Tools to Model Income Tax Returns During Retirement

[G-Man]

Why would you have FICA taxes if you don't have earnings? (at least from what you've told us).

Ok, using the Standard Deduction Numbers provided by NewRetirement, here are some results:

Age 59 - $500 less in taxes in NewRetirement
Age 60 - $500 less in taxes in NewRetirement
Age 61 - $500 less in taxes in NewRetirement
Age 71 - $2000 less in taxes in NewRetirement

 

[G-Man]

I honestly don't worry too much about "taxes" per se. Not a lot I can do. I already am able to deduct a fair amount for charity. But AGI/MAGI limits can bite. I try to manage for the various things like IRMAA (MC increased payments). I figure most of my income will be top of 22%. 24% is just below IRMAA so not a big issue - but IRMAA is.

Thinking about over-RMDing to deplete my 401(k) before the % required becomes un-managable. Details aren't something I'm that interested in. Just don't want any surprises. YMMV

Yep .. In retirement, I will be in the 22% tax bracket as well. Not much I can do about that based on my taxable income.

 

[TheWizard]

I've just been using a spreadsheet to project and manage my AGI the past nine years of retirement.
"Manage" meant doing Roth conversions to get my AGI up approximately where it will be after I started SS at age 70 and RMDs this year at 72.

There's less that I can do now that I'm 72. I'll just do a small Roth conversion in December to get the AGI up close to the next projected IRMAA threshold.
I'm well into the 24% Federal tax bracket, FWIW.

My income tax and AGI was about the same as during my final working years at start of retirement. They've edged up higher year by year with inflation, so that's good. With proper withholding in place, income taxes have been easy to deal with...

 

[calmloki]

Hmm. I find that when we make more we owe more. Last couple years we sold a few properties and our taxes were much larger numbers than I was used to. This year we just have interest and (reduced) rent payments. None of this complicated Roth conversion stuff to jigger our income. Looking forward to paying less, but very aware that it is because we are making less. Ah the simple life.

 

[Koolau]

Hmm. I find that when we make more we owe more. Last couple years we sold a few properties and our taxes were much larger numbers than I was used to. This year we just have interest and (reduced) rent payments. None of this complicated Roth conversion stuff to jigger our income. Looking forward to paying less, but very aware that it is because we are making less. Ah the simple life.

Worst for us was selling a primary residence (after 2 years) that HAD been a rental. We had to do depreciation recapture. THAT was expensive. YMMV

 

[pb4uski]

Ok, using the Standard Deduction Numbers provided by NewRetirement, here are some results:

Age 59 - $500 less in taxes in NewRetirement
Age 60 - $500 less in taxes in NewRetirement
Age 61 - $500 less in taxes in NewRetirement
Age 71 - $2000 less in taxes in NewRetirement

Are those amounts significant enough to change the outcome? I would suspect not and if so then I wouldn't sweat that they are different.

If you think that NewRetirement is consistently understating taxes, perhaps you can tweak the tax assumptions that you are using in NewRetirement to result is a tad more in taxes annually as a brute force offset.

 

[G-Man]

https://www.irscalculators.com/tax-calculator will do that with a little manipulating.

401k withdrawals would included in unearned income. It has a separate field for social security. Roths withdrawals are not taxed unless you are under 59-1/2. HSA withdrawals are not taxed if for qualifying medical costs. You select your filing status from a dropdown menu near the top left of the input area.

I assume RMD incomes would be included in unearned income as well.

 

[G-Man]

Are those amounts significant enough to change the outcome? I would suspect not and if so then I wouldn't sweat that they are different.

If you think that NewRetirement is consistently understating taxes, perhaps you can tweak the tax assumptions that you are using in NewRetirement to result is a tad more in taxes annually as a brute force offset.

It's very close. So, I'm not going to sweat it.

 

[pb4uski]

I assume RMD incomes would be included in unearned income as well.

Yes, taxed the same as any withdrawal... just a forced withdrwal.

 

[Brett_Cameron]

I made my own using Excel. Crude but effective. YMMV

 

[skibum]

I have found the Retiree Portfolio Model spreadsheet from the Bogleheads to be comprehensive for projecting fixed income sources (SS, pensions, SPI, etc), investment income (dividends, LTCGs), and the resulting taxes (Federal, State, IRMAA).

