To Retirees, What is your effective Income Tax rate ?

[HI Bill]

If you have both taxable and tax-deferred investments, depending on your total spend, you can be at much less than 11%. For example, let’s say you’re not taking SS, want to spend $100K annually, and have both taxable and tax-deferred investments.

1) Take $50K from taxable account, of which 25% are LTCGs ($12.5K)
2) Take $50K from IRA, which is 100% taxable ($50K)
3) Use the standard deduction (MFJ) for the IRA distribution (-$24.4K) if under 65.

• IRA distributions less standard deduction (MFJ) = $50K-$24.4K = $25.6K.
• Taxable portion of taxable account distribution: 0.25x$50K=$12.5k.
• Adjusted gross income = $25.6K + $12.5K=$38.1K.

Since you're Taxable Income is under $78,750, your LTCGs are not taxable (0% bracket)....meaning that only $25.6K is taxable. So, you'd pay 10% on this: $2,560. So, effective tax rate is 2.6% (I know, I shouldn't be counting previously taxed in this, but I'm calculating the tax rate on the total 'replacement income').

 

[Offgrid Organic Farmer]

Assuming you live in a State where Social Security is only partially taxed or not taxed, and you are living on an income of $50,000 - $60,000 a year, how much total Income Tax yearly ?

I am not old enough to draw SS, yet.

My pension falls below the threshold for paying income taxes. Most years my other streams on income also have high deductions. So I am among the 47% of US citizens who do not pay into Income taxes.

 

[cyber888]

Additional Detail:
1099R Income $30,000.00
Social Security $30,000.00 but taxable amount is $13,850.
Standard Deduction is $12,000.00

So 30K + 13,850 = $43,850.
Minus std deduction of $12,000 = $31,850.
Tax on 31850 = $3628 using 2019 tax tables (I think).

Tax on additional $1000.00 in 1099R Income: $229, so 22.9% marginal (because some more of the social security becomes taxable)

Thanks for the Details ! Thanks everyone !

 

[HFWR]

Federal - 6.6% (TP/GI)

No state income tax in TX.

 

[Souschef]

Federal-12.29% effective tax rate; 22% bracket
Just paid second installment of Federal-$5600

 

[NYEXPAT]

Yesterday, I just filed for the first time in about 15 years. 0% tax rate and a tax credit of about $1200 left over.

 

[SecondCor521]

Using pb4uski's numbers, for 2018 my federal income taxes were 0.01%. Yes, one basis point. 2018 state income taxes were 0.62%, or 62 basis points.

I keep my income fairly low because in my case I have a high marginal rate early on due to federal income tax, state income tax, ACA subsidy loss, and FAFSA EFC loss which are all progressive and all in parallel. I calculated about a 28% marginal rate.

In retrospect, I should have been willing to pay up to about a 31% marginal rate. In 2019 I'll probably try to do more Roth conversions and deliberately pay more taxes to get closer to that. Live and learn.

...

As for OP's question, in Idaho, the SS isn't taxed at all. So $30K minus the $13,600 standard deduction would leave $16,400 in taxable income. Running that through the tax tables looks like about $878 in tax, from which you'd be able to subtract a $120 grocery tax credit and add a $10 permanent building fund tax, for net of $768 in state income taxes for 2018.

 

[Ed B]

In retirement our effective federal income rate is ~6.5% . No state income tax in Texas. That is on about 80k gross, married filing joint, standard deduction with one minor child living at home (child tax credit).

 

[RxMan]

This thread is helpful for those of us still in the retirement planning stage. I’ve been trying to calculate rough estimates on what taxes and healthcare will cost as a percentage of our future monthly retirement budget. My initial calculations were subtracting 15% for taxes and healthcare costs. I may bump that up to play it safe for my healthcare cost estimates but I’m a little less apprehensive about the tax side of the estimates after reading this thread.

 

[bingybear]

Not sure you can make much out of just tax rate data. Some are trying to minimize taxes today and others are doing roth conversions up a few tax brackets.

