I Bonds, anyone?

[azucena]

Oops, $12k. My bad.

Tried to sleep for 45 mins and couldn't. Now it's 445 blech with a 630 alarm coming. Blech!

[minnesotapaintlady]

Apr 14, 2022 10:46:17 GMT -5 jenpen said:

Apr 13, 2022 8:07:59 GMT -5 susana1954 said:

That is a personal choice.  You can choose to pay the interest as it accrues, which may prevent a large tax hit when you do cash them in.  The only thing is that once you do start choosing to pay the interest as it accrues, you have to continue to do that.  

I pay now.  

I'm planning to start paying taxes on my interest this year as well, for the same reason people choose to contribute to Roth instead of Traditional accounts: I think both my income and tax rates will be higher in the future. I've been a bit afraid to commit to doing this, but according to the current IRS publication, you CAN go back to deferring taxes later on. You have to get IRS permission to do so, so it's not easy, but it eases my mind to know there's a way out (other than cashing in all bonds and starting over).

I'm such a control freak with taxes.  It seems easy enough to me to avoid them altogether on the I bonds. I could just live off of bonds for a year or two and pay nothing (the interest would not be more than my standard deduction), or use them to supplement social security, but stay under the 19K or so of income, that's a lot of bonds you can cash in to have 19K of it be interest income. 

[minnesotapaintlady]

Apr 14, 2022 13:27:56 GMT -5 jenpen said:

Apr 14, 2022 13:07:33 GMT -5 minnesotapaintlady said:

I'm such a control freak with taxes.  It seems easy enough to me to avoid them altogether on the I bonds. I could just live off of bonds for a year or two and pay nothing (the interest would not be more than my standard deduction), or use them to supplement social security, but stay under the 19K or so of income, that's a lot of bonds you can cash in to have 19K of it be interest income. 

What is the significance of the 19k cut-off?

Sorry, I meant 25K.  If 1/2 your SS + your income is less than 25K then SS is not taxable.  If I figure I'm going to get 24K/year in SS, then 1/2 that would be 12K and I could have 13K of other income before SS is taxable. 

12K (1/2 SS)
13K (other income).

Pull 20K out of I bonds with say 4K of earnings and maybe another 8K out of pre-tax accounts, so 12K of earnings (below the standard deduction for single) plus the 20K of bonds and 24K of SS.  Total income is 52K and none of it is taxable. 

If I'm wrong on any of this call me out people!  I'm just getting familiar with the retirement money rules.  

[CCL]

Apr 14, 2022 15:43:50 GMT -5 jenpen said:

Ah, thanks for clarifying, minnesotapaintlady. That looks like a fantastic plan!

For me, between my pension and SS, it seems I'll always be right on the verge of being pushed into punitive tax situations should I need to supplement my income in any given year. So I'm trying to increase my available buckets of non-taxable income -- basically Roth and now I-bonds.

For at least the next 5 years, I can keep myself in or below the 12% tax bracket. Sometime between 5 and 10 years from now, I'll jump to 22% (or, if they change the brackets, presumably something higher than 22%). So, IDK, I think it makes sense to pay the taxes on interest now, especially knowing that I can switch back if it stops making sense. Not super confident in this decision, but I've got a year to figure it out. And as MPL says, if I've got this wrong people, please speak up!

Jenpen that's what I've been doing since the tax rates were reduced. I convert traditional IRA $$$ to our Roths in amounts that are just enough to still keep us in the 12% bracket as well as the 0% capital gains rate.

I expect tax rates will increase at some point in the future.

[Rukh O'Rorke]

I thought they were eliminating that? Being able to convert to Roth?

[minnesotapaintlady]

Apr 15, 2022 15:04:34 GMT -5 Rukh O'Rorke said:

I thought they were eliminating that? Being able to convert to Roth?

It didn't pass.

[Rukh O'Rorke]

Apr 14, 2022 3:13:49 GMT -5 azucena said:

MPL - has anyone told you lately that you so smart? I feel like I learn from you in many threads including this one.

Ibonds are the perfect choice for someone like me who sleeps better at night (not tonight given I am posting at 3 am, insomnia SMH) with an emergency fund of $100k. This balance was sitting in "preferred" customer savings account earning 0.07% interest. Made me crabby every month to see the interest post.

