## Social Security “Hump” and the new tax rates???

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FarmGeek
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### Social Security “Hump” and the new tax rates???

Wondering how this “Hump” will change with the new tax rates?

Any general thoughts from people? Or will things be very similar?

Any chance someone will update the wiki page.

FiveK
Posts: 13017
Joined: Sun Mar 16, 2014 2:43 pm

### Re: Social Security “Hump” and the new tax rates???

One may generate similar charts using the personal finance toolbox spreadsheet. E.g., for a single 64 year old with \$24K SS benefit and \$2K in qualified dividends:

Last edited by FiveK on Sun Jul 22, 2018 12:09 pm, edited 1 time in total.
Watty
Posts: 25475
Joined: Wed Oct 10, 2007 3:55 pm

### Re: Social Security “Hump” and the new tax rates???

FiveK wrote: Fri Jan 12, 2018 10:47 pm One may generate similar charts using the personal finance toolbox spreadsheet. E.g., for a single 64 year old with \$24K SS benefit and \$2K in qualified dividends:
I looked at that link but I could not find the a graph like that. Where was that?
FiveK
Posts: 13017
Joined: Sun Mar 16, 2014 2:43 pm

### Re: Social Security “Hump” and the new tax rates???

Watty wrote: Sat Jan 13, 2018 7:51 pm
FiveK wrote: Fri Jan 12, 2018 10:47 pm One may generate similar charts using the personal finance toolbox spreadsheet. E.g., for a single 64 year old with \$24K SS benefit and \$2K in qualified dividends:
I looked at that link but I could not find the a graph like that. Where was that?
The graph is on the 'Calculations' tab, starting ~cell F81. The spreadsheet cell values I used:
G2 = 1
G8 = 64
B38 = 24000
D25 = 2000

Then follow the instruction on the 'Instructions' sheet, ~rows 19-35, to use D31 as the "Column input cell:" for the data table that feeds the graph. The data table is outlined in bold, cells P82:R583, to make it easy to select.

Also set cell P82 = 100, and adjusted the y-axis scale on the chart to get the version posted.

If one is familiar with Excel data tables, this is all straightforward. If not, it's one of those things that may appear very complex at first, but once done a time or two is straightforward after all.

Any questions about the above, just ask. I can probably handle those. Detailed questions (or suggestions) may be best put on the MMM site where the tool is hosted. I believe @nolesrule mentioned getting a quick response there for something.
Last edited by FiveK on Mon Jan 15, 2018 12:10 am, edited 1 time in total.
#Cruncher
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Contact:

### Re: Social Security “Hump” and the new tax rates???

tamucpa wrote: Fri Jan 12, 2018 10:00 pm [Wiki's] Social Security tax impact calculator
Wondering how this “Hump” will change with the new tax rates? ... Any chance someone will update the wiki page[?]
Taking your second question first, tamucpa, you could send a private message to PapaGeek, the author of the Wiki page and the spreadsheet. From his profile, I see that he hasn't been on the forum since December 22nd.

As background to your first question for readers unfamiliar with it, the Social Security tax "hump" refers to the portion of a graph of marginal tax rate plotted against increasing non-SS ordinary income where the marginal rate exceeds the tax bracket rate. FiveK's graph above shows this "hump". [1] It is caused by the special way that Social Security benefits are taxed (explained in the Wiki's Taxation of Social Security benefits). The new tax law has not changed this treatment. Therefore, the new tax brackets only alter the size and extent of the "hump". In most cases it will still exist; but be smaller.

The following table is based on FiveK's example of a single filer age 64 taking the standard deduction with a \$24,000 SS benefit and \$2,000 of long term capital gains (LTCG) or Qualified Dividend Income (QDI). The "2018" column shows the dollar amounts corresponding to the steps in FiveK's graph. The "2017" column shows the corresponding steps for a 2017 single return with the same SS and QDI. The new tax law reduces the "tallest" part of the "hump" from 55.50% to 49.95%. In both years this high marginal rate results when each \$100 of ordinary income causes \$85 more of SS to be taxable. This total \$185 of additional ordinary income pushes \$185 of the QDI into the 15% bracket. When all of the QDI has been taxed, the marginal rate falls down to 46.25% in 2017 or 40.70% in 2018. [2]

Code: Select all

``````     Event                  2017              2018               Result of
--------------------   --------------    --------------    ----------------------
Reach bracket 1        10,400  10.00%                      B1
Begin 50% SS taxable   11,000  15.00%    11,667  15.00%    B1 X 1.5
Reach bracket 2        16,817  22.50%    18,017  18.00%    B2 X 1.5
Begin 85% SS taxable   20,000  27.75%    20,000  22.20%    B2 X 1.85
Start QDI taxable      31,811  55.50%    33,027  49.95%    B2 X 1.85 + 15% X 1.85
Reach all QDI taxed                      34,108  22.20%    B2 X 1.85
Reach bracket 3        32,892  46.25%    34,162  40.70%    B3 X 1.85
Reach max SS taxed     38,706  25.00%    38,706  22.00%    B3``````
Here is the detail behind the table. It was prepared with the Compare sheet of my Marginal Tax Rates spreadsheet. The first table is for a 2017 return and the second one is for a 2018 return.

Code: Select all

