tax break now or later

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LadyIJ
Posts: 470
Joined: Thu Mar 06, 2014 8:00 pm

tax break now or later

Post by LadyIJ » Tue Dec 06, 2016 5:12 pm

I'm getting ready to FINALLY retire, and I will only be working one month next year. In 2017 I have two ways to go.

1) take a minimal IRA withdrawal $8- $10K and this way we will pay no taxes at all, get refunded all taxes I paid in January. (i.e., stay under the $32,000 for couples and husband owes no social security tax); or

2) my original plan was to take as much as I could out of my retirement accounts and still remain in the 15% tax bracket. We would have a nice cushion and possibly I could put about $20K a year in a Roth, starting 2017.

I'm torn, because I always thought it would be best from the age of 63 to 70 to do this to reduce my future MRD's. It is tempting though to do step 1 and pay Uncle Sam zilch for 1 year. it comes down to whether I want to pay $0 taxes or $10,000 in 2017. Take my lumps now and have $10,000 less in my estate, or later.

My friend's husband died unexpectedly and now she can only withdraw as a single tax payer, i.e. LESS.

Your thoughts please?

iasw
Posts: 139
Joined: Mon Dec 05, 2016 2:02 pm

Re: tax break now or later

Post by iasw » Tue Dec 06, 2016 5:35 pm

No thoughts, just a hearty congratulations from me!

LadyIJ
Posts: 470
Joined: Thu Mar 06, 2014 8:00 pm

Re: tax break now or later

Post by LadyIJ » Tue Dec 06, 2016 5:36 pm

aww, thanks! I'm excited (and scared) :happy

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BL
Posts: 7496
Joined: Sun Mar 01, 2009 2:28 pm

Re: tax break now or later

Post by BL » Tue Dec 06, 2016 6:01 pm

Could you get a tax program (even last year's) or tax estimator and try some "what if's" to check it out?

Will you be in a higher bracket at age 70 1/2? What about if there is only one of you left?

Are you aware of QCDs if interested in charitable giving after RMD?

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blueblock
Posts: 848
Joined: Sun Oct 19, 2014 6:06 pm
Location: Wisconsin

Re: tax break now or later

Post by blueblock » Tue Dec 06, 2016 7:17 pm

Congrats on your retirement! I've been retired for a year and a half, and it's awesome.

I'm in a somewhat analogous position to yours, in that I could take an income tax holiday next year (or really any year) by withdrawing my living expenses from taxable. (Long-term capital gains + SS = zero federal taxes.) It's certainly appealing. Like you, I'd save about $10K on taxes. The thing is, I can only do this so many times over my remaining lifetime, since I'm no longer accumulating, so the question is to do it now or later, and I haven't decided.

I suspect that the answer may lie somewhere in the middle: taking some from the IRA and some from taxable, to reduce if not eliminate the federal tax burden. I'm still playing with Taxcaster to run scenarios.

LadyIJ
Posts: 470
Joined: Thu Mar 06, 2014 8:00 pm

Re: tax break now or later

Post by LadyIJ » Tue Dec 06, 2016 7:27 pm

blueblock wrote:Congrats on your retirement! I've been retired for a year and a half, and it's awesome.

I'm in a somewhat analogous position to yours, in that I could take an income tax holiday next year (or really any year) by withdrawing my living expenses from taxable. (Long-term capital gains + SS = zero federal taxes.) It's certainly appealing. Like you, I'd save about $10K on taxes. The thing is, I can only do this so many times over my remaining lifetime, since I'm no longer accumulating, so the question is to do it now or later, and I haven't decided.

I suspect that the answer may lie somewhere in the middle: taking some from the IRA and some from taxable, to reduce if not eliminate the federal tax burden. I'm still playing with Taxcaster to run scenarios.
I guess it does come down to now or later. If something happens to my husband, I wouldn't be able to pull about $70K a year - maybe I should do it now, as you said, I can choose to take a tax holiday any year later and this way money that goes into the Roth will have more time to grow. I'm trying to take the emotion out of it (finally getting ONE darn year without paying Uncle Sam! - lol).

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