Retirees, what is your marginal tax rate?

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BogleMelon
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Retirees, what is your marginal tax rate?

Post by BogleMelon » Fri May 12, 2017 1:34 pm

I was thinking about one of these impossible-to-predict topics: tax rate now vs tax rate when retire and Roth now Vs tira now, and thought why not asking people who have already retired to see what is their marginal tax rate now (during retirement) comparing to what it was during accumulation period.

Thanks!
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Re: Retirees, what is your marginal tax rate?

Post by JohnFiscal » Fri May 12, 2017 1:47 pm

Not retired, but I use spreadsheets to plan out my anticipated income (based on pension, SS, RMDs, taxable account returns) and then determine the anticipated income tax using current rules (standard deduction, exemptions, etc). That gives me the marginal tax rate.

I also try to account for the effect of Roth conversions and taxable amount of SS benefits.

My spreadsheets permit me to vary the Federal tax "bands" for percentage, floor/ceiling. standard deduction, personal exemptions, etc. So while this is all a guess(*) it would seem to be a realistic planning exercise.

FWIW, I was chagrined to find that I may be in the 25% bracket.

(*) I mean, the entire tax structure could be thrown out and entirely replaced (or not).


ETA: Of course, I am within 1-2 years of actual retirement. If you are 20-30 years out, you may have an entirely different situation...such as deciding to use a Roth or tIRA.

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Re: Retirees, what is your marginal tax rate?

Post by AndrewXnn » Fri May 12, 2017 2:04 pm

Also not retired, but if both myself and my wife were to retire, then there would still be sufficient taxable distributions that it would put us in the 15% tax bracket. I would perform Roth Conversions to bring "income" up to just under the limit.

Not sure how long we could stay in the 15% bracket.
I'm guesstimating that it'd be ~6 years.
So, the plan is to work to ~age 64 and retire.
Then perform conversions to age 70 at which time I'd start RMDs and SS.
Would probably be in 25% bracket past age 70 due to RMDs and SS.

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steve roy
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Re: Retirees, what is your marginal tax rate?

Post by steve roy » Fri May 12, 2017 2:11 pm

18% state/federal marginal rate as DW and I roll into retirement. Changes coming up so not sure where we'll be 24 months hence.

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Re: Retirees, what is your marginal tax rate?

Post by artthomp » Fri May 12, 2017 2:23 pm

Retired in 2006. My wife had an exceptional couple of harvests on her rental farm in Oklahoma so, for 2016, our marginal tax rate was 25% on ordinary income, 15% on capital income, and our effective rate was 14%. Assuming no farm income next year, our marginal tax rate will be 15% on ordinary income, 0% on capital income, and our effective rate will be 13%.
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Re: Retirees, what is your marginal tax rate?

Post by TomatoTomahto » Fri May 12, 2017 2:34 pm

I'm retired, DW isn't.

Try as I might, the conspiracy between DW's deferred vesting RSUs, my beIng older than DW causing my RMDs to begin before her RSUs finish vesting, the growing size of our taxable accounts, my SS benefit, DW's SS and eventual RMDs, etc. means that I think we will be at the highest marginal rate. Forever. I'm not complaining, although a few years of lower rates would have allowed for some Roth conversions.

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Re: Retirees, what is your marginal tax rate?

Post by livesoft » Fri May 12, 2017 2:36 pm

I'm retired, spouse is working full-time. We were up to 33% when both working full-time. Now 15% because I do a Roth conversion up to the top of the 15% marginal income tax bracket. Otherwise, we would probably be at 0%.
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Re: Retirees, what is your marginal tax rate?

Post by Swansea » Fri May 12, 2017 2:52 pm

25% now, but may change once I start RMDs.

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Re: Retirees, what is your marginal tax rate?

Post by jebmke » Fri May 12, 2017 3:12 pm

I manage my rate by doing ROTH conversions up to but just short of the 30% marginal rate.
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Re: Retirees, what is your marginal tax rate?

Post by BL » Fri May 12, 2017 3:16 pm

Continuing with 15% into retirement, will be 25% for survivor.

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Re: Retirees, what is your marginal tax rate?

Post by retiredjg » Fri May 12, 2017 3:17 pm

From what I've seen reported here, single people tend to be in the 15% and 25% brackets. Couples tend to be in the 15% bracket while both alive.

