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If you're a liberal New Yorker, please stay there. Virginia is already blue enough, and getting bluer! Not good!
Please keep your political opinions in the Political forum or to yourself. No one cares about your leanings in the retirement forum when it is totally irrelevant.
The way ss is taxed can give some pretty crazy results ..someone can take just an extra 1k out of an ira and end up getting an effective tax on the extra 1k of close to half .
Just after plugging some numbers empirically, this is what it seems in general:
(a) if tour total income including 1/2 soc security is over $25k for a single person, you pay tax on at least about half of your soc security, no matter what
(b) you start getting torpedoed (ie, moving rapidly towards taxation of 85% of your soc security) if the taxable income from your savings is more than half of your total annual income
Plus, I notice that your man Kitces recommends to combat the torpedo by exactly the same methods that I had used intuitively: Roth conversion (done), annuities (done, except that they will probably still generate enough income for some degree of torpedoing :-), and asset allocation (in stuff that appreciates without generating annual dividends, like real estate which I have, or a tax-managed fund which I am considering and will probably start when the conditions for one-time market investment get favorable again, ie, next time the market crashes).
An interesting result of the computation: a person with a total income of $60,000 where $30,000 of it is from ss pays tax on 46% of ss income --- but a person with a total income of $60,000 where $20,000 of it is from ss pays tax on 85% of ss income. So, between two people with the exact same total annual retirement income, the one who saved more to support self independent of ss is "rewarded" by higher taxation of a smaller ss benefit.
That is an interesting way to look at it, and actually surprised me, too. The person with $30k SS pays $812 total on $60k in taxes, vs the person with $20k SS paying $2300 total.
While I agree that added taxes on SS sucks, ESPECIALLY at such relatively low income levels, the amount of SS you get taxed on is tied to both how much SS is received and what your other incomes are. If a couple has $60k in SS as their only income, they pay zero taxes! How unfair is that! Or is it?
Your example makes more sense offhand if other income is a taxable pension. But for someone that has their money invested in dividend generating after tax stocks, the. They are probably paying no tax on that $30k income. So how is it that a person that worked hard their whole career for a pension at usually a lower rate than someone that had the same job w/o a pension, pays higher taxes than someone that does nothing for that income except buy stocks?
It’s simple. It’s the current tax law. It isn’t fair, depending on your point of view. The formula and income levels for determining SS taxes haven’t changed in over 35 years. In 1985, no one got $30k in SS, and $60k retirement income was lavish. The intent of the law was to continually increase the taxes paid on SS for the fat cats getting all that entitlement. (NOT MY OPINION, I personally think the law is bogus). So by not indexing SS taxable levels to the tax rate on income levels, more and more SS is taxed on more and more people that have any income besides SS to the point where lower income earners with less income choices pay more as a percentage, if they want any other income besides SS. It is as if “they†don’t want anyone to have pension income, but rather have it invested in the market. Which doesn’t make sense since virtually all pension plans are market invested. Insidious indeed.
Last edited by Perryinva; 01-24-2021 at 07:41 AM..
That is an interesting way to look at it, and actually surprised me, too. The person with $30k SS pays $812 total on $60k in taxes, vs the person with $20k SS paying $2300 total.
While I agree that added taxes on SS sucks, ESPECIALLY at such relatively low income levels, the amount of SS you get taxed on is tied to both how much SS is received and what your other incomes are. If a couple has $60k in SS as their only income, they pay zero taxes! How unfair is that! Or is it?
Your example makes more sense offhand if other income is a taxable pension. But for someone that has their money invested in dividend generating after tax stocks, the. They are probably paying no tax on that $30k income. So how is it that a person that worked hard their whole career for a pension at usually a lower rate than someone that had the same job w/o a pension, pays higher taxes than someone that does nothing for that income except buy stocks?
It’s simple. It’s the current tax law. It isn’t fair, depending on your point of view. The formula and income levels for determining SS taxes haven’t changed in over 35 years. In 1985, no one got $30k in SS, and $60k retirement income was lavish. The intent of the law was to continually increase the taxes paid on SS for the fat cats getting all that entitlement. (NOT MY OPINION, I personally think the law is bogus). So by not indexing SS taxable levels to the tax rate on income levels, more and more SS is taxed on more and more people that have any income besides SS to the point where lower income earners with less income choices pay more as a percentage. Insidious indeed.
How are people not paying tax on dividend-generating after-tax stocks? You always pay tax on dividends.
How are people not paying tax on dividend-generating after-tax stocks? You always pay tax on dividends.
Not true .
You can have room in the zero capital gains bracket ..qualified dividends are not taxable if you are.
you can benefit from the zero percent capital gains rate if you have an income below $40,400 in 2021. ... Married couples with incomes of $80,800, or less, remain in the 0% tax bracket
For 2020 I should be in the zero capital gains bracket as we closed out our LLC HOLDING COMPANY ...we have more in cost basis in the Llc to write off then we had income
Not true .
You can have room in the zero capital gains bracket ..qualified dividends are not taxable if you are.
you can benefit from the zero percent capital gains rate if you have an income below $40,400 in 2021. ... Married couples with incomes of $80,800, or less, remain in the 0% tax bracket
Alright, so I would have to keep my annual income below $40k including soc security. Pretty tight, plus would require major constant maneuvering of investments if I would want to assure that I both have some dividend income, and do not cross the cutoff line of $40k. Nah, I'd rather earn a couple more tens of thousands, and pay a couple of thousands more in taxes, without worrying.
Alright, so I would have to keep my annual income below $40k including soc security. Pretty tight, plus would require major constant maneuvering of investments if I would want to assure that I both have some dividend income, and do not cross the cutoff line of $40k. Nah, I'd rather earn a couple more tens of thousands, and pay a couple of thousands more in taxes, without worrying.
It is much easier to do early on when delaying social security.
Living on Roth income, cash rounded up ,over funded life policies , zero capital gains bracket, etc can generate pretty high tax free incomes when one wants to delay ss
(a) if tour total income including 1/2 soc security is over $25k for a single person, you pay tax on at least about half of your soc security, no matter what
(b) you start getting torpedoed (ie, moving rapidly towards taxation of 85% of your soc security) if the taxable income from your savings is more than half of your total annual income
Thanks so much. THIS is the kind of analysis I've been looking for.
Also, as for Roth conversion.....
-- How far up into the tax brackets is it worth it to do, IF the person is only going to be able to get a fraction converted....
-- Is is worth it to go into the 24%, 32% or higher tax bracket to get more converted. I mean a person with even just a half-million dollar Trad IRA, who only has say years 65-72 convert...won't get much converted over if they're trying to stay under 24% marginal rate.
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