Pretty sure I can remember the late 80s when my 8-10 yo self had a green savings account pass book that I would save my meager chore money, bday money, and anything else I could scrounge up. I'd pester my mom to give me the monthly statement when it came in the mail so I could update the ledger myself and watch my money grow on its own. Seems like the interest rate was 8%, someone correct me if that doesn't sound right. So even on a balance of say $300, it was noticeable growth esp for a 10 yo proud to deposit $10 at a time. The tellers would always chuckle about my own written in numbers. Numbers nerd and YMer - clearly both are my nature tendencies LOL.

Meanwhile, I'm having a hard time getting even my saver kid who is now 13 to be interested in her savings account. Literally no difference between it and the wallet she wants to hoard her money in. Trying a new tactic to mimic 401ks. She deposits $x and I match 50% of x. Ah, now we're getting somewhere! Blessed to be able to do that exercise with her. Have explained it in parallel to 401k to her and she's listening. Have in mind to fund roth for her when she starts a w2 job. And will show her the spreadsheet I'll make to project possible growth of starting that habit at ages 15-17.

She can buy ibond!

[Rukh O'Rorke]

Apr 14, 2022 4:39:03 GMT -5 azucena said:

Oops, $12k. My bad.

Tried to sleep for 45 mins and couldn't. Now it's 445 blech with a 630 alarm coming. Blech!

Ouch! Hope you are doing better today….

[Rukh O'Rorke]

Apr 14, 2022 13:56:29 GMT -5 minnesotapaintlady said:

Apr 14, 2022 13:27:56 GMT -5 jenpen said:

What is the significance of the 19k cut-off?

Sorry, I meant 25K.  If 1/2 your SS + your income is less than 25K then SS is not taxable.  If I figure I'm going to get 24K/year in SS, then 1/2 that would be 12K and I could have 13K of other income before SS is taxable. 

12K (1/2 SS)
13K (other income).

Pull 20K out of I bonds with say 4K of earnings and maybe another 8K out of pre-tax accounts, so 12K of earnings (below the standard deduction for single) plus the 20K of bonds and 24K of SS.  Total income is 52K and none of it is taxable. 

If I'm wrong on any of this call me out people!  I'm just getting familiar with the retirement money rules.  

Look great to me. I’ll try to follow along

[Rukh O'Rorke]

Apr 14, 2022 15:43:50 GMT -5 jenpen said:

Ah, thanks for clarifying, minnesotapaintlady. That looks like a fantastic plan!

For me, between my pension and SS, it seems I'll always be right on the verge of being pushed into punitive tax situations should I need to supplement my income in any given year. So I'm trying to increase my available buckets of non-taxable income -- basically Roth and now I-bonds.

For at least the next 5 years, I can keep myself in or below the 12% tax bracket. Sometime between 5 and 10 years from now, I'll jump to 22% (or, if they change the brackets, presumably something higher than 22%). So, IDK, I think it makes sense to pay the taxes on interest now, especially knowing that I can switch back if it stops making sense. Not super confident in this decision, but I've got a year to figure it out. And as MPL says, if I've got this wrong people, please speak up!

Can you explain how your jumping up in 5-10? Rmd? Or what event is changing things?

Also, is it just going to be a couple of thousand crossing in to 22% territory? Or a lot more?

[jerseygirl]

Apr 15, 2022 17:20:41 GMT -5 Rukh O'Rorke said:

Apr 14, 2022 13:56:29 GMT -5 minnesotapaintlady said:

Sorry, I meant 25K.  If 1/2 your SS + your income is less than 25K then SS is not taxable.  If I figure I'm going to get 24K/year in SS, then 1/2 that would be 12K and I could have 13K of other income before SS is taxable. 

12K (1/2 SS)
13K (other income).

Pull 20K out of I bonds with say 4K of earnings and maybe another 8K out of pre-tax accounts, so 12K of earnings (below the standard deduction for single) plus the 20K of bonds and 24K of SS.  Total income is 52K and none of it is taxable. 

If I'm wrong on any of this call me out people!  I'm just getting familiar with the retirement money rules.  

