|
|
Post by saratoga on Feb 8, 2024 17:26:40 GMT
A recent article from WSJ contains the following:
"Once you have formally retired from the employer that sponsors your 401(k) plan, the RMD kicks in, advisers say. You can’t pause or reverse taking the RMDs, even if you pick up some part-time or contract work for that same employer. Once you start taking the RMD from the plan sponsored by your most recent employer, you have to continue taking the RMD."
I have been working part-time since recent retirement. Both TIAA and the University had ambiguous attitude whether this exception applied to me.
When I rolled over some fund from TIAA to IRA last year, I took RMD to avoid possible hassle from TIAA. During the course of last year, however, both TIAA and the University decided that I qualified for the exception. Now the question is whether I qualify for it this year on. According to the above quotation, I do not.
However, I was always qualified for the exception. The advisors in the quotation might have meant that once a person was not qualified for the exception, the person loses the claim to the exception in the future as well.
It is not clear that avoiding RMDs is preferable at this stage of my life, but I would like to know.
|
|
|
|
Post by yogibearbull on Feb 8, 2024 17:30:23 GMT
A simple test that works most of the time:
If you get W-2, you are considered employed. You can also continue to participate in work retirement plan.
If you get 1099, etc, they you are not. You cannot contribute to work retirement plan.
I think that you can pause RMDs if you get a new job, but cannot reverse the past ones.
|
|
|
|
Post by liftlock on Feb 8, 2024 18:52:19 GMT
Setting aside the question of whether the RMDs are required, it may not make sense to delay taking distributions, if doing so will force you into higher tax brackets later on.
|
|
|
|
Post by Mustang on Feb 8, 2024 22:53:24 GMT
Setting aside the question of whether the RMDs are required, it may not make sense to delay taking distributions, if doing so will force you into higher tax brackets later on. With all of the writings and advice about deferring taxes this is a point most often missed. The only reason to defer taxes is if you believe you will end up paying less taxes in the future. Many people will have lower taxable income when they retire but some won't. Our family's taxable income will not go down if something happens to me. Odds are it will go up after she invests life insurance proceeds. And, she will be taxed at the single rate, not the married filing jointly rate. It makes no since for me to defer taxes when the government will simply take a bigger share in the future.
|
|
|
|
Post by retiredat48 on Feb 8, 2024 23:54:42 GMT
Setting aside the question of whether the RMDs are required, it may not make sense to delay taking distributions, if doing so will force you into higher tax brackets later on. With all of the writings and advice about deferring taxes this is a point most often missed. The only reason to defer taxes is if you believe you will end up paying less taxes in the future. Many people will have lower taxable income when they retire but some won't. Our family's taxable income will not go down if something happens to me. Odds are it will go up after she invests life insurance proceeds. And, she will be taxed at the single rate, not the married filing jointly rate. It makes no since for me to defer taxes when the government will simply take a bigger share in the future.
I don't quite get these two posts. Mustang writes: "The only reason to defer taxes is if you believe you will end up paying less taxes in the future." Why need to have a less rate? If I can defer twenty years, at same rate, then I would do so. Never pay a tax now that you can defer. Liftlock states: "it may not make sense to delay taking distributions, if doing so will force you into higher tax brackets later on." Again is not the purpose of investing to earn more and more, and perhaps moving into higher brackets along the way, or at the end. Do you turn down a salary increase because you may pay a higher rate? No. Do you turn down an inheritance because it moves you into a higher tax bracket--no. If you defer a tax and invest the deferred money, and it grows to the extent you are in a higher tax bracket, this is great. It means you can take what is needed from the growth to pay any increased tax. Or give it to charity and reduce the bracket rate. You win. Maybe i'm missing something in your comments. R48 |
|
|
|
Post by Mustang on Feb 9, 2024 0:59:25 GMT
With all of the writings and advice about deferring taxes this is a point most often missed. The only reason to defer taxes is if you believe you will end up paying less taxes in the future. Many people will have lower taxable income when they retire but some won't. Our family's taxable income will not go down if something happens to me. Odds are it will go up after she invests life insurance proceeds. And, she will be taxed at the single rate, not the married filing jointly rate. It makes no since for me to defer taxes when the government will simply take a bigger share in the future.
