Author Topic: How much are you paying in taxes during retirement?  (Read 2228 times)

MrGville

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How much are you paying in taxes during retirement?
« on: February 20, 2017, 12:55:24 PM »
I've read articles saying that you can have an "income" of ~$75k (can't remember exact number, but I believe this is close) and not have to pay any taxes.  The explanations provided in the articles made perfect sense, but I was wondering if it is as easy as it sounds to implement during retirement.  Thanks

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Re: How much are you paying in taxes during retirement?
« Reply #1 on: February 20, 2017, 03:06:51 PM »
If your income is in the form of tax friendly income (LT Cap Gain, Qualified Divvies, Return of Capital distributions), it most certainly can be tax free.  These can also be a nice way to supplement the taxable portion of your income.

Lake161

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Re: How much are you paying in taxes during retirement?
« Reply #2 on: February 20, 2017, 08:31:34 PM »
Depends on your state. I pay zero federal, but have to pay CA on my dividends and cap gains.

Frankies Girl

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Re: How much are you paying in taxes during retirement?
« Reply #3 on: February 20, 2017, 08:55:40 PM »
Zero taxes owed.

No state tax.

Expenses are taken from taxable account (LTCG/dividends are not reinvested as we're getting them counted as taxable income anyway, so might as well use it) and a distribution from an inherited IRA.
 
I pay no taxes on the LTCG/dividends as we are in a below 15% taxable bracket (married filing jointly). For 2016, we actually ended up in a negative taxable bracket (-3.5%) and they paid us back even more than we paid in - but this is likely a one off year as it is the last one we can claim earned income and fill up our traditional IRAs (Gotta love that saver's credit!).

I do have them withhold 10% of my required minimum distribution on the inherited IRA, but they refund it all at tax time. I still have them withhold it as I was waiting to make sure that I would be okay after FIRE with the subsidy on my health insurance before dropping the federal withholding on the distribution. The withholding is under $1k so I don't mind loaning them the money for the year (for the next couple of years) until I see how our tax situation shakes out (regarding subsidy/insurance/tax situation).

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MDM

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Re: How much are you paying in taxes during retirement?
« Reply #4 on: February 20, 2017, 09:33:18 PM »
For 2016, we actually ended up in a negative taxable bracket (-3.5%) and they paid us back even more than we paid in - but this is likely a one off year as it is the last one we can claim earned income and fill up our traditional IRAs (Gotta love that saver's credit!).
The saver's credit is indeed a wonderful thing.  Must be some other credit (earned income? child tax? ...?) that put you into a negative tax bracket, as the saver's can't drop you any lower than $0.

Spork

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Re: How much are you paying in taxes during retirement?
« Reply #5 on: February 21, 2017, 08:24:33 AM »

Well, my plan was $0, based on Go Curry Cracker's plan.

But plans change.  2016 was my first full year of fire and I was pretty much spot on to pay $0.  Plans change.  I ended up with a fair sized inheritance in 2016 -- much of it held in taxable-on-death annuities.  I still don't have the K-1 from the accountant, but 2016 will likely be my highest tax year ever.  Minimally, it will be the highest owed, since I didn't have any withholding, based on really bad advice from the guys that managed the annuities.  I'll also be paying back ACA subsidies.  (I realize these are "good problems to have".  I am not trying to sound bitchy.)

I've done enough look-ahead planning (looking at an inherited IRA) that pretty much tells me I'll be paying a lot more taxes than I had originally planned.  If I take the RMD (emphasis on the minimum part) of the inherited IRA, I can still hit $0 taxes for some amount of time.  But looking forward, that seems less than optimal.  My plan now is to max the RMD payment right under the top of the 15% tax bracket (after accounting for capital gains/dividends).  So effectively I'll be paying in the 15% bracket, though effective rate will be much lower due to dividends/cap gains.
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dude

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Re: How much are you paying in taxes during retirement?
« Reply #6 on: February 21, 2017, 10:54:52 AM »
I'm pretty sure I'm going to be way fucked for taxes come retirement.  Pension is taxed by the Fed as ordinary income (though not taxed in my state), 401k withdrawals will also be taxed as ordinary income, and I will be WAY over the tax threshold once SS kicks in, so I'll be getting savaged by taxes then as well. But what is there to do?  I'm lucky as fuck that I'll be drawing a pension that is more than most Americans make in a year of working, and a robust 401k that allowed me to defer taxes up front and invest the money tax-free for decades, and that SS will be pretty much icing on my retirement cake.  So I won't lose any sleep over it (though I do think the SS tax is utter bullshit and can have a big impact on many retirees; having never been pegged to inflation, the number of people paying taxes on their SS benefit is growing every year, and the cocksuckers in Congress have shown ZERO interest in fixing it, because only billionaires get tax cuts in America, not SS-dependent schlubs).

