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Old 01-30-2015, 09:59 PM
 
Location: Whereever we have our RV parked
8,809 posts, read 7,715,872 times
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The IRS has spent far more hours figuring out how to get some of your money than you have ways to keep it. I don't mind paying taxes. We should all expect to pay our share. Part of the way I've avoided taxes is that I haven't put all my savings in 401k/Ira accounts.

What one acquaintance noticed is that if you keep your income below 60K, your tax bill will not be too high. So we are cutting back on lifestyle to keep our income in line with out financial needs. I this way I can keep my IRA withdraws to a minimum.
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Old 01-30-2015, 10:47 PM
 
Location: Grove City, Ohio
10,137 posts, read 12,395,557 times
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Simple online worksheet I found helpful How much of my social security benefit may be taxed?

For example in 2014 the maximum monthly benefit at the age of 70 is actually $3,487.

Husband and wife both high earners waiting until age 70 to collect will receive a combined benefit of $83,688. This is as high as it can possibly get.

Using the work sheet for a married couple filing jointly their total federal tax on social security will amount to $1,230 which isn't a bad deal when you consider most states, like Georgia and California, don't tax social security.

But let's face it, most couples will not receive a combined benefit of $83,688 with many of us thinking a combined benefit of $60,000 is pretty cool and at $60,000 there isn't any federal taxes on the social security benefit.

Where you end up getting socked is having income other than social security.

While there isn't any federal tax on $60,000 ss benefit if your ss benefit is $40,000 and you withdraw $20,000 from an IRA account there will be a $1,000 federal tax on your social security benefit.

Some time ago I toyed with the idea of collecting at age 66 while continuing to work and simply bank all my social security. Running it by the work sheet this idea turned into being a colossal act of stupidity.

Let's say a married couple has a combined wage income of $60,000 and collects a total of $4,000 ($2,000 each) at age 66. They will pay $10,000 in federal taxes on their combined $48,000 social security benefit alone. Instead of $4,000 monthly they will really receive just $3,167.

But if they both continue to work and not collect at age 70 their monthly benefit will grow to $5,280/mo for $63,360 annually they will be NOTHING on their social security benefit if they retire and don't have other income.

Play around with the worksheet, it's kind of fun.
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Old 01-31-2015, 12:39 AM
 
6,512 posts, read 3,087,561 times
Reputation: 5995
Quote:
Originally Posted by mathjak107 View Post
the fact you have to pay taxes on your deferred retirement money is not quite true.

a retired couple can pull up 22k a year out of their ira's and pay zero tax while delaying ss and letting it grow.

just the standard deduction and exemptions give you 22k a year tax free from money you deducted at higher tax rates working, delay ss 8 years and that is 22k tax free for 8 years. in fact take 42k for 8 years and pay as little as 4.50% plus a zero capital gains bracket too.

couple that with some roth income and borrowed over funded life insurance , you are in the zero capital gains bracket and can sell some stock from the taxable account and you can see 100k income and zero tax.

not only that but there are ways of leveraging single premium life insurance policies and turrning forever taxed ira money into never taxed money.


if i leave my wife a 500k ira those rmd's are taxable forever or it is taxable to the heirs.

but if a buy a leveraged single premium life insurance policy with the ira money i will pay tax on the part the life insurance is bought with but that cost will not be anywhere near 500k.

so i get to leave my wife a cool tax free 500k with never a dime of tax due.

what ever is left in the ira's after the insurance and spending the kids can have and pay the taxes over their lifetime plus they get all the tax free money left over from wife at some point.

your conception is what is wrong with the way folks think when they only know what they know but know little about all the things they don't know .it takes a tax advisor well schooled in this stuff to really plan things well.
Yes that's all true about the taxes.....its taxable, but you may not pay much or any taxes depending. If you have a ways to go, you could also save up the money needed for however long you wanted to delay social security and accomplish the same thing. OP didn't sound like he was going to delay SS or have a roth so that wouldn't work.

