So basically try to convert some of your 401k/IRA funds into a Roth Account sooner rather than later. Even if that pushes you into the 22% or 24% tax bracket. Better to pay that now rather than the 49.95% later.
@@_-Karl-_ My issue is that regardless if I get my income from a job or if I get it from a 401K withdrawal I am going to being paying 15% on any LTCG I have. The only way to have a 0% LTCG is to get my income from a Roth, where that is not taxable.
The little tax bump zone(s) don't matter much if one is way over the bump zone. It only matters if one is *just* into or barely over the bump zone. So if one really wants to thread the needle, suppose one lives on $x per year. One can take $x + $y one year, and $x - $y the next year to mitigate this & get just under that bump in year 2, and live off the excess $y the 2nd year -- as long as $y doesn't put one too far into the next tax bracket in year 1. Always the balancing act, but little 2-year adjustments can make small differences... until of course, they inevitably change the tax laws again. :-/
As I have said in the past, I really think you should write a book on all these topics ...Conversions, retirment ,taxes, etc. The information that you offer all of us on a daily basis would be so successful in a book format. Nothing like it out there.👍
Thank you for helping us understand the marginal tax implications of adding additional income from social security and taxable accounts. However, to really understand the big picture it would be helpful if you also provided the effective tax rates to your examples. While stacking one additional taxable dollar may have a huge marginal tax impact, the total effective tax rate change might be nominal. Great video nonetheless.
That's the way it rolls. I do these calculations for myself all the time. Unfortunately, I still have some mutual funds that I've held up to 25 years. I'm trapped with those occasional cap gains distributions. Even being in the lowest bracket sometimes causes tax due to SS income. This year I turn 72, and my smallish RMD starts. (I didn't contribute to my IRA after 1998. It is all Roth contributions thereafter.) I've decided not to realize any cap gains until I have the estimations from the mutual funds. If there is some room, then I can sell part of something if I want.
Some mutual funds don't declare dividends and cap gains until the final weeks of December, which makes it very difficult to make decisions and act by Dec 31.
Suggestion: If you don’t need the money from your RMD, do a direct charitable donation. This removes the RMD from your taxable income, but you’re not able to claim a deduction.
@@Just_forfun9140 I've done that in the last two years. I'll do my QCDs first, then finish with my RMD, and a possible Roth conversion , but that isn't likely. The amount of the QCD will depend on what my MAGI is towards the end of the year.
I wish you would have told us at the end what this person’s gross income was, what they paid in federal tax and there effective tax rate was, how much bring money they had. Thanks
To me be a lot simpler to plug my numbers or my expected future numbers using a tax calculator. The problem with taxes is everything matters and everybody situation is different. A tax calculator will show your specific answer
With my limited mind in taxation, if you have these other incomes, only solutions I see are, delay collecting SS, contribute or convert to Roth IRA little by little till you reach RMD age, use these other incomes for living expenses till age 70, and then collect SS. Its almost impossible to avoid these torpedoes when you need the money for living or for forced RMDs. ??
I'd layer a scenario wherein a person is living 100% off dividend income and not selling any capital assets like stocks so one never runs into capital gains issues.
What might clarify the tax calculation is changing the phrases in your chart: "Up to 50% of Social Security is taxed" to "Up to 50% of Provisional Income is taxed". ??
The Money Math Maven Eric Sajdak is back at it again with another outstanding video! Usable knowledge is the best kind and Safeguard Wealth Management produces some of the best of it on RU-vid. Well done sir.
INcome is taxed at 32% from 89-170K period. 85 % of your SS will be taxed at this rate. It is misleading to say the dollar is being taxed at 50% - it is NOT . THe dollar from SS is taxed at 32% and the dollar from RMD is taxed at 32% Each dollar is taxed at 32% YOu could argue that if the SS doillar was in a lower tax bracket and is now in a higher tax bracket as a result of your RMD you have additional taxes but again the max tax rate 89-170k is 32%
Yukon: Aren't you leaving out the step in the equations where you begin by dividing your Social Security income in HALF?! You establish what HALF of your Social Security is and plug that number into the equations. I would hate to think you have been paying twice as much as required! If so, you might want to file whatever amended returns arecs allowed. Check the IRS 35 page PDF you can read online by searching for 'senior citizen tax rules.'
fantastic video.....i really do hate..and i mean hate corrupt politicians...and the ignorant people that keep voting them in....not one single penny should ever be taxed with social security......again...great video...thks
What about drawing from a Roth account and SS? Is Roth monies considered part of provisional income? So does this mean even tho you may not be taxed on Roth income, you could possibly be taxed on Ss income if Roth withdrawals exceed the no tax tier?