Look great to me. I’ll try to follow along

Wouldn’t work here in NJ our property taxes alone are $17000

[azucena]

Apr 15, 2022 16:24:42 GMT -5 Rukh O'Rorke said:

Apr 14, 2022 3:13:49 GMT -5 azucena said:

MPL - has anyone told you lately that you so smart? I feel like I learn from you in many threads including this one.

Ibonds are the perfect choice for someone like me who sleeps better at night (not tonight given I am posting at 3 am, insomnia SMH) with an emergency fund of $100k. This balance was sitting in "preferred" customer savings account earning 0.07% interest. Made me crabby every month to see the interest post.

Pretty sure I can remember the late 80s when my 8-10 yo self had a green savings account pass book that I would save my meager chore money, bday money, and anything else I could scrounge up. I'd pester my mom to give me the monthly statement when it came in the mail so I could update the ledger myself and watch my money grow on its own. Seems like the interest rate was 8%, someone correct me if that doesn't sound right. So even on a balance of say $300, it was noticeable growth esp for a 10 yo proud to deposit $10 at a time. The tellers would always chuckle about my own written in numbers. Numbers nerd and YMer - clearly both are my nature tendencies LOL.

Meanwhile, I'm having a hard time getting even my saver kid who is now 13 to be interested in her savings account. Literally no difference between it and the wallet she wants to hoard her money in. Trying a new tactic to mimic 401ks. She deposits $x and I match 50% of x. Ah, now we're getting somewhere! Blessed to be able to do that exercise with her. Have explained it in parallel to 401k to her and she's listening. Have in mind to fund roth for her when she starts a w2 job. And will show her the spreadsheet I'll make to project possible growth of starting that habit at ages 15-17.

She can buy ibond!

Great idea!

[minnesotapaintlady]

Apr 15, 2022 18:48:33 GMT -5 jerseygirl said:

Apr 15, 2022 17:20:41 GMT -5 Rukh O'Rorke said:

Look great to me. I’ll try to follow along [img src="https://i239.photobucket.com/albums/ff155/JiminiChristmas/ymamsmiles/smile.gif" alt="" class="smile" src="//storage2.proboards.com/forum/images/smiley/smiley.png"]

Wouldn’t work here in NJ our property taxes alone are $17000

If you're retired you can live wherever you want!  Well...wherever you can afford.  My property taxes are $1500/year after my refund.  Full fare is $2700. Not sure if I'll qualify for that much of a discount after the kids are gone, but it won't matter either way. 

[CCL]

Apr 15, 2022 23:00:00 GMT -5 jenpen said:

Apr 15, 2022 17:23:42 GMT -5 Rukh O'Rorke said:

Can you explain how your jumping up in 5-10? Rmd? Or what event is changing things?

Also, is it just going to be a couple of thousand crossing in to 22% territory? Or a lot more?

I'll try to explain. It's a bit complicated because there is so much up in the air, so many unknowns, right now. 

I haven't started my pension yet. I will do so in 5 years at the latest, and there are a lot of things that can happen between now and then that are going to have a huge impact on the pension amount (whether its considered reduced or unreduced), and on whether I receive a potential temporary source of additional income. I'm not going to go into the details, but am happy to share the possible outcomes (and I'm not even looking out to 15 years when RMDs begin):

When I do start my pension, it may be as low as $28k/yr or as high as $48k/yr.  I might have another source of income that kicks in at the 5-year mark as well, which would be ~$35k/yr for 5 years. I think there's about a 70% chance of this happening but I won't know for sure until later this year.  In 10 years I'll reach FRA and can start SS at ~36k/yr.

Worst case scenario is in 5 yrs I have $28k income (lowest pension only), and in 10 years jump to 64k (lowest pension + SS @fra). So not too far into the 22% bracket once I add in interest and dividends from my taxable accounts and subtract my standard deduction. (I'm assuming all my SS will be taxable, but I'm not sure if that's true.)

Best case scenario is in 5 yrs I'll have $83k income (highest pension plus the $35k for years 5-10), and in 10yrs 84k/yr. In this case I'd be at the higher end of the 22% bracket, although there's more wriggle room here than I was thinking.