I don't quite get these two posts. Mustang writes: "The only reason to defer taxes is if you believe you will end up paying less taxes in the future." Why need to have a less rate? If I can defer twenty years, at same rate, then I would do so. Never pay a tax now that you can defer. Liftlock states: "it may not make sense to delay taking distributions, if doing so will force you into higher tax brackets later on." Again is not the purpose of investing to earn more and more, and perhaps moving into higher brackets along the way, or at the end. Do you turn down a salary increase because you may pay a higher rate? No. Do you turn down an inheritance because it moves you into a higher tax bracket--no. If you defer a tax and invest the deferred money, and it grows to the extent you are in a higher tax bracket, this is great. It means you can take what is needed from the growth to pay any increased tax. Or give it to charity and reduce the bracket rate. You win. Maybe i'm missing something in your comments. R48 I don't believe in the statement "Never pay a tax now that you can defer later." Here is why. If taxable income is $150,000 then a married couple filing jointly pays zero tax on the first $23,200, 12% on the next $71,100, and 22% on the last $55,700. Not considering other deductions or exemptions, the total tax bill is $20,786. A single person with the same taxable income pays zero on the first $11,600, 12% on the next $35,550, 22% on the next $53,375, and 24% on the last 11,874. Total tax bill is $27,882. A single person pays approximately $7,100 more on the same taxable income. And any additional taxable income is taxed now at 22%. Later when she is by herself it will be taxed at the 24% rate. In this case deferring taxes creates a heavier tax burden.
Edit: If that statement were true no one would ever do a Roth conversion. That is clearly paying taxes now to avoid them later.
|
|
|
|
Post by liftlock on Feb 9, 2024 3:11:57 GMT
I don't quite get these two posts. Mustang writes: "The only reason to defer taxes is if you believe you will end up paying less taxes in the future." Why need to have a less rate? If I can defer twenty years, at same rate, then I would do so. Never pay a tax now that you can defer. Liftlock states: "it may not make sense to delay taking distributions, if doing so will force you into higher tax brackets later on." Again is not the purpose of investing to earn more and more, and perhaps moving into higher brackets along the way, or at the end. Do you turn down a salary increase because you may pay a higher rate? No. Do you turn down an inheritance because it moves you into a higher tax bracket--no. If you defer a tax and invest the deferred money, and it grows to the extent you are in a higher tax bracket, this is great. It means you can take what is needed from the growth to pay any increased tax. Or give it to charity and reduce the bracket rate. You win. Maybe i'm missing something in your comments. R48 I don't believe in the statement "Never pay a tax now that you can defer later." Here is why. If taxable income is $150,000 then a married couple filing jointly pays zero tax on the first $23,200, 12% on the next $71,100, and 22% on the last $55,700. Not considering other deductions or exemptions, the total tax bill is $20,786. A single person with the same taxable income pays zero on the first $11,600, 12% on the next $35,550, 22% on the next $53,375, and 24% on the last 11,874. Total tax bill is $27,882. A single person pays approximately $7,100 more on the same taxable income. And any additional taxable income is taxed now at 22%. Later when she is by herself it will be taxed at the 24% rate. In this case deferring taxes creates a heavier tax burden. Edit: If that statement were true no one would ever do a Roth conversion. That is clearly paying taxes now to avoid them later. I agree with Mustang. However, it depends on where one thinks their tax brackets may be headed over one's life expectancy / financial planning horizon. It makes little sense to defer taking withdrawals from tax deferred retirement accounts if doing so leaves the lower income tax brackets unfilled before RMDs kick in, and then paying taxes at higher marginal tax rates on withdrawals that have deferred. Smoothing retirement income over one's financial planning horizon is a way to maximize after-tax income. The idea is to maximize income taxed lower tax brackets, to prevent or delay that income from being taxed at higher marginal rates later on. Here is a good article on the subject. www.troweprice.com/content/dam/iinvestor/planning-and-research/t-rowe-price-insights/retirement-and-planning/pdfs/tax-efficient-withdrawal-strategies.pdf |
|
|
|
Post by retiredat48 on Feb 9, 2024 4:00:12 GMT
I'm heading on travel. Can't digest and reply fully. Maybe later.
