Presenting… the long-awaited results of running more accurate data through tax software for Small Law Survivor. Since the spreadsheet is wider than I presented earlier, I cut it in half vertically for posting purposes. I tested this layout, so hopefully you should be able to print this out (starting with this post--using landscape mode) and then put the sheets side by side to see the whole table. Go ahead and tape it together if you wish.
In 2019-20, I gave your wife $12,000 in SS.
In 2021, when you have a partial year of SS, I believe you will only collect for 7 full months, so you will have $34,258 of benefits and your wife $12,000.
In 2022-23, you have $42,744 of benefits and your wife has $15,990.
In all cases, I used those numbers as inputs, but you always had 85% of your SS taxed in all the cases shown and those 85% values are shown in the spreadsheet. [edit: When re-checking after everything was done, I’m not sure where the $28,290 came from instead of $29,119 in cell N10.]
At the time I started this chart, I assumed $14,000 of state taxes or additional deductions. Instead of giving you $30,000 of deductions and $8,100 of exemptions, since I used the 2015 version of H&R Block software, it would only allow $8,000 of exemptions, so I put the other $100 in with deductions. This same data was used in all cases (so we wouldn’t have too many variables changing), but the AMT sometimes reduced these values (see orange cells).
[Edit: cell J22 should say 10,113. See Dodecahedron's explanation of deduction/exemption phaseouts below.]
Ages: Changing your birth years for some cases made no difference since you aren’t taking the standard deduction.
1040 Line 13: There are two cases with extreme capital gains. In Col. C, you have an additional $75K of LTC gains as you requested. But combined with a generous Roth conversion, you fall into the AMT hole with some of your deductions and exemptions denied (in orange) as well as additional tax. If you don’t do a conversion, but max out the LTC gains to stay in the 15% bracket as in Col. H, you don’t owe any tax. If you sell additional taxable assets without doing a conversion, they will be taxed at 15%
Basically, the more LTC gains you have, the less in RMDs or conversions you can do to get the same tax bill. It is a balancing act.
1040 Line 40: Instead of putting Charitable Donations in your deductions (where they might be reduced by AMT), after you are over 70.5, you could give some of your RMDs to charity. Neither you nor the charity would owe anything on the distribution but it could
count towards your RMD. There are rules such as the money has to go directly to the charity without going in and out of your personal accounts. The RMDs are defined as the first withdrawals of the year. You must be over 70.5 at the time of withdrawal.
1040 Line 43: Taxable Income over $170K (MFJ) will cause an additional Medicare tax as shown on 1040 Line 62. The calculated taxes on line 44 will come out a little bit different when using 2016 software.
1040 Line 45: Alternative Minimum Tax affects 3 places on these tax examples as shown in the orange cells, by reducing deductions and exemptions and adding additional taxes.
State Tax: Since I live in California and have the California software extension, I picked up the California tax which has a marginal rate of 9.3% in all of these cases, as far as I can tell. Since CA and MA both exempt SS from taxation, I estimate the MA taxes as 55% of what the California taxes would be. This may not end up being true, but you could go with it for now.
It was easy for me to check your numbers with TaxSim…
Dodecahedron, could you re-run the examples you already have (if you still have them) through TaxSim for 2014 to see what the CA and MA taxes would be and see if the 55% ratio holds?
[Edited to change printing instructions since moderator didn't allow this to be bumped to top of next page.]
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.