In either case, I should be able to safely add another $24k/yr from savings and retirement accounts -- with options to pull from taxable, tax-deferred or Roth as needed. That's a conservative estimate of a 3.5% withdrawal rate.  Although my current year budget is $36k (and current year income is ~$58k, but only $40k of that is taxable and that's before the 12.5k standard deduction), last year my expenses were ~$23k, so I think I should be able to survive even in the worst case scenario.

Up to 85% of Social Security is taxable, not 100%.

www.ssa.gov/benefits/retirement/planner/taxes.html#:~:text=between%20%2425%2C000%20and%20%2434%2C000%2C%20you,your%20benefits%20may%20be%20taxable.

[TheOtherMe]

My paltry $200 per month of social security put me over the income limit, so I have to pay federal taxes on the social security.  It isn't much money, but that is the income that put me over the top.

[Rukh O'Rorke]

Apr 16, 2022 19:44:04 GMT -5 CCL said:

Apr 15, 2022 23:00:00 GMT -5 jenpen said:

I'll try to explain. It's a bit complicated because there is so much up in the air, so many unknowns, right now. 

I haven't started my pension yet. I will do so in 5 years at the latest, and there are a lot of things that can happen between now and then that are going to have a huge impact on the pension amount (whether its considered reduced or unreduced), and on whether I receive a potential temporary source of additional income. I'm not going to go into the details, but am happy to share the possible outcomes (and I'm not even looking out to 15 years when RMDs begin):

When I do start my pension, it may be as low as $28k/yr or as high as $48k/yr.  I might have another source of income that kicks in at the 5-year mark as well, which would be ~$35k/yr for 5 years. I think there's about a 70% chance of this happening but I won't know for sure until later this year.  In 10 years I'll reach FRA and can start SS at ~36k/yr.

Worst case scenario is in 5 yrs I have $28k income (lowest pension only), and in 10 years jump to 64k (lowest pension + SS @fra). So not too far into the 22% bracket once I add in interest and dividends from my taxable accounts and subtract my standard deduction. (I'm assuming all my SS will be taxable, but I'm not sure if that's true.)

Best case scenario is in 5 yrs I'll have $83k income (highest pension plus the $35k for years 5-10), and in 10yrs 84k/yr. In this case I'd be at the higher end of the 22% bracket, although there's more wriggle room here than I was thinking.

In either case, I should be able to safely add another $24k/yr from savings and retirement accounts -- with options to pull from taxable, tax-deferred or Roth as needed. That's a conservative estimate of a 3.5% withdrawal rate.  Although my current year budget is $36k (and current year income is ~$58k, but only $40k of that is taxable and that's before the 12.5k standard deduction), last year my expenses were ~$23k, so I think I should be able to survive even in the worst case scenario.

Up to 85% of Social Security is taxable, not 100%.

www.ssa.gov/benefits/retirement/planner/taxes.html#:~:text=between%20%2425%2C000%20and%20%2434%2C000%2C%20you,your%20benefits%20may%20be%20taxable.

is the 85% applied before or after medicare payments come out?

[countrygirl2]

85% of our SS is taxable, this year because rents were down some a bit less. 

I just got a letter today saying there was an error on our state taxes and a different amount for a refund, need to look and send to CPA, haven't checked yet

At least in Indiana SS benefit are not taxed and interest on I bonds are not either at the state level.

Here's how to tell if your Social Security benefit is taxable:



Individuals with a combined income between $25,000 and $34,000 are taxed on 50% of their Social Security benefit.

If your combined income exceeds $34,000, 85% of your Social Security income could be taxable.

Married couples face tax on 50% of their Social Security benefit if their combined income is between $32,000 and $44,000.

[azucena]

Wow - I had no idea that the income limits were that low. Thanks for posting that. I'm 20 yrs out so just can't make myself find bandwidth to pay attn to those details yet.

Guess I'll keep ignoring soc sec in my projections. Seems those limits aren't keep up with cola and inflation.

Seems like another reason for me to delay taking it if I really only get to keep 15%.

I guess there is no way to direct soc sec directly towards charity to avoid taxes like I just learned you can do with RMDs.

[CCL]

No, that doesn't mean you only keep 15%. 15% would not be subject to federal income taxes. The % you keep would be based on what tax bracket you fall into.

Some states don't tax SS at the state level, as countrygirl stated.

[TheOtherMe]

The amount taxed is on the gross amount of Social Security.  Medicare premiums are itemized deductions as a medical expense.  

