I Bonds, anyone?

[tallguy]

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

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

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?

I fear you will need to be much more precise with your question.  There are too many interconnected factors, and the relevance of each will vary between individuals.  The optimal strategy or solution for one person will be totally wrong for someone else.  That is why knowledge is so important:  So you can take what you know and apply it to your own situation.  Anyone anywhere who suggests that there is only one answer is doing you a disservice.   

[susana1954]

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

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

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?

I have no choice but to be judicious.  I don't have the cash lying around to convert large portions.  And I certainly don't want to invoke the IRMAA surcharges when I don't have to.

It probably makes little difference the way that I am doing it.  But I do think I am in a lower tax bracket now.  And if my children inherit my IRA/Roth IRA, I know they are in a much higher tax bracket.  

[tallguy]

Apr 17, 2022 18:34:47 GMT -5 susana1954 said:

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

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?

I have no choice but to be judicious.  I don't have the cash lying around to convert large portions.  And I certainly don't want to invoke the IRMAA surcharges when I don't have to.

It probably makes little difference the way that I am doing it.  But I do think I am in a lower tax bracket now.  And if my children inherit my IRA/Roth IRA, I know they are in a much higher tax bracket.  

Inheriting a Roth IRA will make no difference since it will be tax-free to them anyway.  Inheriting a taxable account will make no difference because of the stepped-up basis and they are not required to sell if they don't want to.  Inheriting a Traditional IRA will be a problem adding those distributions to their regular income.

[Rukh O'Rorke]

Apr 17, 2022 17:53:30 GMT -5 tallguy said:

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

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?

I fear you will need to be much more precise with your question.  There are too many interconnected factors, and the relevance of each will vary between individuals.  The optimal strategy or solution for one person will be totally wrong for someone else.  That is why knowledge is so important:  So you can take what you know and apply it to your own situation.  Anyone anywhere who suggests that there is only one answer is doing you a disservice.   

That was a question for susana to consider for her individual situation.

[Value Buy]

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.

37% Tax rate with only $60,000 in income because of a $10,000 IRA distribution tacked on? That does not sound right to me. If you are only applying that rate to SS, YOU REALLY SHOULD NOT. You only pay your tax bill on total income. You are beating yourself up over this. 

[Value Buy]

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

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!  

Except when you are over 70 we seem to get lost in the weeds filling it out. 30 years ago we did it at home on the kitchen desk on the paper forms with a pencil and eraser over a hour or so while drinking some coffee. Now on the computer, a couple of days and saying this cannot be correct and start over. And Over. And over........ and our taxes are not that involved anymore, or not as bad as the last decade while we still worked.

[minnesotapaintlady]

Apr 18, 2022 10:17:34 GMT -5 Value Buy said:

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

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.

37% Tax rate with only $60,000 in income because of a $10,000 IRA distribution tacked on? That does not sound right to me. If you are only applying that rate to SS, YOU REALLY SHOULD NOT. You only pay your tax bill on total income. You are beating yourself up over this. 

I think she means the 10K ended up being taxed at 37% because it pushed her over the limit where her SS was taxed where it wasn't before.  That if she would have only taken out 6K she might have been better off.

[susana1954]

Apr 18, 2022 10:17:34 GMT -5 Value Buy said:

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

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.

37% Tax rate with only $60,000 in income because of a $10,000 IRA distribution tacked on? That does not sound right to me. If you are only applying that rate to SS, YOU REALLY SHOULD NOT. You only pay your tax bill on total income. You are beating yourself up over this. 

My income is $62k, about half of which is SS.  I took an additional $10k IRA distribution and withheld 20%.  I ended up paying an extra $1700 on that distribution in addition to the 20% I withheld.  That means the $10k was taxed at 37%.  The only way that could happen is for my SS to jump to 85% being taxed.

This year I took a $4k distribution.  The 20% will cover it easily.

Whatever.

[tallguy]

Apr 18, 2022 10:22:03 GMT -5 Value Buy said:

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!  

Except when you are over 70 we seem to get lost in the weeds filling it out. 30 years ago we did it at home on the kitchen desk on the paper forms with a pencil and eraser over a hour or so while drinking some coffee. Now on the computer, a couple of days and saying this cannot be correct and start over. And Over. And over........ and our taxes are not that involved anymore, or not as bad as the last decade while we still worked.

Nothing stops you from doing it on paper first.  All you do then is plug the numbers into the online form after you know they are correct.  Other than that, it sounds like a personal issue.   