The life insurance I didn't know about. Can you explain the over funded life insurance? Can that work for someone who is single?

Also, does the leveraged single premium life insurance only work if you are married? And, by doing that is your wife the only one who can spend that money?

I agree a tax advisor is a good idea for anyone dealing with substantial sums of money. tax mistakes can be costly.
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Old 01-31-2015, 02:16 AM
 
2,429 posts, read 3,227,010 times
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Quote:
OP didn't sound like he was going to delay SS or have a roth so that wouldn't work.
OP here.
No I don't know when I'll start taking SS. I do have a Roth IRA. (and pension and other retirement accounts, of course)

Quote:
If you have a ways to go, you could also save up the money needed for however long you wanted to delay social security and accomplish the same thing.
And save it in cash or taxable accounts? ....are you saying never pull money from the retirement accounts....even if you live on savings until you take Soc. Sec -- you have to pull the money after 70 1/2 anyway. IF you're saying pull and use your retirement account money WHILE you delay Soc. Sec.....that's OK I guess....but then you have to figure out your comfort level for how LOW you're willing to deplete those accounts. I'm all for waiting to take Soc. Sec. but even with a higher lifetime SS income -- there's nothing like having YOUR OWN money at your disposal...how much would you want to compromis that part of your "safety net?"
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Old 01-31-2015, 02:21 AM
 
71,735 posts, read 71,829,507 times
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over funding a whole life policy is a little know ploy for getting tax free interest that compounds over decades .

basically you send in extra payments over and above the premium. basically this is money you would have kept as your cash allocation anyway not money that would be invested in other faster growing assets.

there is no commissions or fees that are allowed to come out of any over funding.

but ,there is a limit to how much you can over fund. if you put to much in the irs considers it a modified endowment plan and not life insurance so find out what the limit is and stay below.

you can then borrow out all the over funded money and compounded interest ,never pay it back later.

yes the life insurance works with anyone but it works best with a spouse. there are no local estate taxes to worry about planning for leaving it to a spouse.

once the spouse has the money it is cash in the bank and it is all tax free.
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Old 01-31-2015, 03:59 AM
 
71,735 posts, read 71,829,507 times
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by the same token a combo of single premium life insurance and laddered single premium immediate annuity's can set up guaranteed income that are only partially taxed and can be low to no tax money for a spouse and or heirs.

the various combinations of all these things with your own accounts and investing can produce many different combo's with many different results. no one can say what is right for you without extensive software that can run these scenarios. it is always best to see someone who specializes in this area. it is rare a one size fits all planner will be the right person.
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Old 01-31-2015, 06:40 AM
 
Location: Jamestown, NY
7,841 posts, read 7,336,499 times
Reputation: 13779
Quote:
Originally Posted by nicet4 View Post
Simple online worksheet I found helpful How much of my social security benefit may be taxed?

For example in 2014 the maximum monthly benefit at the age of 70 is actually $3,487.

Husband and wife both high earners waiting until age 70 to collect will receive a combined benefit of $83,688. This is as high as it can possibly get.

Using the work sheet for a married couple filing jointly their total federal tax on social security will amount to $1,230 which isn't a bad deal when you consider most states, like Georgia and California, don't tax social security.

But let's face it, most couples will not receive a combined benefit of $83,688 with many of us thinking a combined benefit of $60,000 is pretty cool and at $60,000 there isn't any federal taxes on the social security benefit.

Where you end up getting socked is having income other than social security.

While there isn't any federal tax on $60,000 ss benefit if your ss benefit is $40,000 and you withdraw $20,000 from an IRA account there will be a $1,000 federal tax on your social security benefit.

Some time ago I toyed with the idea of collecting at age 66 while continuing to work and simply bank all my social security. Running it by the work sheet this idea turned into being a colossal act of stupidity.

