Social Security Torpedo Tax with Pensions?

[kgtest]

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.

 

[Dash man]

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! [emoji13]

 

[donheff]

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.

 

[audreyh1]

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! [emoji13]

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.

 

[smjsl]

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.

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.

 

[joeea]

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?

 

[Bestwifeever]

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.

 

[Blue Collar Guy]

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,

 

[wmc1000]

A single person hits the 85% SS taxable threshold with income over $34000

Combined income of AGI + 1/2 of SS = over $34K

 

[jimnjana]

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.

 

[jimnjana]

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.

 

[youbet]

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!

 

[audreyh1]

This is a case where getting worse is actually getter better!

Well, yeah!

 

[almost there]

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/calculator/retirement-withdrawal-calculator

 

[PERSonalTime]

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.