[minnesotapaintlady]

Apr 17, 2022 16:11:43 GMT -5 tallguy said:

Exactly.  Similarly, I've always been puzzled by hearing people say that they need a financial advisor to handle their money. 

I think they can be useful for some people.  Myself personally, no.  My employer offered everyone a free consultation with a financial advisor about 6 or 7 years ago.  Mine was worth about what I paid for it.  When I have to pull out a sheet of paper and start writing things down to show them why a Roth 401K option would be terrible for me then I have a hard time trusting any other advice I might get. 

[countrygirl2]

With an LLC I felt we needed tax help. The fee is not small but we are paying for the knowledge not the preparation really.

We have paid on 85% of SS since I started drawing it. This year our rental income went down with an empty mobile and some missing a few months for covid so it was quite a difference with not paying.
But our CPA puts on it effective and marginal tax rates, marginal for federal this year was 10%. Last year was 12%, but we had a property sale and capital gain last year. When hubs was making big bucks it was very high, not going back to look, all that is filed away.

[TheOtherMe]

Apr 18, 2022 12:25:24 GMT -5 tallguy said:

Apr 18, 2022 10:22:03 GMT -5 Value Buy said:

Except when you are over 70 we seem to get lost in the weeds filling it out. 30 years ago we did it at home on the kitchen desk on the paper forms with a pencil and eraser over a hour or so while drinking some coffee. Now on the computer, a couple of days and saying this cannot be correct and start over. And Over. And over........ and our taxes are not that involved anymore, or not as bad as the last decade while we still worked.

Nothing stops you from doing it on paper first.  All you do then is plug the numbers into the online form after you know they are correct.  Other than that, it sounds like a personal issue.   

I use Turbo Tax and go through the entire questionnaire.  I keep a ballpark tax return going on a spreadsheet all year so I have an idea of what the tax amount should be.  I play with it though out the year to get a handle on the withholding.

I can pretty much prepare the tax return from my spreadsheet but I don't file it until I have the actual documents.

This was my best year for coming plus/minus $100.  I managed to do that on both the federal and state returns.

[minnesotapaintlady]

Oh man. Now I've decided I need to get some bonds for Carrot to cover his tuition for a couple years but I'm kind of scraping the bottom of the barrel for cash.  He has 5K in cash, but it's in an ESA so I can't access that.

I'm going to try and figure something out before the end of the month...

[countrygirl2]

I didn't even think of it, should have taken our tax refund in bonds. We have been talking about this and guess it just went over my head, sigh.

[minnesotapaintlady]

And I locked myself out of my TD account... 

No way to fix it without a phone call and from what I'm reading this could be a long and painful process to get a hold of a real person.  

[Rukh O'Rorke]

Apr 20, 2022 21:44:43 GMT -5 minnesotapaintlady said:

And I locked myself out of my TD account... 

No way to fix it without a phone call and from what I'm reading this could be a long and painful process to get a hold of a real person.  

how I'm thinking about your safe fiasco now.....

I'll need to rethink which one of us is the schlemiel and which is the schlimazel.....

[minnesotapaintlady]

Apr 20, 2022 23:26:25 GMT -5 Rukh O'Rorke said:

I'll need to rethink which one of us is the schlemiel and which is the schlimazel.....

I entered my password wrong 3X in a row.  Then it brought up the security questions but it brought up like 15 of them and you had to know the THREE that you had set up before.  I answered all the ones I knew the answer to because I use them all the time and it kept telling me I was wrong or had chosen the wrong questions.  After 3X of that it locked me out.

I am now on hold with TD.  Took me 10 minutes to get through all the menu crap and now the pleasant recorded man is repeatedly telling me my estimated wait time is 45 minutes...

[minnesotapaintlady]

Ok.  I'm back in.  But I DO NOT recommend guessing on your password on the third time!  It was over an hour on hold before I got through.  Once I got a real person on the line it was quick and she explained to me what I messed up with the security question answer.  My first car included the make and model and I was just putting the make.

[minnesotapaintlady]

Bought 10K under Carrot's name.  35K in I bonds bought in 11 months.  I am now officially BROKE.

[azucena]

Not broke, just a little less liquid

[Rukh O'Rorke]

Apr 21, 2022 12:39:28 GMT -5 minnesotapaintlady said:

Bought 10K under Carrot's name.  35K in I bonds bought in 11 months.  I am now officially BROKE.

saving makes you broke?

Sometimes it feels like that!


But this is Carrot's money now, right?? What if Carrot takes it and blows it all on taking girls to the movies and buying the expensive popcorn and candy they sell?? ?