``````Social Security 50% threshhold    25,000   -------------------------------------------------->
Social Security 85% threshhold    34,000   -------------------------------------------------->
Rate: ord income bracket 1           10%   -------------------------------------------------->
Rate: ord income bracket 2           15%   -------------------------------------------------->
Rate: ord income bracket 3           25%   -------------------------------------------------->
Rate: LTCG & QDI bracket 2           15%   -------------------------------------------------->
Floor: ord income bracket 2        9,325   -------------------------------------------------->
Floor: ord income bracket 3       37,950   -------------------------------------------------->
Floor: LTCG & QDI bracket 2       37,950   -------------------------------------------------->

Social Security Benefit           24,000   24,000   24,000   24,000   24,000   24,000   24,000
LTCG & QDI                         2,000    2,000    2,000    2,000    2,000    2,000    2,000
Non-SS Ordinary Income            10,400   11,000   16,817   20,000   31,811   32,892   38,706
SS Relevant Income                24,400   25,000   30,817   34,000   45,811   46,892   52,706
50% SS taxable                       -        -      2,908    4,500    4,500    4,500    4,500
85% SS taxable                       -        -        -        -     10,039   10,958   15,900
Total SS taxable                     -        -      2,908    4,500   14,539   15,458   20,400
Adjusted gross income             12,400   13,000   21,725   26,500   48,350   50,350   61,106
Deductions plus Exemptions        10,400   10,400   10,400   10,400   10,400   10,400   10,400
Taxable Income                     2,000    2,600   11,325   16,100   37,950   39,950   50,706
LTCG & QDI Taxable                 2,000    2,000    2,000    2,000    2,000    2,000    2,000
Ordinary income taxable              -        600    9,325   14,100   35,950   37,950   48,706

Taxable: ord income bracket 3        -        -        -        -        -        -     10,756
Taxable: ord income bracket 2        -        -        -      4,775   26,625   28,625   28,625
Taxable: ord income bracket 1        -        600    9,325    9,325    9,325    9,325    9,325
Taxable: LTCG & QDI bracket 2        -        -        -        -          0    2,000    2,000
Taxable: LTCG & QDI bracket 1      2,000    2,000    2,000    2,000    2,000      -        -
Tax: ord income bracket 3            -        -        -        -        -        -      2,689
Tax: ord income bracket 2            -        -        -        716    3,994    4,294    4,294
Tax: ord income bracket 1            -         60      933      933      933      933      933
Tax: LTCG & QDI bracket 2            -        -        -        -          0      300      300
Total tax                            -         60      933    1,649    4,926    5,526    8,215

Increased non-SS ordinary income          600    5,817    3,183   11,811    1,081    5,814
Increased taxable SS                      -      2,908    1,592   10,039      919    4,942
Increased tax                              60      873      716    3,278      600    2,689
Marginal SS taxable                     0.00%   50.00%   50.00%   85.00%   85.00%   85.00%
Marginal tax rate                      10.00%   15.00%   22.50%   27.75%   55.50%   46.25%``````

Code: Select all

``````Social Security 50% threshhold    25,000   -------------------------------------------------->
Social Security 85% threshhold    34,000   -------------------------------------------------->
Rate: ord income bracket 1           10%   -------------------------------------------------->
Rate: ord income bracket 2           12%   -------------------------------------------------->
Rate: ord income bracket 3           22%   -------------------------------------------------->
Rate: LTCG & QDI bracket 2           15%   -------------------------------------------------->
Floor: ord income bracket 2        9,525   -------------------------------------------------->
Floor: ord income bracket 3       38,700   -------------------------------------------------->
Floor: LTCG & QDI bracket 2       38,600   -------------------------------------------------->

Social Security Benefit           24,000   24,000   24,000   24,000   24,000   24,000   24,000
LTCG & QDI                         2,000    2,000    2,000    2,000    2,000    2,000    2,000
Non-SS Ordinary Income            11,667   18,017   20,000   33,027   34,108   34,162   38,706
SS Relevant Income                25,667   32,017   34,000   47,027   48,108   48,162   52,706
50% SS taxable                       333    3,508    4,500    4,500    4,500    4,500    4,500
85% SS taxable                       -        -        -     11,073   11,992   12,038   15,900
Total SS taxable                     333    3,508    4,500   15,573   16,492   16,538   20,400
Adjusted gross income             14,000   23,525   26,500   50,600   52,600   52,700   61,106
Deductions plus Exemptions        12,000   12,000   12,000   12,000   12,000   12,000   12,000
Taxable Income                     2,000   11,525   14,500   38,600   40,600   40,700   49,106
LTCG & QDI Taxable                 2,000    2,000    2,000    2,000    2,000    2,000    2,000
Ordinary income taxable              -      9,525   12,500   36,600   38,600   38,700   47,106

Taxable: ord income bracket 3        -        -        -        -        -        -      8,406
Taxable: ord income bracket 2        -        -      2,975   27,075   29,075   29,175   29,175
Taxable: ord income bracket 1        -      9,525    9,525    9,525    9,525    9,525    9,525
Taxable: LTCG & QDI bracket 2        -        -        -        -      2,000    2,000    2,000
Taxable: LTCG & QDI bracket 1      2,000    2,000    2,000    2,000      -        -        -
Tax: ord income bracket 3            -        -        -        -        -        -      1,849
Tax: ord income bracket 2            -        -        357    3,249    3,489    3,501    3,501
Tax: ord income bracket 1            -        953      953      953      953      953      953
Tax: LTCG & QDI bracket 2            -        -        -        -        300      300      300
Total tax                            -        953    1,310    4,202    4,742    4,754    6,603

Increased non-SS ordinary income        6,350    1,983   13,027    1,081       54    4,544
Increased taxable SS                    3,175      992   11,073      919       46    3,862
Increased tax                             953      357    2,892      540       12    1,849
Marginal SS taxable                    50.00%   50.00%   85.00%   85.00%   85.00%   85.00%
Marginal tax rate                      15.00%   18.00%   22.20%   49.95%   22.20%   40.70%``````
1. You can also generate the graph by entering the following in cells B1: B9 on the Main sheet of my spreadsheet:

Code: Select all