Not saying everybody falls there, just that it seems very common.

Edited to add: I think answers to this question may not be very helpful if people answering don't indicate single or married.
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Re: Retirees, what is your marginal tax rate?

Post by Ron » Fri May 12, 2017 3:18 pm

I've been retired 10 years, my wife for five, and are both 69 years of age.

During our working years and for a good portion of my early retirement our combined FIT marginal rate was 15%. However, over the last five years (with both retired) has been in the 25% bracket with an effective tax rates of 11.98%, 16.02%, 12.14%, 12.91%, and 10.80%. The highest (16.02%) was due to withdrawing funds for home improvements in 2013.

OTOH, we don't pay state/local income tax on any our retirement income.

While most planners state that you should plan to spend less in retirement and use some artificial income replacement value, we've found that to be of little use. We entered retirement (and many years before that) debt free, and we always planned on spending 100% of our pre-retirement net income, adjusted upward for our PROI (personal rate of inflation) along the way.

Since you asked,

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Re: Retirees, what is your marginal tax rate?

Post by friar1610 » Fri May 12, 2017 3:21 pm

25% in retirement, pretty much as it was when we were both working. (I don't remember for sure but I might have had a few years >25% when working.) On one hand it's very nice to have a good pension. On the other hand it's 100% subject to Fed tax and pushes the percentage of SS subject to tax to 85%. Fortunately, no state tax on pension or SS. All things considered, I'd rather have the pension and pay the tax than not have it. But I'm amazed by the number of posts I read from retirees who pay no taxes or manage to keep them to 15% marginal.
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Re: Retirees, what is your marginal tax rate?

Post by Sheepdog » Fri May 12, 2017 3:30 pm

You can't compare what we have experienced in retirement taxes. How much taxable accounts will you have in retirement compared to others?

I worked on reducing my taxes when I retired in late 1998, Just before retiring the upper part of my earnings was in the 39% tax bracket, so to reduce my taxes I converted some of our traditional IRAs to Roth IRAs equal to 25% of our total savings over the 5 years period of 1998 to 2002. I virtually eliminated our taxable accounts in those 5 years by using them for expenses and buying I Bonds (in the period of 3.0 to 3.6 % fixed I Bonds).

Even with taking some small distributions from our Roth IRAs over the years, our Roths have grown to 35% of our total investments. (Present investments total about $1M.) Our annual spending is usually in the $60,000 to $72,000 range.

My TOTAL federal income taxes paid in the last 13 years was less than $2700, but most years it was zero, so my present marginal tax rate is 0% compared with 39% before retiring.
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Re: Retirees, what is your marginal tax rate?

Post by penumbra » Fri May 12, 2017 3:36 pm

We're in the 39.5% bracket, plus 11% or so California tax. Will be in this bracket indefinitely. Same bracket as when I retired. Have looked at all the ways to finesse this lower; not gonna happen. This largely from accumulating a large 401k, with its attendant rmd's.

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Re: Retirees, what is your marginal tax rate?

Post by The Wizard » Fri May 12, 2017 3:39 pm

My marginal Federal tax rate in retirement, filing Single, has been 28% for all three full retirement years thus far. In my latter years of full-time employment, I was able to stay in the upper part of the 25% bracket due to maxing contributions to my 403(b) plan.
Without that tax break, my AGI and Taxable Income are now the highest they've ever been and will increase further for the usual reasons when I turn 70 in a few years...
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Re: Retirees, what is your marginal tax rate?

Post by SeeMoe » Fri May 12, 2017 6:18 pm

A better question would be: "how much do you receive from all pension income, and what is your marginal tax rate?" We clear over $200k with all benefits included and have been retired more than 21 years. Still, our CPA keeps our taxes down to the 15% margin thus far. Of course a lot of the income is tax exempt and that is a real blessing for us....

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Re: Retirees, what is your marginal tax rate?

Post by gkaplan » Fri May 12, 2017 7:59 pm

I have no idea and don't really care.
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Re: Retirees, what is your marginal tax rate?

Post by joe8d » Fri May 12, 2017 8:17 pm

25 % Fed. RMD's
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Re: Retirees, what is your marginal tax rate?

