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Old 10-03-2017, 09:44 AM
 
2,678 posts, read 1,543,054 times
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Quote:
Originally Posted by mathjak107 View Post
you actually need more than 5k to put 5k in a roth since you are paying the taxes up front with outside money .

how about if we even it up . guess what ? no difference in after tax money .
Point is that most people can't afford to "even it up" during their working years. I sure couldn't.

Quote:
Originally Posted by mathjak107 View Post
this is false . see above and below . in fact if dealing with ira's and not 401k's you can get more money in the ira with the roth . to even up the amounts to match 5k in a roth you need to put in 6665.00 in a traditional and you can't .if over 50 you still come up short at 6500.00 , under 50 and not even close .

the best you can do is 5k in a tradional and invest the difference in a taxable account but you still won't do as well and lose a lot of the income based advantages i listed below in the taxable account .
Quote:
Originally Posted by mathjak107 View Post

will your social security get taxed with roths or not is a major issue , don't know ? err on the side of caution and shoot for as much tax free income in retirement as you can because getting tens of thousands of dollars taxed a year at 85% when you didn't have to get any taxed is a huge issue .. .
85% tax rate? I don't think so....85% of SSI may be taxable, but at whatever rate your income level meets. We have no 85% tax rates.

Why do you dislike RMD so much? Do you want to leave a large estate? For most people, they're not much different from a safe withdrawal rate until one hits the 90s
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Old 10-03-2017, 11:23 AM
 
71,626 posts, read 71,777,271 times
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i meant up to 85% of ss being taxable not that the tax rate is 85% .

i don't dislike rmd's . but they do create tax torpedo's and unintended tax and extra expense consequences many times .everything you do in retirement has consequences to be looked at . there are links to taxable retirement income all over the place that don't exist with roths ..

i did not work a life time to just give to to the tax man needlessly . everything you do in retirement has consequences to be looked at .

remember , traditional 401k's and ira's have a mortgage on them as far as your spouse is concerned . but unlike the mortgage on your house which has a known balance you have no idea how much your partner uncle sam will take from that pot of money. you really have no idea what your spouse will get to keep years down the road .especially filing single and tax laws possibly changing .

when your spouse gets a roth that balance is all theirs . it is hard enough to plan with the unknown of markets , but add the unknown of taxes and it really gets rough .

but ss being taxed can actually create higher marginal tax rates than your marginal rates are because there are two moving targets .

take an extra 1,000 bucks out of a retirement account and that money can see an effective marginal tax rate of 46.50% . so it can be a lot more difficult dealing with ss and taxable retirement accounts at certain levels . until you get in to much higher incomes the combo off ss and taxable income can create all kinds of tax nasty's in effective tax 's in excess of what your tax bracket is .


look at this example kitces illustrates :


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!


here are a few more examples :


" 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."

"Continuing the earlier example of Jeremy and Martha, if the couple decides to take another $1,000 out of their IRA, this will increase their AGI by $1,000 to $29,000. As a result, it will also increase their provisional income by $1,000, which leaves them $4,000 above the threshold, resulting in $2,000 of their Social Security benefits being taxable. In the end, this means Jeremy and Martha end out with a total AGI of $31,000... their AGI increased by $1,500 even though they only took out a $1,000 IRA withdrawal due to the taxation of Social Security benefits! If the couple is subject to the 15% tax bracket, their additional tax liability on $1,500 of income is $225, which equates to a marginal tax rate of $225 (additional taxes) / $1,000 (additional income) = 22.5%. In other words, even though the couple is in the 15% tax bracket, their $1,000 IRA withdrawal is subject to a 22.5% marginal tax rate due to the formulas triggering taxation of Social Security benefits!"

Last edited by mathjak107; 10-03-2017 at 11:40 AM..
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Old 10-03-2017, 01:18 PM
 
Location: Sierra County
271 posts, read 116,869 times
Reputation: 371
Quote:
Originally Posted by mathjak107 View Post
this is false . see above and below . in fact if dealing with ira's and not 401k's you can get more money in the ira with the roth . to even up the amounts to match 5k in a roth you need to put in 6665.00 in a traditional and you can't .if over 50 you still come up short at 6500.00 , under 50 and not even close .

the best you can do is 5k in a tradional and invest the difference in a taxable account but you still won't do as well and lose a lot of the income based advantages i listed below in the taxable account .
I get IRA's and Roth401k's mixed up and tend to default to them being the same. Except one has your employer involved via our paychecks. MY bad

Thanks for the information. It sounds like donating to an IRA Roth for my husband is a better idea. I already donate to both a pre-tax and after tax 401k via work (Traditional 401k & 401k Roth)

I was going to open one up a ROTH IRA myself instead via Vanguard, just to avoid bothering him to do it.

My traditional 401k is donated to in order to keep us at a MAGI for him to qualify for medicaid.

I sure hope the tax laws do not change to Trump's proposal.

Back to reading your posts again....to fully understand. Thanks mathjack

Last edited by SierraCountyMtnBiker; 10-03-2017 at 01:55 PM..
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Old 10-03-2017, 02:38 PM
 
2,678 posts, read 1,543,054 times
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MJ, I know of what you speak. Right now, my tax bracket (married) is 27.75, higher than when we worked. Last year was a good year since spouse did not draw SSA, so I cashed in a chunk of 401K. From here on it will be tricky to avoid that 46.25 tax rate!
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Old 10-03-2017, 02:40 PM
 
71,626 posts, read 71,777,271 times
Reputation: 49225
ours is higher too . no more deductions for stuff and being home with all this time is expensive so our budget is bigger than when we were consumed working .
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