[minnesotapaintlady]

Apr 21, 2022 16:19:20 GMT -5 Rukh O'Rorke said:

Apr 21, 2022 12:39:28 GMT -5 minnesotapaintlady said:

Bought 10K under Carrot's name.  35K in I bonds bought in 11 months.  I am now officially BROKE.

saving makes you broke?

Sometimes it feels like that!


But this is Carrot's money now, right?? What if Carrot takes it and blows it all on taking girls to the movies and buying the expensive popcorn and candy they sell?? ?

It does when it's locked up and inaccessible for a year!  

It's not Carrot's money.  It's a linked minor account and I'm the co-owner of the bond.  He has no access to it until he's 18 and until then it's just another custodial account.  I funded it with $5800 I'd saved up for next year's Roth, $3100 that was pulled from his ESA for THIS year's tuition and $1100 out of my EF which is now very, very small.  Like one month's expenses small...and I want to take the kid's on a summer vacation with that as well. 

So, the most pressing thing will be to replace that $3100 before tuition is due in August...I honestly might have to sell some stuff!  If I can scrape together the money for 7th grade this summer then 8th, 9th and 10th will be covered by what's left in his ESA and the bond with the $1000 or so of interest tacked on.  Kills me that the ESA is just sitting in cash and not touchable but I don't really want to throw it back in the stock market at this point either.  I just took it out last month to keep it safe. 

[Artemis Windsong]

Yikes that sounds like an ordeal. I am nervous going into that account every time. My DD is a new I-bond owner. I will let her know.

[minnesotapaintlady]

Apr 21, 2022 23:02:25 GMT -5 jenpen said:

I cannot strongly enough recommend using a password manager.

I've been thinking about doing this for quite a while now, but haven't pulled the trigger.  I have sooooo many online accounts and am not great about using unique passwords, I think I circulate just 3 or 4 of them.  I normally let Google or Firefox save the password so they autofill on the devices I use (phone is fingerprint login for most places). 

So, first question.  I'm assuming I would need to do the pay version since I access my accounts on my phone, my laptop at home and my work desktop? 

Would it still work with the fingerprint reader on my phone?  I really, really like that. 

How does it work on Treasurydirect with that weird online keyboard you have to use?  I thought those password managers were like what I was using in that it autofilled, but that wouldn't work on TD.

[minnesotapaintlady]

Apr 21, 2022 23:15:15 GMT -5 jenpen said:

Apr 21, 2022 12:39:28 GMT -5 minnesotapaintlady said:

Bought 10K under Carrot's name.  35K in I bonds bought in 11 months.  I am now officially BROKE.

That's awesome (well, not the feeling broke part).  For the last month or so, I've been reading up on revocable living trusts, and using the NOLO diy guide to write up my own trust for the sole purpose of buying more I bonds. Mainly because I had a bunch of cash from selling a couple stocks late last year. I thought I would need that cash this year to replace my lost income, but turned out I didn't.

I finalized my Declaration of Trust and got it notarized yesterday. Set up a new entity account on Treasury Direct and immediately purchased 10k more in bonds for the trust. I've now done 40k in the past 11 months!

Running off to research setting up my own trust before next Friday!  (just kidding...completely tapped out of cash now).

[CCL]

I use a free password app on my phone. It's called Password Manager. I think there's a paid version, but I have no need for it.

[Rukh O'Rorke]

Apr 21, 2022 23:15:15 GMT -5 jenpen said:

Apr 21, 2022 12:39:28 GMT -5 minnesotapaintlady said:

Bought 10K under Carrot's name.  35K in I bonds bought in 11 months.  I am now officially BROKE.

That's awesome (well, not the feeling broke part).  For the last month or so, I've been reading up on revocable living trusts, and using the NOLO diy guide to write up my own trust for the sole purpose of buying more I bonds. Mainly because I had a bunch of cash from selling a couple stocks late last year. I thought I would need that cash this year to replace my lost income, but turned out I didn't.

I finalized my Declaration of Trust and got it notarized yesterday. Set up a new entity account on Treasury Direct and immediately purchased 10k more in bonds for the trust. I've now done 40k in the past 11 months!

so - can you tell us a little bit more about the purpose of the trust and how this works - for the ibonds for instance - why can the trust do more than a person? shades of citizens united?  