Post by Tom1320 » Fri May 12, 2017 8:28 pm

Retired this year and will be in 10% marginal bracket with a still working spouse. While working, household was in 25% bracket. Plan to be in 0% bracket after spouse retires.
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Re: Retirees, what is your marginal tax rate?

Post by BolderBoy » Fri May 12, 2017 8:34 pm

BogleMelon wrote:people who have already retired to see what is their marginal tax rate now (during retirement) comparing to what it was during accumulation period.
Working = 28%
Retired (but delaying SS / IRA / 401k) = 15%
Retired and taking SS / IRA / 401k = 25% (future, based on today's brackets)
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Re: Retirees, what is your marginal tax rate?

Post by 2b2 » Fri May 12, 2017 8:41 pm

Retired 9 years ago.
Spouse works full time.
I'm with Gordon - don't know and don't care.

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Re: Retirees, what is your marginal tax rate?

Post by FreeAtLast » Fri May 12, 2017 9:05 pm

Single, retired since 12/31/13.
So far, have oscillated between federal 15 and 25 percent.
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Re: Retirees, what is your marginal tax rate?

Post by heyyou » Fri May 12, 2017 9:45 pm

Married, retired in 2005 at age 55, delaying SS to age 70 in 2020, living in a low cost of living area. We convert tIRA to RIRA to the top of the 15% bracket each year, where the effective rate is 10.8%. Marginal rate matters when you are buying bonds, but 10.8% income tax suits me just fine.

Can't remember what my marginal rate was prior to retirement. Always maxed all tax sheltered retirement accounts and paid whatever total tax was due, without scrutinizing for the marginal rate or calculating the effective rate.

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Re: Retirees, what is your marginal tax rate?

Post by carolinaman » Sat May 13, 2017 6:44 am

Retired, married, and in the 25% marginal bracket due to nice pension and SS. We were also in 25% bracket while working. This will change for the survivor when the first of us dies. The survivor will be in the 28% marginal bracket.

I do not understand this do not care attitude towards tax brackets. A good tax strategy can enable someone to save a lot of taxes in their retirement.

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Re: Retirees, what is your marginal tax rate?

Post by MikeG62 » Sat May 13, 2017 7:34 am

Sheepdog wrote:My TOTAL federal income taxes paid in the last 13 years was less than $2700, but most years it was zero, so my present marginal tax rate is 0% compared with 39% before retiring.
Sheepdog, this is awesome. Some incredible tax planning there. :thumbsup

OP, while working (last 15 or so years) most years was in top Fed'l and state tax brackets (MFJ). Retired last year. Now using Roth conversions to bring income up to top of 15% Fed'l tax bracket (and enjoying zero qualified dividend and LTCG taxes). Fed'l "effective" tax rate in low single digits! State effective rate actually higher than Fed'l rate (because state taxes qualified dividends and LTCG).

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Re: Retirees, what is your marginal tax rate?

Post by tibbitts » Sat May 13, 2017 8:02 am

carolinaman wrote:Retired, married, and in the 25% marginal bracket due to nice pension and SS. We were also in 25% bracket while working. This will change for the survivor when the first of us dies. The survivor will be in the 28% marginal bracket.

I do not understand this do not care attitude towards tax brackets. A good tax strategy can enable someone to save a lot of taxes in their retirement.
It's not that we don't care, it's that we don't think it can be determined ahead of time with spreadsheet-like precision. So some of us try diversify strategies - Roth, deferred, and taxable - to the extent we're able to, and hope for the best. Laws change and there can be unexpected consequences to your total tax bill.

Once you have retired, of course each year you'd look at circumstances and try to reduce your tax bill where possible.

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Re: Retirees, what is your marginal tax rate?

Post by Lynette » Sat May 13, 2017 8:44 am

Single, retired at 73. As mentioned above the real issue is if you have pensions. I do as well as full SS and RMDs this year for the first time. My federal marginal tax rate is 28%. The estimate is that I will be paying about $25,000 in federal taxes this year. I have to pay IRMAA Medicare B and D premiums of about $300 per month. In Michigan the state tax is 4.25%. My property tax is about $5,000 p.a. I did not realize that by working longer I would pay so much tax. Maybe I should have retired earlier and done Roth conversions. My accountant tells me not to do them at this stage. Maybe I should have put more into taxable? I guess it is what it is.