Let's say a married couple has a combined wage income of $60,000 and collects a total of $4,000 ($2,000 each) at age 66. They will pay $10,000 in federal taxes on their combined $48,000 social security benefit alone. Instead of $4,000 monthly they will really receive just $3,167.

But if they both continue to work and not collect at age 70 their monthly benefit will grow to $5,280/mo for $63,360 annually they will be NOTHING on their social security benefit if they retire and don't have other income.

Play around with the worksheet, it's kind of fun.
Thanks for the link! Since I will have a nice public employee pension, I will always pay taxes on my SS income, but I always knew that. No big deal. I'll take the higher income and pay the taxes rather than compromise my life-style.

It will help me decide how much I want to deduct from my deferred retirement account annually, though.
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Old 01-31-2015, 07:07 AM
 
29,788 posts, read 34,885,423 times
Reputation: 11715
Quote:
Originally Posted by Linda_d View Post
Thanks for the link! Since I will have a nice public employee pension, I will always pay taxes on my SS income, but I always knew that. No big deal. I'll take the higher income and pay the taxes rather than compromise my life-style.

It will help me decide how much I want to deduct from my deferred retirement account annually, though.
Bada Bing and congrats
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Old 01-31-2015, 07:35 AM
 
6,512 posts, read 3,087,561 times
Reputation: 5995
Quote:
Originally Posted by rdflk View Post
OP here.
No I don't know when I'll start taking SS. I do have a Roth IRA. (and pension and other retirement accounts, of course)



And save it in cash or taxable accounts? ....are you saying never pull money from the retirement accounts....even if you live on savings until you take Soc. Sec -- you have to pull the money after 70 1/2 anyway. IF you're saying pull and use your retirement account money WHILE you delay Soc. Sec.....that's OK I guess....but then you have to figure out your comfort level for how LOW you're willing to deplete those accounts. I'm all for waiting to take Soc. Sec. but even with a higher lifetime SS income -- there's nothing like having YOUR OWN money at your disposal...how much would you want to compromis that part of your "safety net?"
It depends on how much you are able to accumulate outside of tax deferred accounts between now and retirement. If its enough to live on for a while, you could get some of the 401k/Traditonal IRA money out at a very low tax rate (based on previously discussed amounts of standard/itemized deduction plus personal exemption). You wouldn't have to use it, you could convert to Roth to grow for later use. If you needed to use it, like you said its a personal decision how hard/how fast you are willing to tap your portfolio.

I think if you haven't done so, you need to start from the point of exactly how much you expect to need each year. And, in your case, you have pension income that I presume you have no choice about receiving or not other than the date you start receiving it. So that has to be factored in.

If you can fashion a lower tax bracket for yourself, or if you see it is only going to go up, there is some benefit imo to controlling your distributions rather than waiting for RMD's. By reducing the account size, you lower the RMD's at 70.5. Trade off unless you convert it to Roth, you lose the tax deferral on future earnings.

Alternatively, look at Mathjaks insurance ploys. I haven't had time to research them, so cant comment on them.

I know you said you don't want to be a landlord and I get that, but that would be one way to generate income in the right situation that is reduced to a paper loss through expenses. That would mean it wouldn't affect taxes on your SS.
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Old 01-31-2015, 07:52 AM
 
6,512 posts, read 3,087,561 times
Reputation: 5995
Quote:
Originally Posted by mathjak107 View Post
by the same token a combo of single premium life insurance and laddered single premium immediate annuity's can set up guaranteed income that are only partially taxed and can be low to no tax money for a spouse and or heirs.

the various combinations of all these things with your own accounts and investing can produce many different combo's with many different results. no one can say what is right for you without extensive software that can run these scenarios. it is always best to see someone who specializes in this area. it is rare a one size fits all planner will be the right person.

Arent you giving up a significant return on your money with these insurance products and annuities? Is your primary goal ensuring guaranteed income.

Not sure I see the advantage for someone who already has enough guaranteed income via pension/SS.
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