 

[RE2Boys]

Effective rate = 0.41% of AGI

Marginal Rate = 27% (just a tiny bit over the top of the 12% bracket driving cap gains into 15% + 22% ordinary income

Helps to have two sons in college so have $5K in education credits. Very temporary situation as 2019 is last year of education credit for older son, 2020 last year for younger son education credit

 

[CardsFan]

This thread is helpful for those of us still in the retirement planning stage. I’ve been trying to calculate rough estimates on what taxes and healthcare will cost as a percentage of our future monthly retirement budget. My initial calculations were subtracting 15% for taxes and healthcare costs. I may bump that up to play it safe for my healthcare cost estimates but I’m a little less apprehensive about the tax side of the estimates after reading this thread.

Not sure you can make much out of just tax rate data. Some are trying to minimize taxes today and others are doing roth conversions up a few tax brackets.

Both points are pertinent. If you have both after tax and tax deferred accounts, and no pension, you can pretty much pick what tax rate you want to pay, until you hit 70 (for SS) and 70.5 (for IRA/401k).

While our current Fed tax is 5.8%, and in the 12% bracket, when the tax torpedo hits, we will be solidly in the 22% (or even the 24% bracket), and the effective rate will be around 14%.

When one of us departs, the other is likely to get in to the 32% bracket, with an effective rate around 18%.

 

[bingybear]

Both points are pertinent. If you have both after tax and tax deferred accounts, and no pension, you can pretty much pick what tax rate you want to pay, until you hit 70 (for SS) and 70.5 (for IRA/401k).

While our current Fed tax is 5.8%, and in the 12% bracket, when the tax torpedo hits, we will be solidly in the 22% (or even the 24% bracket), and the effective rate will be around 14%.

When one of us departs, the other is likely to get in to the 32% bracket, with an effective rate around 18%.

I agree that both goal are valid.. and other goal may be too. The point I was trying to make is that you need to understand the taxes and why they are what they are. It is easy to do roth conversions to the top of the 15% bracket (in the past) and pay a 3% or less in taxes. Now if you go after the tax torpedo and convert to the top of the 24% bracket (with qualified dividends above the conversion... maybe 20% tax or more?

One needs more than just people's resulting tax for planning as the rates alone could be misleading.

 

[CardsFan]

I agree that both goal are valid.. and other goal may be too. The point I was trying to make is that you need to understand the taxes and why they are what they are. It is easy to do roth conversions to the top of the 15% bracket (in the past) and pay a 3% or less in taxes. Now if you go after the tax torpedo and convert to the top of the 24% bracket (with qualified dividends above the conversion... maybe 20% tax or more?

One needs more than just people's resulting tax for planning as the rates alone could be misleading.

I think we are in agreement. Everyone has a different situation. It is helpful to see the range you can pay, but you must look at your own situation and make decisions that meet your needs.

FWIW, when working our effective tax rate was 14% to 16%. So, I may not like it, but being in the same range when we hit RMD's is not a game changer.

 

[RobbieB]

I just started drawing down the IRA, not for Roth conversions, just to blow that dough.

 

[retiredunder50]

Thanks. Missed that, I'm not there yet.

That would bring Fed tax down to $3436 from $3628.

For 2019, the standard deduction for filing single is increased to $12,200

The additional standard deduction amount for those age 65 or over is $1,300, and an additional $1,300 for each qualified instance of blindness.

The additional standard deduction amount is increased to $1,650 if the individual is also unmarried and not a surviving spouse.

 

[retiredunder50]

2019 Tax Bracket range limits also increased a little vs 2018

 

[Sirka]

Effective Tax Rate

Our Effective Tax Rate
Year * Fed	* State * Total
2016	6.59% 0.38% 6.97%
2017	5.82% 0.08%	5.90%
2018	7.13% 0.0%	7.13%

We keep the rate steady by controlling Roth conversions and Tax loss harvesting. By investing in CA Tax free funds, we got the state Tax rates down from 6% in 2012.