[minnesotapaintlady]

Apr 22, 2022 18:53:38 GMT -5 Rukh O'Rorke said:

Apr 21, 2022 23:15:15 GMT -5 jenpen said:

That's awesome (well, not the feeling broke part).  For the last month or so, I've been reading up on revocable living trusts, and using the NOLO diy guide to write up my own trust for the sole purpose of buying more I bonds. Mainly because I had a bunch of cash from selling a couple stocks late last year. I thought I would need that cash this year to replace my lost income, but turned out I didn't.

I finalized my Declaration of Trust and got it notarized yesterday. Set up a new entity account on Treasury Direct and immediately purchased 10k more in bonds for the trust. I've now done 40k in the past 11 months!

so - can you tell us a little bit more about the purpose of the trust and how this works - for the ibonds for instance - why can the trust do more than a person? shades of citizens united?  

The trust can only do 10K as well.  

[Mardi Gras Audrey]

Apr 22, 2022 22:37:24 GMT -5 jenpen said:

Rukh O'Rorke, a revocable living trust (RLT) is generally used as a way to pass down assets and avoid probate. You can move whatever assets (savings bonds, brokerage account, real estate, artwork,etc) you want into and out of it whenever you want. For things like real estate and financial accounts, if you want them to be held in the trust, you have to register them under the name of the trust, not your own name. Accounts registered that way are considered "entity accounts" in TreasuryDirect. It is still tied to the SSN of the trust grantor (eg, I am the grantor of the Jenpen RLT), and as MPL says, it is subject to the same purchasing limits as individual accounts. I first learned about using these for additional I bond purchases from some threads at bogleheads.

They are definitely not for everyone. But it made sense for me, because I have no spouse or kids or special circumstances, so I was able to borrow the NOLO book from the library and use their instructions for a basic individual trust. It cost me a few afternoons of reading, and an hour or 2 of typing and double checking the document.  My credit union offers free notary services, and I spent another 5 minutes getting that done.  If I made any errors, then I can revoke the trust at any time. If errors are found after I die, well, I really don't care. For people who do care and have more complicated circumstances, they probably want to get a lawyer involved, and that cost doesn't justify doing this solely for purchasing more I bonds.

Question about the limits for ibonds... if u buy $10k under the trust, can u also buy $10k as an individual? Both are using the same SSN so is the limit by SSN or by name? Can I buy $10k as Audrey and $10k as Audrey trust even though the both use the same SSN?

[minnesotapaintlady]

Apr 23, 2022 12:03:02 GMT -5 Mardi Gras Audrey said:

Apr 22, 2022 22:37:24 GMT -5 jenpen said:

Rukh O'Rorke , a revocable living trust (RLT) is generally used as a way to pass down assets and avoid probate. You can move whatever assets (savings bonds, brokerage account, real estate, artwork,etc) you want into and out of it whenever you want. For things like real estate and financial accounts, if you want them to be held in the trust, you have to register them under the name of the trust, not your own name. Accounts registered that way are considered "entity accounts" in TreasuryDirect. It is still tied to the SSN of the trust grantor (eg, I am the grantor of the Jenpen RLT), and as MPL says, it is subject to the same purchasing limits as individual accounts. I first learned about using these for additional I bond purchases from some threads at bogleheads.

They are definitely not for everyone. But it made sense for me, because I have no spouse or kids or special circumstances, so I was able to borrow the NOLO book from the library and use their instructions for a basic individual trust. It cost me a few afternoons of reading, and an hour or 2 of typing and double checking the document.  My credit union offers free notary services, and I spent another 5 minutes getting that done.  If I made any errors, then I can revoke the trust at any time. If errors are found after I die, well, I really don't care. For people who do care and have more complicated circumstances, they probably want to get a lawyer involved, and that cost doesn't justify doing this solely for purchasing more I bonds.

Question about the limits for ibonds... if u buy $10k under the trust, can u also buy $10k as an individual? Both are using the same SSN so is the limit by SSN or by name? Can I buy $10k as Audrey and $10k as Audrey trust even though the both use the same SSN?

Yes, you can buy under both the trust and yourself even though they are under the same SS number.  That's how jenpen was able to do 20K/year. 

You can also gift as much as you want to any person in I bonds (if I had more cash I'd buy gifts for the kids).  It counts against their annual, but only in the year they're delivered.  A lot of people are buying their spouses or kids I bond gifts...like several years worth...right now to get the high rate, but it doesn't count towards the gift recipients annual exclusion until the year it's delivered.  So you could buy 40K in I bonds as gifts to your spouse (in 10K increments) and gift them in 2022, 2023, 2024, and 2025.  The only part that counts towards the exclusion is the original purchase amount even though they've accumulated all those years of interest.