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Re: Retirees, what is your marginal tax rate?

Post by midareff » Sat May 13, 2017 9:12 am

Marginal 15% last 5 years doing Roth conversion to the top of that rate. RMD next year so it will be 25% from here out, maybe 28%.

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Re: Retirees, what is your marginal tax rate?

Post by jebmke » Sat May 13, 2017 9:32 am

tibbitts wrote:Once you have retired, of course each year you'd look at circumstances and try to reduce your tax bill where possible.
Or, in some cases like mine, I look at circumstances late in the year and try to increase my tax bill with a ROTH conversion.

Most tax software is released with an early release on or before the first week of December. By mid-December I have a pretty good fix on my tax liability, absent specific actions like ROTH conversion and paying my 4th quarter state estimated taxes.
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Re: Retirees, what is your marginal tax rate?

Post by retiredjg » Sat May 13, 2017 10:43 am

tibbitts wrote:It's not that we don't care, it's that we don't think it can be determined ahead of time with spreadsheet-like precision. So some of us try diversify strategies - Roth, deferred, and taxable - to the extent we're able to, and hope for the best. Laws change and there can be unexpected consequences to your total tax bill.
I think these are very wise words.

I do think it is useful to demonstrate that a reasonable number of high wage earners can end up in very low brackets in retirement. Many people who make a lot of money assume they will pay high taxes in retirement so they think they should be using Roth for everything. It is not necessarily so.

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Re: Retirees, what is your marginal tax rate?

Post by rallycobra » Sat May 13, 2017 11:18 am

penumbra wrote:We're in the 39.5% bracket, plus 11% or so California tax. Will be in this bracket indefinitely. Same bracket as when I retired. Have looked at all the ways to finesse this lower; not gonna happen. This largely from accumulating a large 401k, with its attendant rmd's.
So how large a 401k at age 70 with a spouse will lock you into 39.5% with rmd's?
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Re: Retirees, what is your marginal tax rate?

Post by MnD » Sat May 13, 2017 11:30 am

Almost retired (class of 2018). Currently in middle of 28% bracket and when retired will be in middle of 25% bracket.
t401-K's now and no plans for Roth conversions.

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Re: Retirees, what is your marginal tax rate?

Post by penumbra » Sat May 13, 2017 1:38 pm

rallycobra wrote:
penumbra wrote:We're in the 39.5% bracket, plus 11% or so California tax. Will be in this bracket indefinitely. Same bracket as when I retired. Have looked at all the ways to finesse this lower; not gonna happen. This largely from accumulating a large 401k, with its attendant rmd's.
So how large a 401k at age 70 with a spouse will lock you into 39.5% with rmd's?
Our 401k is nearly 8 figures. Have not attempted to grow it for the last 8 years or so. Should have stopped funding it earlier, retired earlier, and/or done Roth conversions, but I liked my job. First world problem I know, but that's how it worked out. Dividends on taxable holdings make the problem worse, but embedded gains are too high to sell things now.

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Re: Retirees, what is your marginal tax rate?

Post by Bacchus01 » Thu Sep 21, 2017 4:40 pm

I'm curious what people are seeing in their total fed tax rate and some of the parameters around that. We pay about 30-33% total fed/state taxes right now with ~$500K household income. I have to believe it will be substantially lower in retirement when drawing $100K or so in living costs with a 7 figure after-tax investment account.

What are others seeing?

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Re: Retirees, what is your marginal tax rate?

Post by livesoft » Thu Sep 21, 2017 4:52 pm

@Bacchus01, We pay under 4% in Federal income taxes on a 6-figure adjusted gross income. One of us is working full-time.

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Re: Retirees, what is your marginal tax rate?

Post by The Wizard » Thu Sep 21, 2017 4:55 pm

Bacchus01 wrote:
Thu Sep 21, 2017 4:40 pm
I'm curious what people are seeing in their total fed tax rate and some of the parameters around that. We pay about 30-33% total fed/state taxes right now with ~$500K household income. I have to believe it will be substantially lower in retirement when drawing $100K or so in living costs with a 7 figure after-tax investment account.