It takes awhile to understand the inputs, graphs, and outputs. I find it to be very comprehensive, and effective for projecting Roth conversions. The outputs show results with and without Roth conversions, and the percentage of filling up each tax brackets during the conversion period and RMDs.

The authors put a ton of work into this over many years, and the calcs seem to be well vetted by many users.

Set aside a few hours to check it out, I think you'll be impressed.

https://www.bogleheads.org/wiki/Retiree_Portfolio_Model

 

[CRLLS]

Willing to share the spreadsheet? PM me.

I checked my spreadsheet. There are plenty of links to other spreadsheets of mine. Too much for me to do a rewrite that would make sense for others to understand.

Essentially, I start with "retirement" assets (all IRAs, Roths, after tax account balances), current expenses, both annual and large non- annual purchases like autos. I add in a planned IRA withdraw rate in %, SS benefits, Annuity including the withholding amounts of each and Annuities. Everything is as detailed as desired. If the anticipated expenses are greater than planned income for any given year, I take out more than planned from the IRA. If my RMD's exceed the planned expenses, the leftover is added to the after tax accounts. I do not estimate state taxes as my state does not currently tax any retirement income. If you were in a state that taxes some or all, then accommodation would have to be made for that.

I have a couple of tables, one for IRMMA, one for Fed tax rates and one for RMDs (% by age)

From there, the math is fairly simple. Each year that goes by, I change that year's data from calculated to fixed numbers, not formulas. Future year columns are kept as calculated.

I end up with my estimated tax amount, my tax already withheld, the amount of tax required (important for Roth conversions), our tax bracket, our effective tax rate, any excess IRMMA charges, and our actual withdrawal rate.

This gives you an idea of my spreadsheet. I am sure I left out some other steps. I hope this this helps you understand the process.

 

[skibum]

Meaning, I did not do a good job in investing in "Tax free" investments over the years. No Roth IRA, no 401K Roth, etc. Now when I retire, I don't see how I can utilize any tax strategy to reduce my taxes in retirement.

With no "tax free" accounts, you certainly have fewer tax strategies available, and in some ways less complexity. I would think you could benefit from managing withdrawals and the resulting tax brackets from year to year. The Retiree Portfolio Model has more moving parts than you need, but should still provide guidance on taxes for different scenarios over the years.

I have no idea what brackets are applicable for you, but the opportunity for 0% LTCGs and tax loss harvesting may be of interest:

https://www.kitces.com/blog/underst...st-capital-gains-for-a-free-step-up-in-basis/

As well as the resulting tax bumps from the interaction of ordinary income and long term capital gains:

https://www.kitces.com/blog/long-te...one-higher-marginal-tax-rate-phase-in-0-rate/

Most tax planning software should correctly project these tax interactions, and understanding these interactions will be instrumental to develop the best strategy.

 

[Koolau]

Yes, taxed the same as any withdrawal... just a forced withdrwal.

Yes, I can confirm having made a few RMD withdrawals so far. 1st world problems are the best problems though YMMV.

 

[rathail]

Retirement Budget Calculator is great

I've been using

Retirement Budget Calculator - Do I have enough to retire?

Very comprehensive.
Not free but I got in early.

 

[jpeter1093]

I simply use my tax software and create alternate tax returns. I start with my current return and then adjust all the inputs that need adjusting. I have been doing this for years.

Same. Simple and elegant, it's a bonus feature of your tax software!

 

[SevenUp]

I have found the Retiree Portfolio Model spreadsheet from the Bogleheads to be comprehensive for projecting fixed income sources (SS, pensions, SPI, etc), investment income (dividends, LTCGs), and the resulting taxes (Federal, State, IRMAA).

It takes awhile to understand the inputs, graphs, and outputs. I find it to be very comprehensive, and effective for projecting Roth conversions. The outputs show results with and without Roth conversions, and the percentage of filling up each tax brackets during the conversion period and RMDs.

The authors put a ton of work into this over many years, and the calcs seem to be well vetted by many users.

Set aside a few hours to check it out, I think you'll be impressed.

https://www.bogleheads.org/wiki/Retiree_Portfolio_Model

That is indeed a good one.

The other one mentioned in the Using a spreadsheet section of the Roth IRA conversion wiki article, the personal finance toolbox, covers most credits, phase-ins, phase-outs, etc., and will show a chart of marginal rates (not just tax brackets) over whatever your range of interest. Does need Excel to work properly.