In Iowa, health insurance premiums are deductible on the state tax return whether or not a person itemizes.

[minnesotapaintlady]

jenpen - It looks right to me, although you do get an extra $1700 tacked onto your standard deduction if you're 65 or older. 

[susana1954]

Apr 17, 2022 8:59:55 GMT -5 jenpen said:

Thanks for the correction and info links, CCL and countrygirl2 .  It was too late when I posted that...I knew the max taxable was 85%. It was the income limits and combined income calculation that I wasn't sure of.

I want to make sure I understand, so, in my worst case scenario, I'd first determine my combined income as:

SS*50% + pension + interest + qualified dividends = 18k + 28k + 2k  + 1k

= 49k, which is > 34k so 85% of SS is taxable.

Then to figure taxable income:

SS*85% + 28k + 2k + 1k  = 30.6k + 28k + 2k + 1k

 = 61.6k taxable income.

Tax owed (using 2021 rates and assuming standard deduction, and since income is >40.4k using 15% cap gains rate on qdivs) would be:

12,550*0% + 9950*10% + 30,575*12% + 7,525*22% + 1,000*15%

= 0 + 995 + 3,669 + 1,656 + 150

=6,470

Does that look right?

SS gets vague at this point, saying "up to 85% of SS is taxable."  But they don't break down the 50-85% part so that you know exactly what is what.

A couple of years ago I took out $10k from my IRA.  I have about $60k in income, split almost equally between SS and my pension.  I had 20% withheld for taxes.  

That $10k was taxed at 37%.  Somewhere in there I crossed to where 85% of my SS was taxable  I have been playing with it this year as I want to convert some of the IRA, but it is pointless if I am going to be taxed that high even on such a small amount.  The sweet spot is somewhere around $5k.  But that's for me based on my numbers.

My point is that after you pass 50%, it is vague.

[tallguy]

Apr 17, 2022 8:59:55 GMT -5 jenpen said:

Thanks for the correction and info links, CCL and countrygirl2 .  It was too late when I posted that...I knew the max taxable was 85%. It was the income limits and combined income calculation that I wasn't sure of.

I want to make sure I understand, so, in my worst case scenario, I'd first determine my combined income as:

SS*50% + pension + interest + qualified dividends = 18k + 28k + 2k  + 1k

= 49k, which is > 34k so 85% of SS is taxable.

Then to figure taxable income:

SS*85% + 28k + 2k + 1k  = 30.6k + 28k + 2k + 1k

 = 61.6k taxable income.

Tax owed (using 2021 rates and assuming standard deduction, and since income is >40.4k using 15% cap gains rate on qdivs) would be:

12,550*0% + 9950*10% + 30,575*12% + 7,525*22% + 1,000*15%

= 0 + 995 + 3,669 + 1,656 + 150

=6,470

Does that look right?

I don't think it is quite right.  My understanding is that 85% of the difference between your combined income and the upper threshold is taxable, but since you are not far enough over the limit it will not be a straight 85% for you.  That is why it says "up to" 85%.  My guess in your example is that only $15,000 is taxable at 85% because your combined income is $15,000 over the $34,000 limit.  Part ($9000) would also of course be taxable at 50%.  There is a worksheet you can use to figure it exactly, but my quick guess without going through the worksheet is $48,250 rather than $61,600 that you guessed.  Do the worksheet though.

link

[tallguy]

Apr 17, 2022 10:44:20 GMT -5 jenpen said:

Wow, I didn't know that, minnesotapaintlady ! That's awesome! Having gone through life single and childless, it's rare to find a tax break that I can actually benefit from.

susana1954 , ugh, you're right. Even going deeper into the related publications doesn't really clear that up. I guess it's safest to just assume the max amount will be taxable then.

I did just learn from my reading that my pension may not be fully taxable. If you don't mind me asking, I seem to recall that you had a mandatory % of your teaching salary that was contributed to your pension fund each year.  If I'm reading IRS Pub 554 correctly, you get to exclude some of your pension payments from taxable income in order to recover your contributions. Is that correct? I'm wondering, because I had a mandatory 6% contribution.