Isn’t it simply increasing your taxable income, which could push you into a higher bracket and increase your effective rate. I don’t understand why you chart it like this. Perhaps I’m missing something but would like to see the explanation. Are you just demonstrating RMDs put this example into a higher bracket and more SS income is taxed?
Just discovered this topic. I just retired and have Roth IRA .You show (9:32) Roth number 3 withdrawal is part of calculaion for income..I'm not sure if this is correct? Please clarify.
If you have all your investments in a Roth IRA and no other income how would you take advantage of the standard deduction? The Roth IRA is fine for people who have lots of other income but your average Joe doesn't exactly have a lot of income to fill in his standard deduction lower tax brackets
if you made enough money to have this kind of retirement and didnt know what you were doing already i hate to see how you wasted tax breaks getting there in the first place.
Great video At 10:31 you said, that the long term capital gain of ($10K) get's taxed at 15% because of withdrawing an extra 10K from IRA Account. My question is in this example, are you talking about taking this 10K from Traditional IRA or Roth IRA? Since Roth IRA contribution is always Tax free when you withdrawal, due the contribution are made with after tax dollars.
Once I got my MIL invested in the market, she complained that the more money she made, the more tax she paid. Duh, what a problem to have. At 60 I started converting our 401ks to IRAs and then backdoor Roth conversions. Fortunately I have a nice nest egg and our Roth accounts are more than 50% of our total retirement accounts. Problem is, the conversions have caused higher MEDICARE payments due to IRMMA. My wife and I both work and contribute to our 401ks. So if we are both putting 26K into a 401k, and annually convert 52K to a Roth, my accountant says I am paying the same amount in tax and we should just stop the 401k. I agree that the tax is the same, but the Roth conversion allows the 52K to grow TAX FREE in the ROTH and my heirs will reap the benefit of the ROTH when we both pass. Currently I am 65, my wife is 64 and we will not take SS until 70.5. My goal is to have most of my tax deferred accounts transferred to our ROTH accounts so that RMDs are minimal. Thanks for the insights.
I have just discovered your channel! Amazing information! Nobody else speaks about this. Very clearly explained. Tax planning is one of the most important components of invesing Thank you, you've got a new subscriber.
@@_-Karl-_ thanks for the video. You actually explain things very well. I never see scenarios of my situation. Retired veteran with 65k retirement pension and 36k in social security. Does that mean I pay tax on 85% of my social security at my tax bracket at 12% for married filing jointly? Everything else is in a Roth so that would be my only income. I can swallow 12% but 40% is absurd
@@_-Karl-_ hey random guy on RU-vid thanks for the explanation. Very helpful. I’m trying to make a decision when I should start drawing. I would expect if I start withdrawing at full retirement age I may fall into the 22% tax bracket. The social security of 36k is based off early withdraw at 62. Thanks again
@@_-Karl-_ Just following the interesting thread on this great topic - Not to be a pickler but believe the amount reflected above in 4:01 d) "Total SS Taxabilty" should read $30,600 based upon purported $36,000 early annual SS benefit at 62 times .85 Maximum SS benefit capable of being taxed (36,000 x .85 = 30,600).
well, the bottom line is total of your taxable income. if your SSN as high as in the sample of $65,000 a year, then you better watch your Traditional IRA balance, if it is too high (like in the video where it has Required Minimum Destruction of $55,000, and additional $10,000 capital gain), you better convert it to Roth in order to reduce RMD before reach at age of 72 years old. (According to a RMD calculator, in order to draw $55,000 as minimum requirement distribution, you have to have balance of just below 1.5 million in "qualified" account, which is the Traditional IRA). anyone has thought about this should avoid that kind of balance in the account. should start to convert to Roth maybe 10 years ago as "piece meal" for each year before the RMD kicks in for the purpose of not paying high taxes at age of 72 and older.