What are others seeing?
It's going to vary considerably.
I had large tax deferred savings my latter working years and was able to stay in the 25% bracket, filing single.
Now in retirement, I have slightly higher AGI, due partly to Roth conversions, and am in the 28% marginal bracket.
And for 2016, due to some part-time work, I paid the most Income Tax I ever have...
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Re: Retirees, what is your marginal tax rate?

Post by jebmke » Thu Sep 21, 2017 5:00 pm

Bacchus01 wrote:
Thu Sep 21, 2017 4:40 pm
I have to believe it will be substantially lower in retirement when drawing $100K or so in living costs with a 7 figure after-tax investment account.
You should be able to model this and get a reasonable estimate using current year tax software (speculating on tax law changes is a fools errand IMO).

Ours varies greatly from year to year depending on ROTH conversions from our IRAs. Without the ROTH conversions our Federal taxes would be at or near zero. Our parameters are grossly similar to yours. This will change next year when I start my pension. Then it changes again in 2023 when we start social security and RMDs. I have proforma tax returns for 2018 and 2023 (I call these "the inflection years") that I have maintained every year since I retired in 2007. I spend more time on my pro-formas than I do on my actual return every year.
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Re: Retirees, what is your marginal tax rate?

Post by 22twain » Thu Sep 21, 2017 5:15 pm

We were in the (MFJ) 25% bracket before retiring.

We are postponing SS and withdrawals from tax-deferred accounts until age 70. She earns a small salary from part-time teaching.
Taking only earnings, dividends and interest into account, we are now in the 15% bracket. We'll probably do Roth conversions to fill up that bracket.

After she starts taking SS and RMDs, I estimate that we will still be a bit below the top of the 15% bracket. How far below depends on whether she's still working then. We might still be able to do small Roth conversions.

After I start taking SS and RMDs, we will be solidly back inside the 25% bracket, with about the same taxable income as during our last few years of full-time work.

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Re: Retirees, what is your marginal tax rate?

Post by Bacchus01 » Fri Sep 22, 2017 6:34 am

22twain wrote:
Thu Sep 21, 2017 5:15 pm
We were in the (MFJ) 25% bracket before retiring.

We are postponing SS and withdrawals from tax-deferred accounts until age 70. She earns a small salary from part-time teaching.
Taking only earnings, dividends and interest into account, we are now in the 15% bracket. We'll probably do Roth conversions to fill up that bracket.

After she starts taking SS and RMDs, I estimate that we will still be a bit below the top of the 15% bracket. How far below depends on whether she's still working then. We might still be able to do small Roth conversions.

After I start taking SS and RMDs, we will be solidly back inside the 25% bracket, with about the same taxable income as during our last few years of full-time work.
Thanks. I understand the brackets for marginal, but I was interested in what people's total rate became. In my "plan" I was using 25% (currently at 30-33% while working) but I'm beginning to believe that total tax rate is grossly conservative. I live in a higher tax state (WI) but I believe I could still get that total tax under 20% or even 15% on a $100K spend rate with a combo of dividends and capital gains factored in. We will have three pensions, but don't plan to take those until 65+ and SS at 65+. Want to retire early and considering what the tax implications are.

I like the approach of running it through the tax software. I'll try that!

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Re: Retirees, what is your marginal tax rate?

Post by Rob54keep » Fri Sep 22, 2017 7:01 am

Before retirement was in the 33% club, for 2016 taxes, I in am in the 15%. I would be in the 0% but Roth conversions take me to the top of the 15%.
For 2017, who knows?

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Re: Retirees, what is your marginal tax rate?

Post by exoilman » Fri Sep 22, 2017 7:56 am

Swansea wrote:
Fri May 12, 2017 2:52 pm
25% now, but may change once I start RMDs.
Similar for me and now RMD's for last 3 years bumped us into 33%. So now restructuring taxable acct. to munis and federal tax free. Also some non dividend stocks and ETF's for future growth.

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Re: Retirees, what is your marginal tax rate?

Post by Doc » Fri Sep 22, 2017 8:11 am

Social security taxation was mentioned up thread but largely ignored. After some relatively low income level 85% of your SS becomes taxable. So in the 15% bracket your marginal rate is 28.5%. in the past Grabiner has comented that the phaseout can continue in the 25% bracket.