The biggest thing I'm learning from this exercise is that there is definitely a tax accountant in my future

Taxes are really not that difficult for most people.  Unless you have a number of complicating factors you should be able to handle it yourself.  Cheers!  

[susana1954]

Apr 17, 2022 10:44:20 GMT -5 jenpen said:

Wow, I didn't know that, minnesotapaintlady ! That's awesome! Having gone through life single and childless, it's rare to find a tax break that I can actually benefit from.

susana1954 , ugh, you're right. Even going deeper into the related publications doesn't really clear that up. I guess it's safest to just assume the max amount will be taxable then.

I did just learn from my reading that my pension may not be fully taxable. If you don't mind me asking, I seem to recall that you had a mandatory % of your teaching salary that was contributed to your pension fund each year.  If I'm reading IRS Pub 554 correctly, you get to exclude some of your pension payments from taxable income in order to recover your contributions. Is that correct? I'm wondering, because I had a mandatory 6% contribution.

The biggest thing I'm learning from this exercise is that there is definitely a tax accountant in my future

My pension is fully taxable by the feds but not by the state.

Think like an IRA/Roth for a minute.  Did the feds tax that 6% as you earned it or was it excluded from your year's wages?

Mine was excluded for federal but included by the state.  

It will get taxed one way or the other.   

[tallguy]

Apr 17, 2022 14:41:07 GMT -5 jenpen said:

Apr 17, 2022 12:08:13 GMT -5 tallguy said:

I don't think it is quite right.  My understanding is that 85% of the difference between your combined income and the upper threshold is taxable, but since you are not far enough over the limit it will not be a straight 85% for you.  That is why it says "up to" 85%.  My guess in your example is that only $15,000 is taxable at 85% because your combined income is $15,000 over the $34,000 limit.  Part ($9000) would also of course be taxable at 50%.  There is a worksheet you can use to figure it exactly, but my quick guess without going through the worksheet is $48,250 rather than $61,600 that you guessed.  Do the worksheet though.

link

You're right -- I was too lazy to attempt the worksheet early, but I just ran a fake tax return through my tax software, and came up with $17,250 of SS being taxable in the "worst case" scenario, and $30,600 taxable in the "best case" scenario.  Thanks for pushing me to figure that out!

Apr 17, 2022 12:17:00 GMT -5 tallguy said:

Taxes are really not that difficult for most people.  Unless you have a number of complicating factors you should be able to handle it yourself.  Cheers!  

Yeah, I mean, I've done my own taxes for 38 years. I do have some complicating factors going forward, though, so I'm thinking maybe getting assistance one year during the transition from w-2 income would be a good idea.  It's not concern about not being able to figure out something I know needs to be figured out. It's concern about not knowing what I don't know. You know?

A cautionary tale:  Back a couple decades ago I had a more complicated return one year than usual.  My wife bought a tax prep software product because she thought it would be a help.  I used it but didn't like the result.  I did my taxes again without it, discovered that it had not asked me all of the questions it should have, and saved myself thousands of dollars by not using the tax prep software result.  I'm sure things have improved since then, but there is no substitute for learning for yourself what you need to do or know.  

And yes, $17,250 was my result as well.  85% of $15,000 ($12,750) + 50% of $9000 ($4500) = $17,250.  Glad to help.

[CCL]

Apr 17, 2022 15:12:05 GMT -5 tallguy said:

Apr 17, 2022 14:41:07 GMT -5 jenpen said:

You're right -- I was too lazy to attempt the worksheet early, but I just ran a fake tax return through my tax software, and came up with $17,250 of SS being taxable in the "worst case" scenario, and $30,600 taxable in the "best case" scenario.  Thanks for pushing me to figure that out!

Yeah, I mean, I've done my own taxes for 38 years. I do have some complicating factors going forward, though, so I'm thinking maybe getting assistance one year during the transition from w-2 income would be a good idea.  It's not concern about not being able to figure out something I know needs to be figured out. It's concern about not knowing what I don't know. You know?

A cautionary tale:  Back a couple decades ago I had a more complicated return one year than usual.  My wife bought a tax prep software product because she thought it would be a help.  I used it but didn't like the result.  I did my taxes again without it, discovered that it had not asked me all of the questions it should have, and saved myself thousands of dollars by not using the tax prep software result.  I'm sure things have improved since then, but there is no substitute for learning for yourself what you need to do or know.  