Edit to add...after some pondering, I still disagree.
As an example, if what you are saying is correct, no-one would have a Trad IRA. These are 100% deferred income. You took dollars in your pocket and put it into an IRA, for which it is 100% fully taxable in the future when withdrawn. Why do this? Answer: because this deferral of tax can grow into huge savings/portfolio that will eventually be huge income...and yes, you may have to pay a higher rate, but on huge savings.
Actual example. I started three Trad IRAs ($2000 contribution limit) for 3 daughters at their age 12 to age 22. They were in the zero percent tax bracket then (Roths not available). So this $20,000 was converted to taxable money (heaven forbid). Now the least IRA is valued at one third million $$ and still growing. All taxable...but DEFERRED until rmd time. Yes, when they retire (one is retiring at age 54 in nine months) they will likely be in at least the 12% bracket. You say this should be avoided. Why? It's a complete legacy of retirement, with taxes deferred 60+ years.
And if one of these IRAs grows to a million, they may be in the 22% bracket. Should they wish against this? Of course not. All done with deferred tax money...growing.
BTW My two granddaughters are projected to have about 8 million dollars in assets when they are age 59. Should they stop investing as the tax bracket may be quite high?
R48
|
|
|
|
Post by yogibearbull on Feb 9, 2024 12:05:12 GMT
Interesting discussion. However, 2 points:
1. People don't know for sure what their tax bracket would be in retirement. For most, it may be lower, but for some, it may be same or higher - those should consider themselves lucky. But it's better to plan for the worst, and be happy if the situation turns otherwise.
2. There is too much emphasis is on using all of the money for self or family or heirs. But charitable activities are also important and should be part of an overall financial plan. So, if there are excess funds (by whatever criteria used), then using DAFs, and QCDs from T-IRAs after 70 (that now is few years BEFORE the RMDs start), make good sense.
Personally, we are in situation #1, and the factors responsible were RMDs, Social Security additions (wife only; none for me), and investment income. For #2, I setup a DAF DECADES ago that has grown to a decent size. We have already donated most of the money "contributed", but the balance is still well above the "contributed" amount. As a teaching tool, we also ask our pre-teen granddaughter to make some donation recommendations and try to follow those too; after all, some day, see may be running it. This DAF has family members as successors, and they can continue this practice after we are long gone. But this DAF money can never be used for personal or family purposes, and it out of our estates.
|
|
|
|
Post by retiredat48 on Feb 9, 2024 14:33:33 GMT
yogibearbull,...who posted: " This DAF has family members as successors, and they can continue this practice after we are long gone." Can the (family) "successors" also make monetary donations/additions to your DAF?? I was somewhat unaware of the DAF successor aspect. Looked it up and so far may fit my need well. It can last in perpetuity, right. Can I assume a formal DAF can be used instead of a "Charitable Family Foundation" like the Clinton's and many wealthy have. Of course the foundation can hire family members to serve on board, research donors, etc. TIA R48
|
|
|
|
Post by yogibearbull on Feb 9, 2024 15:00:05 GMT
retiredat48 , DAF allows multiple successors/"co-owners". So, for my Schwab DAF, I am the primary "owner" and my wife and daughter are "co-owners"/successors. I will add my granddaughter after she reaches the age of majority. In my DAF, ALL are allowed to make donation recommendations NOW, and obviously, after I am gone. After all the "co-owners"/successors have passed away, the DAF goes in a giant master Schwab DAF - technically, that is losing control of the money, so it is important to keep a chain of successors in place. Term "Owner" is used loosely, but keep in mind that "owners" can only recommend donations, change co-owners/successors, but cannot withdraw this money, so they don't really own the money in a traditional sense. It's out of their estate. Anyone can donate to DAF and claim deduction - but itemization would be required, and most don't now. But RMDs cannot go into DAFs. Elon Musk has used DAF as well as private foundation, and he is still wealthy - after sinking only $44 billion into X/Twitter sinkhole. DAFs are used widely by common folks and wealthy. Foundations are more expensive to setup and run, so are used only by wealthy. A LONG thread on DAFs is here, ybbpersonalfinance.proboards.com/thread/41/donor-advised-funds-dafs
|
|
|
|
Post by retiredat48 on Feb 9, 2024 21:38:04 GMT
yogibearbull,...THANKS. But my question is still open: Can successors such as your eventual added granddaughter, contribute monies to the DAF...to keep it going? R48
|
|
|
|
Post by yogibearbull on Feb 9, 2024 21:49:59 GMT
retiredat48, successors can contribute, as anyone can. But for max tax impact, contributions should be in-kind of highly appreciated securities in the years they can itemize. The DAF doesn't get restricted after the death of the owner, like many other accounts or trusts (you may be thinking of those).