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Re: Retirees, what is your marginal tax rate?

Post by JW-Retired » Fri Sep 22, 2017 8:43 am

Thanks to just one wife, one house, working until 69, a pension, and saving the max in the 401k from the 70's onward..... it's a bracket higher than it ever was working. I guess that was bad planning! :oops:

Not really, much of it was just saving in an optimum time period to be investing. Also, going from a tax deduction while saving to RMDs is a heck of a swing in taxable income.
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Re: Retirees, what is your marginal tax rate?

Post by DrGoogle2017 » Fri Sep 22, 2017 9:13 am

Zero for 2016. Could be in 10-15% in 2017 due to Roth conversion. Will be in this bracket until my husband has to take his RMDs. Then possibly in 25% bracket after that.

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Re: Retirees, what is your marginal tax rate?

Post by rkhusky » Fri Sep 22, 2017 12:15 pm

rallycobra wrote:
Sat May 13, 2017 11:18 am
penumbra wrote:We're in the 39.5% bracket, plus 11% or so California tax. Will be in this bracket indefinitely. Same bracket as when I retired. Have looked at all the ways to finesse this lower; not gonna happen. This largely from accumulating a large 401k, with its attendant rmd's.
So how large a 401k at age 70 with a spouse will lock you into 39.5% with rmd's?
A Traditional balance of $13.5M would be enough for the first year's RMD to bump you into the highest bracket.

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Re: Retirees, what is your marginal tax rate?

Post by Dale_G » Fri Sep 22, 2017 1:00 pm

My federal tax rate (filing MFJ) has never been lower than 25%/28% since retiring in 2001. There was 1 year at 35%. I have made some small Roth conversions (not enough to bump into the next higher bracket), but the benefit is minuscule if at all.

I suspect those maxing out 40Xs and doing backdoor Roths, especially with dual incomes, are going to be surprised by their tax bill. A great reason to hold equities in the taxable account if possible.

Dale
Volatility is my friend

trueblueky
Posts: 1178
Joined: Tue May 27, 2014 3:50 pm

Re: Retirees, what is your marginal tax rate?

Post by trueblueky » Fri Sep 22, 2017 8:08 pm

Retired. Married. Federal rate 15%, no state.
Federal will be 25% when RMD begins or either dies.
Doing Roth conversions to the top of 15% bracket each year until then.
RMD begins before DW's Social Security, so SS will be taxed at 25(.85) = 21.25% but the overall marginal will still be 25%.

rnitz
Posts: 250
Joined: Thu May 10, 2007 12:47 pm
Location: San Diego

Re: Retirees, what is your marginal tax rate?

Post by rnitz » Fri Sep 22, 2017 8:23 pm

Things may be different, depending on your circumstance. Modestly early retiree (late 50's), with basically a three-fund portfolio, almost all in taxable accounts.

AGI: > $ 100K (MFJ)
Fed agg. rate: -1.5% (yes, they send us a check, with no withholding)
State agg. rate (CA): 2%

Fed marginal rate ($1 increase): 0
State marginal rate ($1 increase, CA): 9.3%

Fed marginal rate ($ 10K increase): 15%
State marginal rate($ 10K increase, CA): 9.3%

Circumstances: we still have two kids who are dependents, and in college. This gives us the deductions and exemptions to drop us just below the $75K level where capital gains and stock dividends are taxed at 0. Also, the college education tax credit is what drops us into negative territory for Federal taxes. We are at the sweet spot where technically our marginal tax rate is low (i.e. $1 increase), but any significant increase in income puts us into a much higher marginal tax rate. I'm sure this will change when the kids are out of college (IF!) and we eventually hit social security.

indexonlyplease
Posts: 794
Joined: Thu Apr 30, 2015 12:30 pm
Location: Pembroke Pines, FL

Re: Retirees, what is your marginal tax rate?

Post by indexonlyplease » Fri Sep 22, 2017 8:38 pm

I always heard that your taxes will be lower in retiremnet. I retired last year and because of my pension I stayed in the same tax bracket 25%. Now I have to be careful in the future if I decide to take some of my investments. They could put me in the next tax bracket. But wife still works so when she retires in the future we will start taking money from investments.

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