And yes, $17,250 was my result as well.  85% of $15,000 ($12,750) + 50% of $9000 ($4500) = $17,250.  Glad to help.

Yes. I've always felt that I need to know what affects my taxes regardless of who prepares them. I'm still the one who has to manage the paperwork, too. I figure all that's about 80% of the work. I'm not about to pay someone else when I'm doing most of the work anyway.

[tallguy]

Apr 17, 2022 15:36:10 GMT -5 CCL said:

Apr 17, 2022 15:12:05 GMT -5 tallguy said:

A cautionary tale:  Back a couple decades ago I had a more complicated return one year than usual.  My wife bought a tax prep software product because she thought it would be a help.  I used it but didn't like the result.  I did my taxes again without it, discovered that it had not asked me all of the questions it should have, and saved myself thousands of dollars by not using the tax prep software result.  I'm sure things have improved since then, but there is no substitute for learning for yourself what you need to do or know.  

And yes, $17,250 was my result as well.  85% of $15,000 ($12,750) + 50% of $9000 ($4500) = $17,250.  Glad to help.

Yes. I've always felt that I need to know what affects my taxes regardless of who prepares them. I'm still the one who has to manage the paperwork, too. I figure all that's about 80% of the work. I'm not about to pay someone else when I'm doing most of the work anyway.

Exactly.  Similarly, I've always been puzzled by hearing people say that they need a financial advisor to handle their money.  Well, no.  You have to know enough about what they are doing to know that they are not cheating you, and if you know that much then you are quite well able to manage all of your money on your own.  It goes back to something I have mentioned quite a few times in the past.  I used to (when younger, like in high school or college) watch as many financial education shows during PBS pledge weeks as I could find, figuring that there might only be one minute of information during that show that I did not already know but that I would have the benefit of that one minute for the rest of my life.  Two things that stood out from one show were these:

1.  90% of financial planning is to spend less than you make.
2.  Good financial planning is very simple stuff.  It's the stuff that DOESN'T work that is complicated.

Why pay someone to do the simple stuff, particularly when they are going to be far more interested in putting their own kids through college rather than yours or ensuring their own retirement rather than yours?  You can never hurt yourself by learning more.  

[Rukh O'Rorke]

Apr 17, 2022 9:23:25 GMT -5 susana1954 said:

Apr 17, 2022 8:59:55 GMT -5 jenpen said:

Thanks for the correction and info links, CCL and countrygirl2 .  It was too late when I posted that...I knew the max taxable was 85%. It was the income limits and combined income calculation that I wasn't sure of.

I want to make sure I understand, so, in my worst case scenario, I'd first determine my combined income as:

SS*50% + pension + interest + qualified dividends = 18k + 28k + 2k  + 1k

= 49k, which is > 34k so 85% of SS is taxable.

Then to figure taxable income:

SS*85% + 28k + 2k + 1k  = 30.6k + 28k + 2k + 1k

 = 61.6k taxable income.

Tax owed (using 2021 rates and assuming standard deduction, and since income is >40.4k using 15% cap gains rate on qdivs) would be:

12,550*0% + 9950*10% + 30,575*12% + 7,525*22% + 1,000*15%

= 0 + 995 + 3,669 + 1,656 + 150

=6,470

Does that look right?

SS gets vague at this point, saying "up to 85% of SS is taxable."  But they don't break down the 50-85% part so that you know exactly what is what.

A couple of years ago I took out $10k from my IRA.  I have about $60k in income, split almost equally between SS and my pension.  I had 20% withheld for taxes.  

That $10k was taxed at 37%.  Somewhere in there I crossed to where 85% of my SS was taxable  I have been playing with it this year as I want to convert some of the IRA, but it is pointless if I am going to be taxed that high even on such a small amount.  The sweet spot is somewhere around $5k.  But that's for me based on my numbers.

My point is that after you pass 50%, it is vague.

but what is the consequences of being very judicious with the ira withdrawals now and then getting to RMD? will it be worse - or the same?

[Rukh O'Rorke]

Apr 17, 2022 14:52:36 GMT -5 jenpen said:

My apologies for derailing this thread, everybody!

I for one like it!

thank you.