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With that sort of approach, the wealthy with good advisors can often get by paying little or nothing in taxes. Those of us who worked and earned a salary get clobbered. Sorry but that does not seem fair.
Are these RMD's taxed at the regular standard tax rate (15,25,28 etc)?
So one would add together their pension, SS and RMD then that sum will be their tax bracket?
As mentioned there is a still a small break so SS is not taxed at 100%. RMDs are taxed. As discussed before, with only SS, many of us pay little or no taxes in keeping with our low incomes. As soon as RMDs hit, we get kicked into a much higher tax bracket that also applies to taxable SS and any other source of income. Now the marginal tax increase effectively takes nearly half of the RMD amount.
Doing the homework is not always easy. Over the last decade or two that I worked, I had 3 financial advisors and another individual who did a financial analysis and wanted to become my advisor. None of these individuals ever mentioned tax issues for when I retired. It never seemed like an issue to them or to me. After all I expected to have a much smaller income and a much lower tax rate. Until a couple of years ago, I had no idea that 40-50% of my RMDs were going to vanish in taxes.
I suspect I am not alone. One of my BILs did investment advising and he was shocked to find how much of his RMDs went to taxes.
You are so correct!!! Financial advisors never bring up tax consequences of the investments they are selling to you. They just want your money. There are very few good ones out there. Unfortunately the ones are good are to busy with rich clients to take a middle class client. I guess I probably just had bad experiences with them but to me they just want to sell their products to you with no strategy. After 2007-2008 downturn I moved my money to Fidelity and do my own research and investing and I did far better by myself. I am not bragging I'm just saying no one cares about your money more then you do and if possible to research and invest yourself you will be much better off in the end.
Doing the homework is not always easy. Over the last decade or two that I worked, I had 3 financial advisors and another individual who did a financial analysis and wanted to become my advisor. None of these individuals ever mentioned tax issues for when I retired. It never seemed like an issue to them or to me.
Pretty remarkable that a "financial advisor" could overlook taxes in an analysis. Another example of why I've never relied on such parasites. Of course I'm blessed with a top school MBA with a concentration in finance, so these things are basic to me.
I agree with others that when you run scenarios and the numbers, there are surprises. For instance, I was surprised to find out that in a scenario common for me, my post retire marginal rate will be/is higher than my final working years.
For folks like us here, all of the publications and articles I read before retirement (heck, even now) are just plain wrong because they always ignore taxes, impact of taxable SS, and RMI guessD. Just like "financial advisors" I guess.
Doing the homework is not always easy. Over the last decade or two that I worked, I had 3 financial advisors and another individual who did a financial analysis and wanted to become my advisor. None of these individuals ever mentioned tax issues for when I retired. It never seemed like an issue to them or to me. After all I expected to have a much smaller income and a much lower tax rate. Until a couple of years ago, I had no idea that 40-50% of my RMDs were going to vanish in taxes.
I suspect I am not alone. One of my BILs did investment advising and he was shocked to find how much of his RMDs went to taxes.
You are so correct!!! Financial advisors never bring up tax consequences of the investments they are selling to you. They just want your money. There are very few good ones out there. Unfortunately the ones are good are to busy with rich clients to take a middle class client. I guess I probably just had bad experiences with them but to me they just want to sell their products to you with no strategy. After 2007-2008 downturn I moved my money to Fidelity and do my own research and investing and I did far better by myself. I am not bragging I'm just saying no one cares about your money more then you do and if possible to research and invest yourself you will be much better off in the end.
Are these RMD's taxed at the regular standard tax rate (15,25,28 etc)?
So one would add together their pension, SS and RMD then that sum will be their tax bracket?
Not exactly. The things should sum up to your "gross income". To GI you apply deductions (roughly) to get to "net income". The "standard tax rate" is anything but "standard" since it is a marginal rate, not an average tax rate. One's average rate will ALWAYS be lower than the marginal rate.
I just want to make sure I fully understand this...
At 70 years old John has a pension that pays $35,000 per year, social security that pays $41,000 per year and a RMD that has to be $60,000 per year. So his total is taxable income will be at $136,000?
John is married so that amount will place him in the 25% tax bracket, right?
pension 35,000
85% of SSA 34,850
RMD 60,000
gross income 129,850
From that you subtract personal exemptions and deductions, either standard or itemized. For instance, IIRC, couple over 65 will have standard deduction of $12,600 plus $2,500 for being over 65, and $8,100 in personal exemptions, for a net taxable income of 109,150. Tax is $10,367.50 plus 25% of the amount over $75,300. You can do the math. (this is a somewhat simplified example, YMMV)
But I guess Im still missing the big picture. Im currently in the 28% bracket as it is, so whats the big ordeal when Im in the 25% when Im retired?? Or is it just that most folks think retirement is tax free and that's the surprise?
Quote:
Originally Posted by bigbear99
works like this:
pension 35,000
85% of SSA 34,850
RMD 60,000
gross income 129,850
From that you subtract personal exemptions and deductions, either standard or itemized.
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