|
|
|
|
Post by retiredat48 on Feb 9, 2024 21:54:55 GMT
Mustang ,...who posted: " I don't believe in the statement "Never pay a tax now that you can defer later." Here is why. If taxable income is $150,000 then a married couple filing jointly pays zero tax on the first $23,200, 12% on the next $71,100, and 22% on the last $55,700. Not considering other deductions or exemptions, the total tax bill is $20,786. A single person with the same taxable income pays zero on the first $11,600, 12% on the next $35,550, 22% on the next $53,375, and 24% on the last 11,874. Total tax bill is $27,882. A single person pays approximately $7,100 more on the same taxable income. And any additional taxable income is taxed now at 22%. Later when she is by herself it will be taxed at the 24% rate. In this case deferring taxes creates a heavier tax burden."----------------------- This statement is factually true...most who lose a spouse now file as a "single" and may pay more tax. But so what?? This tax increase occurs whether or not you deferred any income or taxes. Like, want to lower the tax, then instead of earning $150,000 just earn $75,000. But no one forfeits income just to stay in lower tax brackets. Obviously if you defer a tax and the money saved grows and grows, you may pay taxes at a higher rate. But you have all this added money to pay the tax. Here's my take, tell me where wrong. Let's say you defer $1000 from taxes. then invest it. In the next year a simple money market fund yields 5%. So you now have $1050. Second year, you earn about $52. Thats now $1102.....10+% more. So if somewhere in the future you take this money and are in a higher tax bracket, lets say from 12% to 22%, you now have this add'l tax paid for after two years. The interest upward is compounding. Hold for ten years and a goodly savings is growing...from money you did not pay the government. Hold for three decades it is huge. R48
|
|
|
|
Post by saratoga on Feb 10, 2024 1:40:46 GMT
|
|
|
|
Post by Mustang on Feb 10, 2024 2:10:50 GMT
Mustang ,...who posted: " I don't believe in the statement "Never pay a tax now that you can defer later." Here is why. If taxable income is $150,000 then a married couple filing jointly pays zero tax on the first $23,200, 12% on the next $71,100, and 22% on the last $55,700. Not considering other deductions or exemptions, the total tax bill is $20,786. A single person with the same taxable income pays zero on the first $11,600, 12% on the next $35,550, 22% on the next $53,375, and 24% on the last 11,874. Total tax bill is $27,882. A single person pays approximately $7,100 more on the same taxable income. And any additional taxable income is taxed now at 22%. Later when she is by herself it will be taxed at the 24% rate. In this case deferring taxes creates a heavier tax burden."----------------------- This statement is factually true...most who lose a spouse now file as a "single" and may pay more tax. But so what?? This tax increase occurs whether or not you deferred any income or taxes. Like, want to lower the tax, then instead of earning $150,000 just earn $75,000. But no one forfeits income just to stay in lower tax brackets. Obviously if you defer a tax and the money saved grows and grows, you may pay taxes at a higher rate. But you have all this added money to pay the tax. Here's my take, tell me where wrong. Let's say you defer $1000 from taxes. then invest it. In the next year a simple money market fund yields 5%. So you now have $1050. Second year, you earn about $52. Thats now $1102.....10+% more. So if somewhere in the future you take this money and are in a higher tax bracket, lets say from 12% to 22%, you now have this add'l tax paid for after two years. The interest upward is compounding. Hold for ten years and a goodly savings is growing...from money you did not pay the government. Hold for three decades it is huge. R48 You are correct. No one forfeits income just to stay in lower tax brackets. But no one wants to pay higher taxes on the same income either. And, its not a matter of if tax rates go up but a matter of when. There isn't any ambiguity. Single filers pay higher taxes on the same income than married filing joint filers. And it isn't just edging into a higher tax bracket. If that were the case it would be of no concern. The only part taxed at the higher rate is the part that went over the line.