 

[Koolau]

I've been using

Retirement Budget Calculator - Do I have enough to retire?

Very comprehensive.
Not free but I got in early.

My very first retirement calculator was also free (long before I found this site.) IIRC I got it out of the back of a financial porn magazine (maybe MONEY or KIPLINGERS.) I think it had maybe 20 entries and calculations. It "confirmed" that I was FI at 51. Later, when I found ER Forum, I got a much more robust read-out with much more confidence. BUT, the answer was the same. YMMV

 

[G-Man]

I've been using

Retirement Budget Calculator - Do I have enough to retire?

Very comprehensive.
Not free but I got in early.

There is no cost information on the website.

Nice Dashboard

 

[Al18]

From the FAQ section of the Retirement Budget Calculator:
What is the cost of Retirement Budget Calculator?

Retirement Budget Calculator offers both a free and a premium level subscription. The free level provides basic retirement budgeting and asset tracking. The premium subscription, at $9.95/month or $95/year, adds advanced features that allow you to see your retirement status at a glance as well as detailed views to help answer the question, "Do I have enough money for retirement?"

 

[G-Man]

I've been using

Retirement Budget Calculator - Do I have enough to retire?

Very comprehensive.
Not free but I got in early.

Here are the retirement tools that I'm using:

FIRECalc (Free)
Persona Capital (Free)
Fidelity Retirement Analysis Tool (Free)
NewRetirement PlannerPlus ($120 per year)

How does the Retirement Budget Calculator compare to these tools? The dashboard looks very informative.

 

[skibum]

That is indeed a good one.

The other one mentioned in the Using a spreadsheet section of the Roth IRA conversion wiki article, the personal finance toolbox, covers most credits, phase-ins, phase-outs, etc., and will show a chart of marginal rates (not just tax brackets) over whatever your range of interest. Does need Excel to work properly.

Another informative spreadsheet, thanks for sharing. I find the tax bumps from SS taxation and interaction between income and LTCGs to be interesting. The article mentions to find your true marginal tax rate incorporating potential tax credit phase outs, this can be challenging to grasp, the chart visual shows it clearly.

It seems I'm typically past the marginal bumps, but should keep an eye on it.

 

[Koolau]

Here are the retirement tools that I'm using:

FIRECalc (Free)
Persona Capital (Free)
Fidelity Retirement Analysis Tool (Free)
NewRetirement PlannerPlus ($120 per year)

How does the Retirement Budget Calculator compare to these tools? The dashboard looks very informative.

Then there is the free 4% rule (alternately, the 25X rule). Crude but relatively effective. YMMV

 

[G-Man]

Then there is the free 4% rule (alternately, the 25X rule). Crude but relatively effective. YMMV

I have done the back-of-the-envelop 25x rule. All good using that rule.

I really interested in the Retirement Budget Calculator. The dashboard looks amazing and informative.

 

[H2ODude]

I've been living by the Fido RIP (well it used to be called the Retirement Income Planner) tool. It got me to retirement and in the 11 years since seems pretty darn conservative; I know times can change. I track expense w Quicken and just check that, yeah, I'm way under what I could spend. Anyway....

A lot of this thread is on taxes. We can easily live on SS and my pension, in fact we definitely do since Covid stopped any expensive travel. We have almost no assets in our brokerage account, but almost 7 figures in our Roth's and still well over 7 in my IRA. For last 5-6 years I've been maxing the Roth Conversions to stay below IRMAA. At 71, this is my last year to do that. The conversions were close to what my MRD's will be, so not a big change in flows.

It doesn't often get talked about, but a real motivator to me for the Roth conversions is that with both of us, we're paying MFJ rates. Paying attention to the mortality thread, it's highly likely that one of us will be paying what I've projected to be about 30-40% more tax on those MRD's when it's done as a single filer. Has anyone with a substantial tIRA upped their withdrawals beyond minimum (once past 72) in order to pay the lesser tax rate? I know you have to account for missed opportunity for tax free growth on the additional, but the single payer premium is substantial.

I had an accountant about 30 years ago warn me about doing too much tax deferred (was before Roth's). I'm not regretting what we did, but I never expected to have a pension as healthy as this is nor was I counting on SS still being solvent. For now. As they say, First World Problem.