@@SafeguardWealthManagement Actually this is not a confusing topic, folks just needs to know a few basic things: 1) their preferred tax brackets 2) SSN payments and other income. 3) the estimated balance of NQ account when reach 72. the sample of the video, with $65,000 SSN and getting RMD of $55,000 basically is a result of failed financial planning.
@Safeguard Wealth Management actually all of it. I watched multiple parts multiple times and still can’t decide if I understand it or if the information presented is incorrect. The first confusion came at 1:43 when tax exempt income (i.e. a ROTH withdrawal) is considered in the provisional income equation. From everything I read online, ROTH withdrawals do not affect SS taxes. From that point onward, it was confusing because the examples were never properly laid out so I couldn’t verify anything for myself or compare how the next dollar affected taxes. Needs to clearly state “person A has $X in SS, $X in traditional ira/401k withdrawals/RMD, $X in withdrawals from taxable brokerage acct, etc” or at least clearly state all SS, taxable income, and LTCG income. At 12:25 I couldn’t tell if Mr. Scenario was being taxed twice on the RMD or if he had LTCGs from holdings that were never mentioned or listed in the stated scenario. Furthermore, the marginal tax rate graphs were confusing because it was never really explained where the data came from to generate the graph or what the incomes were at the rate hikes (only explained at the end by “your graph will be specific to you”). This content could be much better presented with actual dollar amountss for the taxes instead of only marginal percentages. Frankly, at multiple points in the video I felt like I was watching a fast talking snake oil salesman.
@@LiamRappaport I don't blame you for how you feel. there are many RU-vidrs explain retirement related contents, one thing I found very interesting is that once you learned how each subject works (RMD, tax brackets, Tax deferred account, capital gain tax rates... ), you will be able to do your own financial planning. it is pretty easy. About 30 years ago, I walked in a financial management firm and asking for advise of how to invest some money for retirement, the guy (was very nice) told me to invest in annuities. I totally believed in him and wrote him a check for over 10k to begin the journey.... oh boy, I was so stupid.
Here is a brain teaser for you. True or False. At a certain income level, you could pay a higher tax % for a long term capital gain than you would a short term capital gain or ordinary income.
Sooner: Reagan created this taxing of Social Security because during his administration retirees on Social Security made headline news for months for buying and eating cat food and dog food for protein. That is what they could afford. Also, Social Security Disability funds those disabled from childhood who have never worked a day. Reagan put the care of impoverished elders and impoverished disabled onto the shoulders of affluent retirees. You can take pride and satisfaction in your role of rescuing the destitute everyday of your retirement. Your productivity is ongoing, and you are among those who prevent USA streets from looking like India's, where the cripples full the streets, begging. You are certainly entitled to insist that the billionaires contribute a minimum base tax.
I would love for you to address how wide that high tax rate is, is that on 5k or 10k of income? And what is the resulting effective tax rate if you have 100k total income. I would guess you could provide some simple formulas to determine how to calculate these figures ourselves. Such as we are going to assume we are taxed on all 85% of our social security because we have such a large traditional IRA. @safeguardwealthmanagement
Jonathan: IRS has a 35 page PDF for you to read. There are 4 formulas. All the rest repeats that info in various ways. Search online for 'senior citizen tax rules.' It is a good practice to check that topic every few years, since Congress makes changes. Retirees don't object so much to 15% of half their Social Security being taxed in some income brackets. However, many object to 85% of half their Social Security being taxed. Reagan created the system as a source of funding for impoverished retirees and impoverished disabled. It is a tax, for example, that provides at least marginal benefits in Red States where State legal minimum wages can be $5.10/hour. Keep in mind that for retirees over 75, their minimum legal wages were $2.30/hour and lower. Even with cost of living increases, even an 8% increase is almost nothing. You are still entitled to advocate that billionaires pay some minimum tax