SnackDog

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Re: How much are you paying in taxes during retirement?
« Reply #7 on: February 21, 2017, 11:11:10 AM »
The optimal retirement planner can assist you in both forecasting and minimizing retirement taxes..
https://www.i-orp.com/
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moof

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Re: How much are you paying in taxes during retirement?
« Reply #8 on: February 21, 2017, 12:57:08 PM »
https://www.dinkytown.net/java/Tax1040.html

Run your own scenario and see 37k of IRA disbursements (SEPP or rollover to Roth) and 60k in long term capital gains nets out to zero with one child tax credit in my planning scenario.  State income tax is a different story (Oregon sucks, we will likely move).

Frankies Girl

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Re: How much are you paying in taxes during retirement?
« Reply #9 on: February 21, 2017, 02:12:58 PM »
For 2016, we actually ended up in a negative taxable bracket (-3.5%) and they paid us back even more than we paid in - but this is likely a one off year as it is the last one we can claim earned income and fill up our traditional IRAs (Gotta love that saver's credit!).
The saver's credit is indeed a wonderful thing.  Must be some other credit (earned income? child tax? ...?) that put you into a negative tax bracket, as the saver's can't drop you any lower than $0.

No kids. But we also qualified for subsidies on ACA, and it was more than originally estimated due to our income being much lower than last time, so they paid us back for that as well. Otherwise, our actual earned income was under $16K for the entire year (husband left work in the first quarter 2016, received unemployment until fall 2016). I've never seen a tax rate go negative before either, and it might have been TurboTax's way of phrasing it (as "effective tax rate") but I guess it was a perfect storm of managing our tax liabilities and making sure to take advantage of every single tax break available with a perceived low income. I ran the numbers several times and then ended up using TurboTax to file, and it all checked out. Totally weird, but kind of cool. I had expected to break even (only getting back what we paid in on fed taxes).

Also, I'm in the same situation as Spork (inherited a large IRA) and expected to pay out taxes one way or another instead of being able to follow the CurryCracker no tax path.

My current working plan is to keep our actual expenses low and using the inherited IRA for most of the expenses which will result in slowly depleting the iIRA so it won't grow to such a huge amount that I'll be forced to deal with giant iIRA distributions (and pushed into higher taxable brackets) over the next decade, and still manage to pay little to no taxes overall.

Basically, I am taking 2/3 of our expenses from the iIRA (thus depleting it while also satisfying the RMD each year) and then the remaining 1/3 of expenses comes from the taxable LTCD/dividends. I remain in the 15% taxable bracket this way and don't end up owing anything on the LTCG/dividends, and little to no tax on the iIRA distributions either.
« Last Edit: February 28, 2017, 07:18:16 AM by Frankies Girl »
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Laura Ingalls

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Re: How much are you paying in taxes during retirement?
« Reply #10 on: February 22, 2017, 12:52:44 PM »
Negative on the feds (about 2.5%).  We owned our state about 5-6%. 

The good news is that our overwithholding on the feds will equal the underwithholding on the state.

Miss Prim

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Re: How much are you paying in taxes during retirement?
« Reply #11 on: February 22, 2017, 01:23:25 PM »
I'm interested to see how much I will be paying.  Hubby is missing some 1099-misc for his business and it may have to do with me switching our mail to a rental property we are renting for 3 months in Florida.  Also, we sold a 2nd home and bought a different one and had a gain on the sale that I wasn't expecting.  I did send in extra $$ for taxes on the gain, but I am on the ACA and my subsidy was based on not having that capital gain! 

I have some things plugged into my return, but am waiting on the rest of the info.

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