 

[imoldernu]

No state or federal income taxes since 1999. (no state SS tax.) This year will likely be the first, as the annuity kicks in @ $15K/yr. Haven't looked, and not sure where to look yet.

 

[NameRedacted]

57 years old and I don't think I'll ever pay Federal income tax again.


Last year income breaks down as follows:


Bank interest - mostly bank bonuses - $1648
Dividends - $15433
Capital Gains - $13957


Total Income $31,038


Minus HSA contribution $4450


AGI = $26588


Minus Standard Deduction = $12,000


Taxable income = $14588


Federal tax = $0


Since I have an ACA plan I have to keep my income low until I'm 65 to get a decent Premium Tax Credit.


Plus I have an $8,724 credit carryforward from vesting options a few years back that I can't currently use. If I try to use it up by increasing my income so that I have a tax liability that I can offset it against (basically through selling stock for a capital gain) I end up paying more for health care.


I'll need to wait until I'm 65 to start using that up and it'll be harder to do that with tax free SS and Roth income. I may use it as a 'bridge' to delay taking SS from 65 to 70.

 

[pb4uski]

Not sure you can make much out of just tax rate data. Some are trying to minimize taxes today and others are doing roth conversions up a few tax brackets.

+1 You really need to just figure out what your sources of income will be at various stages of retirement and then run your numbers through a tax calulator or something like What-If Worksheet in Turbo Tax. Don't forget state income taxes to if those are applicable. In some of my early retirement years my state income taxes exceeded federal.... especially if one is doing significant capital gains trading at 0%.

But overall, taxes in retirement are less burdensome than while working and overestimating taxes in retirement is a common mistake in retirement planning.

 

[pb4uski]

57 years old and I don't think I'll ever pay Federal income tax again.....

What about once any pensions, SS and RMDs start?

We would not pay taxes now before discretionary tIRA withdrawals and Roth conversions.... but we would definitely be taxpayers once SS starts and then more once RMDs start.

 

[Bart523]

Living in Georgia and living on the income parameters you set we pay no income tax in Georgia because of a generous retirement income exclusion. Our effective Federal tax rate is 3% or less because we use Qualified Charitable distributions from our Required Minimum distributions.

 

[bingybear]

+1 You really need to just figure out what your sources of income will be at various stages of retirement and then run your numbers through a tax calulator or something like What-If Worksheet in Turbo Tax. Don't forget state income taxes to if those are applicable. In some of my early retirement years my state income taxes exceeded federal.... especially if one is doing significant capital gains trading at 0%.

But overall, taxes in retirement are less burdensome than while working and overestimating taxes in retirement is a common mistake in retirement planning.

In general you are have a point. From people I've known there can be some exceptions--
--Death of a spouse and have to file single and your tax rate could be significantly higher
--poor placement of investments can jump your effective rates
-- inherit assets in a none tax efficient ways that you have not planned for.

Some times preparing for some possible events can make more roth conversion desirable if one did not plan well enough. -- or rates might jump

I know someone widowed over 10 years ago. The rates are high. There is little you can do after the event.

If you know when everything is going to happen... then it is easier to plan. If, like me you are in the RE and trying to plan for the event, implementation can raise tax rates for a while.

 

[NameRedacted]

What about once any pensions, SS and RMDs start?

We would not pay taxes now before discretionary tIRA withdrawals and Roth conversions.... but we would definitely be taxpayers once SS starts and then more once RMDs start.

I don't have a pension. I don't have that much in IRA accounts, although granted who knows how much I'll have by the time I'm 70. My SS is going to be less than most people's. I retired at 55 and didn't start contributing until I was 32. Most of the money is in taxable accounts or Roth. The taxable is in individual stocks and some bond ETFs. The advantage of individual stocks is that I have a great deal of control over my taxable income. If I need more taxable income I sell stock that has gained a lot in value. If I need less I sell stock that has gained little or lost value. What counts as income to the IRS is not what counts as income to me, with respect to what I live on.



Plus I have that $8,724 credit carryforward. Basically, the IRS 'owes me' almost $9,000. I just need to figure out the most beneficial way to 'liquidate' it.