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Stealth: My Chrystal Ball is hoping its under 10%. We plan on workinga little, SS income for both my wife and myself, a small pension for me. Residency in Texas means no personal income tax so all I have to worry about is The Feds. I'm figuring that if I live on a budget, I will live pretty much under the tax radar screen. If I have high income one year, I'll leave all my money in IRA's that year. I have IRA and non-Ira savings, so I can tap one or the other depending on circumstances.
You only have that option prior to age 70-1/2 - unless all your IRAs are Roths, in which event it doesn't matter what you withdraw.
After age 70-1/2, IRS requires Minimum Distributions. First year will be 3.65% and increasing.
I hadn't thought about the sudden medical expenses affecting the tax rate because of necessary IRA deductions. Hope I remember in years future to withdraw IRA money whenever possible in low tax years, even if I don't need the money for spending money.
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Originally Posted by cdelena
Maybe I am missing something but it seems a large factor in this issue is what your AGI/deductions will be. We have one of the most progressive tax systems in the world and I don't expect that to change. My effective tax rate jumped in the last year as I had to take higher distributions from the IRA to cover medical expenses, which raised the AGI, which lowered the amount of medical that is deductible, which combined to raise the effective tax rate.
Next time, use zero interest credit card balance transfer checks to pay these bills and only withdraw your RMD. I do this all the time for all the reasons you list. Minimum/incremental withdrawals from taxable IRAs are much preferable to large lump sum withdrawals. Any fee paid is far, far lower than any state and federal taxes you pay because of additional taxable income, lower medical deduction, higher tax rates, more of your SS subject to taxation, etc.
Quote:
Originally Posted by joe moving
far from retirement, but with most retirement income in a Roth IRA,... what taxes WILL I have to pay on this?
I hadn't thought about the sudden medical expenses affecting the tax rate because of necessary IRA deductions. Hope I remember in years future to withdraw IRA money whenever possible in low tax years, even if I don't need the money for spending money.
I don't know your whole situation, but it may be better to leave the money in the IRA (to the extent it's possible given the minimum withdrawal requirement after age 70-1/2) because the medical expenses might not materialize and then you've paid tax for no reason.
A good rule of thumb for more affluent retirees is to withdraw each year up to the top of the 15% Federal tax bracket, but no more. This is a reasonable amount of tax to pay and you can never be taxed on the withdrawal again (until you die).
A good rule of thumb for more affluent retirees is to withdraw each year up to the top of the 15% Federal tax bracket, but no more. This is a reasonable amount of tax to pay and you can never be taxed on the withdrawal again (until you die).
Affluent and 15% tax bracket in the same sentence almost seems like an oxymoron.
For a single retiree that would be a taxable income of $36,250. For a married couple, the top of the 15% bracket is $72,500. (Note: taxable income is after exemptions & deductions).
I realize that we're not talking about living on a shoestring with that income, but I don't think I'd call retirees with that income affluent.
I think what we will be seeing in the future is higher taxes at local and state elvels as federal tranfers drop.We already see mnay areas that bascially most retireee can live a moderate lifestyle on median income at all.As popuakltion gets older and is freer to seek areas not work related it means that many areas have basic fiancing problems already.Basically tax rates and prices to support the rates are meaning that more and more seek a better lifestylee in areas not seen as that not that long ago.
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