But going from married filing joint is completely different. The entire table changes from zero up. In my example, $150,000 married filing joint is still in the 22% bracket for anything over $94,300. Even if taxable income was cut back to $75,000 for a single filer they would still be in a 22% tax bracket for anything over $47,150.
From the example you gave it appears you are still thinking about accumulation where I'm focused solely on withdrawing (decumulation). Paying $7,100 more in taxes is $7,100 that cannot be spent elsewhere. It can't be used for house or car repairs. It can't be used to pay health expenses. My wife will simply be paying that much more to the federal government because of her tax status.
I do not believe that deferring taxes is always the best course of action. The link in Liftlock's post points that out.
|
|
|
|
Post by liftlock on Feb 10, 2024 14:30:33 GMT
Thanks for sharing this. It's an 1 hour 30 mins long, but I found it worth my time. |
|
|
|
Post by Mustang on Feb 10, 2024 17:15:36 GMT
Good podcast. I watched it all (except the sales pitches). It shows how deferring taxes can cause an overall increase in taxes and a lower balance at the end of retirement. He discusses paying taxes now to avoid taxes later.
Reason for front loading taxes. -- Risk of tax increases (currently not a risk but a guarantee of an increase in 2026) -- Tax implications after the death of a spouse taxes can increase as one becomes a single filer
Most of what was discussed would be very different for me. His example is a 60 year old retiree living off investments and social security not a 70+ retiree already on social security with a pension and RMDs. But parts of it still applies especially the to reasons above.
Again, I do not believe in the statement "Never pay a tax now that you can defer later." Wade Pfau's podcast gives examples of where you should.
|
|
|
|
Post by FD1000 on Feb 10, 2024 19:10:20 GMT
Thanks, good video. I bet over 95% of people would not get a lot. You need to have a prior knowledge of all the topics. I had to learn these when I retired and found out I will have to pay a lot of taxes. Thank to Liftlock, I learned a lot. |
|
|
|
Post by retiredat48 on Feb 11, 2024 20:45:24 GMT
saratoga ,... Thanks very much for this video...I am a Wade Pfau fan. I note the video is only open to the public (nonmembers) thru today 2/11/24.OK, I conclude there are a certain number of select investors who may fall into a category that may have better overall tax outcomes if they take some distributions now and balance with some ROTH distributions. But to me the poorer outcome is mostly avoidable. This thread discussed "paying taxes now" for a future benefit. But for instance is NOT taking distributions from ones TRAD IRA during their age sixties "deferring taxes.?? No such requirement exists and no tax is due. Yes, I have posted often that one uses age sixties to do conversions to ROTHs surely through the zero percent bracket and up into the ten-twelve percent marginal tax rate, for most people. I did, and now have a huge ROTH IRA when none was available when I worked. I call this an election to pay taxes, not a deferral. I was surprised at the number of comments I had on the Pfau presentation. I liked his new type of presentation from the first edition of his book. However, many of the charts are quite tricky to decifer as they talk of effects on MARGINAL tax rate versus actual taxes due. I want to study these charts more, and plan to buy the second addition, but here are some comments I have re his presentation. --Note his max benefits occur with living to age 95. This is pretty long for tax planning, and is silent on mitigating actions one could take at let's say age 85, if one lives that long, and is developing a tax problem. --Charts are silent on widow aspects re the reduction of income that goes with death of spouse...like reduced SS income; no Medicare second person fees, etc. Yes tax are higher for certain income levels, but income is likely