2 will be good enough. You can also see if you qualify for Premium Tax Credit for health insurance and earned income tax credit. Based on what you learn, you might find tax saving moves to take in 2020 to save on taxes.

Will do...thanks

If your only income for 2020 is the two monthly paychecks, then yes you can expect a refund because withholding assumes that pay rate for the entire year.

Do you have tax software available as sengsational mentioned?

I can do that...yes...thank you

Most likely you will get a refund.

If you prepare your own taxes with TurboTax, then open up your 2019 return and open a form called What-If Worksheet, click the little box to use 2020 tax attributes and plug in your numbers.

If you don't use TurboTax you can use this calculator: https://www.dinkytown.net/java/1040-tax-calculator.html

You'll also be eligible to make a Roth contribution for the higher of your earned income or the maximum contribution in 2020.

I have used the AARP calculator that is close to the one you linked...thanks!

 

[Third Son]

Typo. Should be "...the lower of..."

Yeah I have maxed out contribution to Roth via normal payroll in 2020 and am now looking into conversions for the next few years.

 

[Aerides]

Whether you receive a refund depends on many factors, but yes, overall your paycheck tax rate will probably be too high at the end of the year.

Much like when bonus time came around each year, our bonuses were taxed like we were in the highest bracket because each paycheck is basically annualized for tax purposes. Then it all evens out in the end-of-year-wash.