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Old 04-02-2015, 02:12 AM
 
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Quote:
Originally Posted by kiplingif View Post
exit82, that reminds me of a related question. I've always been under the impression that the first thing someone should do for retirement investing is investment in a 401k up to whatever the employer matches. After that, though, I always thought a Roth IRA made the most sense since you pay taxes on it up front and it grows tax free.

But a coworker who used to work in finance said a Roth IRA isn't a better idea because most people's retirement income is lower than their working years, so you'd end up paying less in taxes with a traditional IRA. I still think it makes sense to do the Roth since you get X-years of tax-free growth. Any thoughts on figuring out the break-even point for where Roth versus traditional IRA makes the most since in terms of bang for your buck? I am in the 25% federal tax bracket now. Even if I stayed in that in retirement it is:

Tradtional IRA - Paying 25% on all growth from my entire working life and no taxes on it initially.

versus

Roth- Paying 25% up front and then only paying 25% on my non-Roth investments (social security and a pension if I have a job like that, I guess?) and 0% taxes on my Roth stuff.

The latter seems like a no-brainer. Or am I missing something? Is this only more of a question for people who are older when they begin investing in an IRA of some sort? It just seems like you'd have to be rather close to retirement for the Roth to not be the way to go unless I am way off base.
i agree , the best way is do the 401k up to the match , fill up a roth next and perhaps do equities in a taxable account.

why pay regular income tax on equities in a 401k when you can pay zero taxes if you can get 0% capital gains taxes on it or just 15-20%, write off losses and pass tax free to heirs. .

Last edited by mathjak107; 04-02-2015 at 02:46 AM..
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Old 04-02-2015, 02:14 AM
 
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Quote:
Originally Posted by jane_sm1th73 View Post
nicet4, I know the question has come up before, about SS being taxable. I know it's not taxable in GA. Can you help me understand how $67K in SS benefits are not taxable at Federal level?

Thanks! - Jane
while anything over 32k in provisional income for a couple is taxed the figure used to arrive at that provisional income only uses 1/2 the ss plus your other income.

hypothetically : Jeremy and Martha have an AGI of $28,000 (and no tax-exempt or foreign income), and receive combined Social Security benefits of $14,000. As a result, their provisional income is $28,000 + $7,000 (half of Social Security benefits) = $35,000, which is $3,000 above the $32,000 threshold. This means that 50% x $3,000 = $1,500 of their Social Security benefits are subject to taxation, which ultimately increases their AGI to $28,000 + $1,500 = $29,500.

in the 67k example 1/2 67k is 33,500.00 , since 32k is the threshold 50% of the 1500 is taxable income . that 750.00 is added to other income raising the agi but if there is no other income. once you subtract exemptions and deductions there is nothing left to tax.

Last edited by mathjak107; 04-02-2015 at 02:33 AM..
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Old 04-02-2015, 02:20 AM
 
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mathjak, I hope that sticks in my head THIS time, lol! Thanks.
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Old 04-02-2015, 02:45 AM
 
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Quote:
Originally Posted by kiplingif View Post
Tradtional IRA - Paying 25% on all growth from my entire working life and no taxes on it initially.
You won't pay 25%. Even if you're in the 25% marginal tax bracket, your average tax will be much less than 25%.

Also, to get into the 25% bracket *as a retiree*, you'd have to gross $100K or more (including 85% of your SS benefit). That's basically optional, and depends on how much you take out of your IRA, unless you're over 70-1/2, in which case the required minimum distribution could get you there (even then, only for part of your money).
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Old 04-02-2015, 02:54 AM
 
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Having any amount of your SS being taxable, still raises the amount of income that's potentially subject to taxation, though. Sure, a person may still get their deductions, exemptions etc...but that's after the taxable amount of SS has already been added to income. No?

Also technically I think it's the MAGI (modified AGI) that's at issue. Which many times -- if not most -- is the same as the AGI. But it doesn't HAVE to be
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Old 04-02-2015, 03:04 AM
 
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magi is 1/2 the social security plus muni bond interest plus other income less any adjustments to income but not deductions or exemptions.
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Old 04-02-2015, 03:06 AM
 
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mathjack, any help for my questions in post #39?
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Old 04-02-2015, 03:07 AM
 
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Quote:
Originally Posted by rdflk View Post
Having any amount of your SS being taxable, still raises the amount of income that's potentially subject to taxation, though. Sure, a person may still get their deductions, exemptions etc...but that's after the taxable amount of SS has already been added to income. No?

Also technically I think it's the MAGI (modified AGI) that's at issue. Which many times -- if not most -- is the same as the AGI. But it doesn't HAVE to be
marginal tax rates can get crazy once ss gets taxed. taking an extra thousand or 2 over the thresholds can generate mnarginal tax rates on the extra money that can wipe 1/2 of it away . the lower your income the more dangerouse and painful the tax on that extra money can be.

as an example :

Harry is an individual with $36,000 of income but a hefty $22,000/year of Social Security benefits. His Social Security provisional income is $36,000 + $11,000 = $47,000, which is $13,000 over the upper threshold for individuals. As a result, $15,550 of his Social Security benefits are subject to taxation (which is 50% of the amount from $25,000 to $34,000, plus 85% of the excess of provisional income above the $34,000 threshold), which puts his AGI at $51,550. Even after a standard deduction and one personal exemption, Harry's taxable income would be $51,550 - $6,100 - $3,900 = $41,550, which places him in the 25% tax bracket.

If Harry now takes an additional $1,000 from his IRA, his provisional income increases to $48,000, his taxable Social Security benefits increase to $16,400, and his AGI rises to $53,400. The net result: Harry's AGI increased by $1,850 for "just" a $1,000 IRA withdrawal, and with a 25% tax bracket his liability will be $1,850 x 25% = $462.50, which equates to a whopping $462.50 / $1,000 = 46.25% marginal tax rate!
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Old 04-02-2015, 03:34 AM
 
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So if a pension and 1/2 SS puts a person over the threshold....what are some tax and or income strategies to mitigate taxes. Take the pension but wait on the SS, and if money is needed just draw down other accounts? Any other options? But 401 K money is taxable too.

Paying taxes on 401K money -- psychologically -- I can accept, be cause that money hasn't been taxed. But having my SS taxed just galls me.

So what's the better net after tax strategy"
a) pension and SS -- leave 401K and Roth alone -- and have have part of the SS taxed?
b) pension and draw down 401K (pay taxes on the 401K money) ...and let SS wait?
c) pension and pull from a Roth IRA (tax free until) that's gone...let SS wait?
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Old 04-02-2015, 03:42 AM
 
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we needed a financial advisor to answer that for us . it can be so complex projecting down the road with so many scenario's , surcharges and other aspects when rmd's kick in.it is very individulized.

we structured for lowest taxes first 2-3 years. after that we are in the 25% beracket no matter what
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