reduced also. --The final-value of IRA includes an assumption of beneficiaries paying at the 25% tax rate. This is high, and can clearly be avoided by beneficiaries if they desire. Like one of my daughters is retiring this year at age 54 and will not have a very high (if not zero) marginal tax bracket at RMD time now and two decades down the road. --Analyses include an investment return of 4.29%...or 3.48% after taxes. Better than some other analysts. However a simple money market fund today is 5%, and many suggest using 7% (stocks historical 9%). This rate greatly affects the assumptions of those taking SS at regular age versus their suggestion to wait to age 70 in their main example. --Rate of return also affects those who choose to pay zero tax until age 70, versus partial Trad IRA distributions, paying taxes now. This tax savings is in taxable accounts and not in an IRA. So no future increase in RMD taxes is involved. See using ETFs below. I would suggest using an annual investment return of more than 3.48% is obtainable for long term buy and hold investors. --No discussion of using ETFs in taxable accounts going forward as ways to minimize both income and cap gains taxes going forward. ETFs have special tax features such that annual cap gains are de-minimal. Only pay when you sell...or get step-up basis at death. --No discussion of those who need SS now to be able to retire, versus wait to age 70. They may likely work to age 70. --Pfau's plan involves drawing down the ROTH with distributions much earlier. However no discussion that having a large ROTH IRA at the end (conventional way) is a huge benefit to beneficiaries, and the ten-year rule. --Pfua gives a figure of 0.29% tax alpha on his suggested method, and states "it is small but adds up over the years." Seems intuitively like a lot of work/planning to achieve this amount of alpha. --Edit to add: I see the video is no longer available. From recollection, Pfau example used a joint account with a total income of $150,000, of which Soc. Security was $100,000 annual income. This seems a very high SS income to me; is anyone getting this now? This high a percent ss to annual income distorts the analysis, IMO. I will be buying the book Retirement Planning Guideline, 2nd edition, for my daughter and hubby. Pfau is an expert in this field. But IMO he used a hand-picked situation of the most favorable case, to show his recommended approach of drawing down Trad IRA during age sixties (paying the taxes) and deferring Soc Sec to age 70. R48
|
|
|
|
Post by mnfish on Feb 12, 2024 12:47:04 GMT
Unless someone has the same tax issues as someone else, and the same portfolio splits like Trad IRAs, Roths, taxable acct, Soc Sec payments, pensions, etc., and the same spending needs, wants, habits, etc., then isn't it almost impossible to provide guidance to anyone?
|
|
|
|
Post by Chahta on Feb 12, 2024 13:25:19 GMT
Unless someone has the same tax issues as someone else, and the same portfolio splits like Trad IRAs, Roths, taxable acct, Soc Sec payments, pensions, etc., and the same spending needs, wants, habits, etc., then isn't it almost impossible to provide guidance to anyone? Maybe, but the big picture is that a portfolio is built to provide cash, in some manner. for personal consumption. |
|
|
|
Post by Chahta on Feb 12, 2024 13:26:45 GMT
A simple test that works most of the time: If you get W-2, you are considered employed. You can also continue to participate in work retirement plan. If you get 1099, etc, they you are not. You cannot contribute to work retirement plan. I think that you can pause RMDs if you get a new job, but cannot reverse the past ones. Aren't RMDs based on age alone? |
|
|
|
Post by mnfish on Feb 12, 2024 13:48:01 GMT
From Schwab -
Will I need to take required minimum distributions from my IRA or 401(k) if I go back to work?
Working in retirement doesn't affect RMDs from IRAs. If you've reached age 73, you'll have to take them from a traditional IRA. There are no RMD requirements for a Roth IRA.
