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Married=larger SD and exemptions
SS income (your 30k estimate is ballpark) but much is not taxed.
Bottom line. When I take the MRD only 11 cents of each dollar can be spent.
Still can't see how this is possible unless your itemized deductions are enormous which translates to a much larger IRA (24xAGI) and substantially higher RMD.
Otherwise, this is how it looks, revised to married:
In order to pay a federal tax of $300 (10% tax bracket), your AGI has to be in the area of $26.000, or thereabouts (less standard deduction (age 65) of $15,000, personal exemption of $8k, leaving taxable income $3,000, resulting in a $300 tax (10% x $3,000)).
24 x $26,000 (AGI) is $624,000 in the IRA.
RMD at even 3.8% is $23,712.
Even if your SS is $30k/yr, 50% of that is $15,000 plus $23,712, for a total of $38,712 combined/provisional income for SS taxability purposes.
Deduct $34,000 exclusion from $38,712, leaves you with $4,712 of SS added to ordinary income, for total AGI of $30,712 ($26,000 + 4,712).
Then, deduct $15,000 + $8k, leaves taxable income $7,712 x 10% = $771 federal tax.
Additional $412 federal tax is 1.98% of your RMD.
But, under the above scenario, you are saying your tax liability will increase from $300 to $21,103 - or 89% of the withdrawal???
Can I roll parts of the Traditional IRA into a Roth even though I am 67 years old and have no income? I have a Roth already but maybe a second one for giggles.
You can do incremental Roth conversions and pay ordinary income tax on the conversions.
I'm still confused. You say you have no income - and yet worry about tax on RMDs - and now want to convert to a Roth - which has the same tax effect as an RMD - on everything - taxability of SS, etc.
In effect, you'll have the same gripe every time you convert.
Still can't see how this is possible unless your itemized deductions are enormous which translates to a much larger IRA (24xAGI) and substantially higher RMD.
Otherwise, this is how it looks, revised to married:
In order to pay a federal tax of $300 (10% tax bracket), your AGI has to be in the area of $26.000, or thereabouts (less standard deduction (age 65) of $15,000, personal exemption of $8k, leaving taxable income $3,000, resulting in a $300 tax (10% x $3,000)).
All of the income other then SS are Qualified Dividends and Capitol Gains. That allows a much larger AGI when computing the tax. Not double but nearly.
24 x $26,000 (AGI) is $624,000 in the IRA. Adjust appropriately.
RMD at even 3.8% is $23,712. MRD, divide total IRA by about 25 the first year.
Even if your SS is $30k/yr, 50% of that is $15,000 plus $23,712, for a total of $38,712 combined/provisional income for SS taxability purposes. Now 87% of SS is taxable
Deduct $34,000 exclusion from $38,712, leaves you with $4,712 of SS added to ordinary income, for total AGI of $30,712 ($26,000 + 4,712).
Then, deduct $15,000 + $8k, leaves taxable income $7,712 x 10% = $771 federal tax.
Additional $412 federal tax is 1.98% of your RMD. But all the advantages of low tax bracket on Qualified dividendsCapitol gains is lost.
But, under the above scenario, you are saying your tax liability will increase from $300 to $21,103 - or 89% of the withdrawal??? Actually almost twice $21k.
Clearly, I'm missing something. I think it is the great magnifying effect of higher income in SS and Qualified and CapGains .
I am in Richmond, VA, so only 2 hours south of DC metro. Indeed, your observation of mindset and investment strategies for retirement is very acute! My work mates all take the same similar approach as well. And we all have healthy pensions. Interesting!
To the OP: SS is never more than 85% taxable, I thought, so where did 87% come from? Since you already have lower tax vehicles in your current after tax income (LTCGs, etc), it makes even more sense to get as much in to your Roth as possible, because even moving IRA funds out beyond the RMD amounts, will do the same thing eventually. (Raise your income to he point where 85% of SS is taxed) . You are just paying an extremely low rate for the spendable income you have now. If that income was earned income, you would be paying the high rate you are complaining about, just like everyone else. Most unusual but a Nice position to be in.
I am in Richmond, VA, so only 2 hours south of DC metro. Indeed, your observation of mindset and investment strategies for retirement is very acute! My work mates all take the same similar approach as well. And we all have healthy pensions. Interesting!
To the OP: SS is never more than 85% taxable, I thought, so where did 87% come from? Since you already have lower tax vehicles in your current after tax income (LTCGs, etc), it makes even more sense to get as much in to your Roth as possible, because even moving IRA funds out beyond the RMD amounts, will do the same thing eventually. (Raise your income to he point where 85% of SS is taxed) . You are just paying an extremely low rate for the spendable income you have now. If that income was earned income, you would be paying the high rate you are complaining about, just like everyone else. Most unusual but a Nice position to be in.
Right on all except I don't know how I got 87% for SS. I just filled out:
"Social Security Benefits Worksheet --- Lines 20a and 20b.
When calculating the % this morning I referred back and divided line 18 by line 1 with a calculator. I must have gotten one of the numbers wrong because I get 85% now. But the line 18 amount (taxable portion) was always right. Just my division this morning. Should have had that third cup. Sorry.
I tried it with a 2nd home and we Are back in NYC . The more rural life wasn't for us. It just lacked way to much of the things we want from our retirement.
I wonder what one would be giving up by leaving New York in hopes of finding lower taxes someplace else. Surely there would be something...
OP was hoping for a relatively tax-free retirement. But with all the "other" low-tax income and the size of the IRA (seven figures) and required RMDs, it's not possible.
As Perry says:
Quote:
Originally Posted by Perryinva
it makes even more sense to get as much in to your Roth as possible, because even moving IRA funds out beyond the RMD amounts, will do the same thing eventually. (Raise your income to he point where 85% of SS is taxed)
.
It's really not as bad as it sounds. For now, this is really true:
Quote:
Originally Posted by Perryinva
You are just paying an extremely low rate for the spendable income you have now. If that income was earned income, you would be paying the high rate you are complaining about, just like everyone else.
Tax-deferral means exactly that. At some point, the tax is no longer deferred and must be paid.
20/20 hindsight - but projecting the low-tax income out when OP was in his 50s, deposits to Roths fifteen-twenty years ago is probably what OP should have been doing. Too late we learn.
As projected, I am in a lower tax bracket retired than when I worked - but that won't always be the case. So, I am doing Roth conversions now, to prevent escalating RMDs and bracket creep - and to leave tax-free money to heirs.
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