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We have 2 homes in 2 different States. In state #1 one we live 7 months and have our drivers license and 2 cars registered there. Our SS and other income goes there to State #1. Our income tax returns are done in State #1. We pay ppty tax there also. We are exempt from jury duty because one, we're over the age requirement and 2, when we were summoned years ago we got exemptions because we were out of State when the summons arrived.
Our #2 State house we have one car registered there as it is permanently garaged there. We pay only ppty taxes. We are not on the jury rolls since we are exempt because we are registered to vote and have drivers licenses in our home State #1. We pay no state taxes in State #2 since we have no income sources from there.
Where you live the majority of the time over 6 months is considered your primary home.
Thinking about taxes is certainly a part of retirement planning. However, with regard to income taxes I do not understand the statement which I bolded above. We are never money behind when our income bumps us into the next higher tax bracket. Each higher bracket imposes that higher percent taxation only on that portion of income which exceeds the threshold, not on our entire adjusted gross income. And even on the portion on which we are paying a higher rate, we are still money ahead because the rate never reaches 100%, at least not in the United States. In fact, it never reaches even 50%, if my memory is correct. So we are almost alwaysmoney ahead when we bring in more income, even if the increased income bumps us into the next higher tax bracket.
I can think of two possible exceptions: First, if one is 65 or older and enrolled in Medicare, the Part B premium is in five different tiers based on "modified adjusted gross income". The first (lowest) tier is exceeded when the income exceeds $85,000 per year for a single taxpayer or twice that for married taxpayers filing jointly. I haven't crunched the numbers, but it may be that just barely exceeding the threshold would cost one some money. But it wouldn't be very much money and if I were making $85,001 per year I certainly wouldn't be concerned about it.
I can think of a second possible exception: Multi-year planning. If one can even out withdrawals so that over a period of years, a tax bracket jump is avoided in any particular year while still not reducing the multi-year withdrawal total, then one is very slightly money ahead. Is this what you meant? If so, I withdraw my objection.
If my reasoning of off in any way, please let me know.
your logic is correct. tax brackets are marginal meaning only the part over the threshold is at the next bracket. none of your income below is effected. what was below stays below unless things like the amt or certain deductions with limitations are hit.
Thinking about taxes is certainly a part of retirement planning. However, with regard to income taxes I do not understand the statement which I bolded above............
..............I can think of a second possible exception: Multi-year planning. If one can even out withdrawals so that over a period of years, a tax bracket jump is avoided in any particular year while still not reducing the multi-year withdrawal total, then one is very slightly money ahead. Is this what you meant? If so, I withdraw my objection.
If my reasoning of off in any way, please let me know.
OK, so the thing is, the way the brackets work out, there is a big step from 15% to 25%. If you used 'most' of the 15% bracket for living expenses, but also wanted to have a large lump sum to purchase a boat or camper or cabin or whatever, it would make sense to use up the 15% bracket each year with additional withdrawals over a period of years instead of taking it all out at once. This really affects people who have most of their liquid wealth in pre-tax retirement accounts.
It might make the difference between having to take out $66,666 to net $50,000, or take out just $58,823 in pieces over time to net $50,000.
It is not a huge difference, and this is a problem that many only hope to have, but when people clip coupons to save 50 cents on a can of soup, cutting one's tax bill by several thousand dollars makes sense.
OK, so the thing is, the way the brackets work out, there is a big step from 15% to 25%. If you used 'most' of the 15% bracket for living expenses, but also wanted to have a large lump sum to purchase a boat or camper or cabin or whatever, it would make sense to use up the 15% bracket each year with additional withdrawals over a period of years instead of taking it all out at once. This really affects people who have most of their liquid wealth in pre-tax retirement accounts.
It might make the difference between having to take out $66,666 to net $50,000, or take out just $58,823 in pieces over time to net $50,000.
It is not a huge difference, and this is a problem that many only hope to have, but when people clip coupons to save 50 cents on a can of soup, cutting one's tax bill by several thousand dollars makes sense.
I would say you are correct. I did not crunch any numbers, but you did. I think we are in agreement about the general principles involved. However I would now modify my statement (made in connection with multi-year withdrawal strategies): Instead of saying one can be "very slightly" money ahead, I would drop the "very slightly" and just say that one can be money ahead. You have demonstrated that by using real numbers, and I thank you.
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