The rules for qualified employer plans, such as 401(k)s, are different. If you continue to work past age 73 and do not own more than 5% of the business you work for, most plans allow you to postpone RMDs from your current—but not a prior—employer's plan until no later than April 1 of the year after you finally stop working. If you have a 401(k) from a prior employer, you may still be subject to the RMD requirement. Check with your plan administrator for both your new and prior employers.
|
|
|
|
Post by yogibearbull on Feb 12, 2024 13:58:10 GMT
Chahta, sorry for the confusion. That response was to saratoga's question, but it is confusing as a standalone answer. One can defer/postpone RMDs from CURRENT work 401k/403b if continuing to work and be paid through W-2. In the past, related complex issues have arisen elsewhere - e.g. if one has retired from University A in a "system" and started working at University B in the SAME "system", can one defer RMDs from University A 403b? NO, because the 403b really is at the "system" level, but as they say, always check/double-check with the HR. All other older 401k, 403b, and T-IRAs will REQUIRE RMDs. www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs
|
|
|
|
Post by Mustang on Feb 12, 2024 13:59:34 GMT
|
|
|
|
Post by liftlock on Feb 12, 2024 14:16:04 GMT
Unless someone has the same tax issues as someone else, and the same portfolio splits like Trad IRAs, Roths, taxable acct, Soc Sec payments, pensions, etc., and the same spending needs, wants, habits, etc., then isn't it almost impossible to provide guidance to anyone? Everyone is subject to the same income tax code. It is the design of the tax code that can provide opportunities to lower one's taxes. The potential opportunities are the same for everyone as general rules. But you are correct in stating that ones personal financial situation determines whether a taxpayer may be able to benefit from any of the potential tax savings opportunities. |
|
|
|
Post by FD1000 on Feb 13, 2024 4:42:29 GMT
I remember years ago that the company I worked for start offering Roth 401K and most workers thought it was a good idea while I didn't. The main reason is the fact I would want my money to grow much faster (not paying Fed+State tax) and when I start the withdrawal phase, I would need to withdraw a small % of the portfolio and taxes would be lower. I read in so many articles that said at retirement we would need as much as working. I knew it's not true because we saved monthly in 401K + we paid taxes. This basically means, the money we lived on was much smaller which is closer to what we spend now. When we worked we paid Federal taxes, State taxes, and FICA which were over 30%. You don't pay Fed + State tax on 401K. At retirement, GA resident older than 65 don't pay taxes on $65K per person = $130K per couple. This means we pay much lower taxes for the same amount that we spend while working. Right now, including Roth conversion our taxes are still much lower and AGI is much higher than we need because I want to smooth the tax burden later. On AGI about $190K total taxes are at 10%, on $200K it would be around 12%. Compare this to $200K while working ( www.talent.com/tax-calculator/Georgia-200000) = 31.6% Later in life RMD will push us to 22-24% total tax but only because we have a big portfolio which I never believed we would have. The median retirees savings are about $200K ( www.nerdwallet.com/article/investing/the-average-retirement-savings-by-age-and-why-you-need-more), they don't have to worry about taxes too much. Bottom line, taxes start being a "problem" when your portfolio is bigger, which is a good problem to have. |
|
|
|
Post by mnfish on Feb 13, 2024 12:58:32 GMT
Unless someone has the same tax issues as someone else, and the same portfolio splits like Trad IRAs, Roths, taxable acct, Soc Sec payments, pensions, etc., and the same spending needs, wants, habits, etc., then isn't it almost impossible to provide guidance to anyone? Everyone is subject to the same income tax code. It is the design of the tax code that can provide opportunities to lower one's taxes. The potential opportunities are the same for everyone as general rules. But you are correct in stating that ones personal financial situation determines whether a taxpayer may be able to benefit from any of the potential tax savings opportunities. , I was referring to the difference in some of the posts here and how each poster views the same tax code, as you correctly state applies to everyone, and yet each one's situation is so different. I imagine that Wade Pfau could provide thousands of examples and the rules would that apply would have different outcomes based on each individual's situation as I mentioned above. Thanks for the TRowe link you provided. |
|
|
|
Post by saratoga on Feb 13, 2024 19:12:34 GMT
A simple test that works most of the time: If you get W-2, you are considered employed. You can also continue to participate in work retirement plan. If you get 1099, etc, they you are not. You cannot contribute to work retirement plan. I think that you can pause RMDs if you get a new job, but cannot reverse the past ones. |
|
