Author Topic: Shouldn't I have some taxable retirement income (Traditional IRA)?  (Read 1280 times)

live4soccer7

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I am thinking through some of my retirement funds/accounts that I will have available to me in about 30 yrs. I will not have a pension or income like that nor will my wife. Our retirement will be solely from retirement accounts. I'd imagine I will sell our rentals when we are 65 as well. This would leave us with no taxable income if all of our funds are in a ROTH style IRA/401k etc...

Would it not be smart to have let's say $20-30k a year come from a pre-tax retirement account so that we can still capitalize on whatever kind of standard deduction there may be at the time? It at least would provide options to help take advantage of some potential tax benefits that would arise during retirement, whatever those may be in 30 yrs.

For example, right now the standard deduction is $24k for a married couple. If we were retired right now and only had after tax or tax free retirement money coming in then we would be losing the benefits of the $24k standard deduction during retirement.

Perhaps I'm off base with this, but let me know your thoughts. Granted, we can plan all we want and things always change. This is whether we have control over it or not. I'm at least trying to think ahead as much as possible.
« Last Edit: November 13, 2020, 07:47:28 PM by live4soccer7 »

tawyer

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Re: Shouldn't I have some taxable retirement income (Traditional IRA)?
« Reply #1 on: November 13, 2020, 07:52:21 PM »
Yes, you should. Your post indicates you have a good handle on why. Beyond the standard deduction, there are also tax credits (better than deductions, dollar for dollar) that you need income to receive. As you say, things can change, but it is reasonable to expect the same framework (deductions, credits, progressive tax brackets) to exist in 30 years, and one should change course accordingly.

live4soccer7

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Re: Shouldn't I have some taxable retirement income (Traditional IRA)?
« Reply #2 on: November 13, 2020, 07:57:41 PM »
Yes, you should. Your post indicates you have a good handle on why. Beyond the standard deduction, there are also tax credits (better than deductions, dollar for dollar) that you need income to receive. As you say, things can change, but it is reasonable to expect the same framework (deductions, credits, progressive tax brackets) to exist in 30 years, and one should change course accordingly.

Thanks for the confirmation. I was thinking of doing approximately 25% of retirement savings in a "pre-tax" account. Any thoughts on that percentage?

PDXTabs

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Re: Shouldn't I have some taxable retirement income (Traditional IRA)?
« Reply #3 on: November 13, 2020, 08:39:34 PM »
This would leave us with no taxable income if all of our funds are in a ROTH style IRA/401k etc...
...
Would it not be smart to have let's say $20-30k a year come from a pre-tax retirement account so that we can still capitalize on whatever kind of standard deduction there may be at the time?

At the same time you should move some contributions to pre-tax (normal) 401k.

EDITed to add: https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153

Runrooster

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Re: Shouldn't I have some taxable retirement income (Traditional IRA)?
« Reply #4 on: November 15, 2020, 07:51:55 AM »
I am thinking through some of my retirement funds/accounts that I will have available to me in about 30 yrs. I will not have a pension or income like that nor will my wife.

If you retire young you will want income low for ACA purposes.

If you retire at normal age, you will get Social Security that can be taxed if your income is significant.
In either case, your tax bracket is likely to increase between now and 30 years from now, so you can pile in the traditional in 15-20 years. You will have higher catch up amounts to contribute by then too. 

Tempname23

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Re: Shouldn't I have some taxable retirement income (Traditional IRA)?
« Reply #5 on: November 15, 2020, 09:47:23 AM »
I don't think I did it perfect, but I'm very happy that I retired with high $500k in taxable accounts, with about 56% of it LTCGs. I liberated a large amount, (for us) last year, for living expenses, tuition and just to reset the cost basis. Tuition is more than living expenses. I paid $0 in Taxes. This years I will do a Roth conversion of about $60k and only pay about $3k in taxes. I should have did that last year, but failed. Having the taxable account that allows upto $80k of 0% tax on LTCGs allows a lot of flexibility.

live4soccer7

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Re: Shouldn't I have some taxable retirement income (Traditional IRA)?
« Reply #6 on: November 15, 2020, 08:23:25 PM »
Thank you very much for this information. This is all great.

MDM

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Re: Shouldn't I have some taxable retirement income (Traditional IRA)?
« Reply #7 on: November 16, 2020, 11:22:19 AM »
Thanks for the confirmation. I was thinking of doing approximately 25% of retirement savings in a "pre-tax" account. Any thoughts on that percentage?
It's not the percentage that's important, it's the absolute amounts.

You want to contribute to traditional accounts until the expected marginal tax rate of your withdrawals reaches the marginal tax rate you save on your contributions.  Additional amounts go into Roth.  The percentage of each is an outcome, not an input.

See Traditional versus Roth - Bogleheads for details.

 

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