``````Row       Col A                        Col B
---  -----------------------------    ------
1  Tax year                           2018
2  Single or Joint Return           Single
3  Number filers age 65 or older         0
4  Tax exempt interest                   0
5  Non-SS Ordinary Income           <blank>
6  LTCG & QDI                        2,000
7  Social Security Benefit          24,000
8  Deductions                       <blank>
9  Exemption                        <blank>``````
2. In 2017 the last dollar of QDI will be taxed at the same point where ordinary income goes from the 15% to 25% brackets. But in 2018 all of QDI will have been taxed just before ordinary income moves from the 12% to 22% brackets. This makes the marginal rate drop from 49.95% to 22.20% before jumping up to 40.70%. This arises because of a \$100 difference in the 22% ordinary income tax bracket (\$38,700) and the 15% LTCG/QDI tax bracket (\$38,600). (See this 2018 Tax Rate Table in the Wiki.)
Watty
Posts: 25475
Joined: Wed Oct 10, 2007 3:55 pm

### Re: Social Security “Hump” and the new tax rates???

FiveK wrote: Sat Jan 13, 2018 8:41 pm
Watty wrote: Sat Jan 13, 2018 7:51 pm
FiveK wrote: Fri Jan 12, 2018 10:47 pm One may generate similar charts using the personal finance toolbox spreadsheet. E.g., for a single 64 year old with \$24K SS benefit and \$2K in qualified dividends:
I looked at that link but I could not find the a graph like that. Where was that?
The graph is on the 'Calculations' tab, starting ~cell F81. The spreadsheet cell values I used:
G2 = 1
G8 = 64
B38 = 24000
D25 = 2000

The follow the instruction on the 'Instructions' sheet, ~rows 19-35, to use D31 as the "Column input cell:" for the data table that feeds the graph. The data table is outlined in bold, cells P82:R583, to make it easy to select.

Also set cell P82 = 100, and adjusted the y-axis scale on the chart to get the version posted.

If one is familiar with Excel data tables, this is all straightforward. If not, it's one of those things that may appear very complex at first, but once done a time or two is straightforward after all.

Any questions about the above, just ask. I can probably handle those. Detailed questions (or suggestions) may be best put on the MMM site where the tool is hosted. I believe @nolesrule mentioned getting a quick response there for something.
Thanks for that information but I was not able to get it working so I will just calculate a few points manually.
FiveK
Posts: 13017
Joined: Sun Mar 16, 2014 2:43 pm

### Re: Social Security “Hump” and the new tax rates???

Watty wrote: Sun Jan 14, 2018 11:12 pm Thanks for that information but I was not able to get it working so I will just calculate a few points manually.
Hmmm. If it's unclear to you, it's probably unclear to others. That's unfortunate, because for some situations seeing a wider view can be more helpful than seeing only a few points, and this (or similar) tools can be useful in showing that view.

If you are trying this in a non-Excel (e.g., Google Sheets, etc.) spreadsheet, that's out of my ken and if interested you may want to ask on the MMM forum. But if you are using Excel it "should" be doable.

Could you clarify where things seem to go awry?
kramer
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Location: World Traveler

### Re: Social Security “Hump” and the new tax rates???

I was able to download the latest MarginalRate spreadsheet from Number Cruncher's site last week (thanks so much!). However, to get it to work in Libre Office, I had to download the very latest version of Libre Office (5.4.4.2), it didn't work with an earlier version that was, I think, less than a year old. It was a formatting issue. I have run into this with other Excel worksheets and I had to add a space in each equation field ... but all worked fine with the latest Libre Office with no formatting changes.
Watty
Posts: 25475
Joined: Wed Oct 10, 2007 3:55 pm

### Re: Social Security “Hump” and the new tax rates???

FiveK wrote: Mon Jan 15, 2018 12:24 am Could you clarify where things seem to go awry?
I tried it in Google sheets then Libreoffice and it was not showing any lines on the graph. It could be the version like the last post mentioned but I was able to figure out what I needed manually so I am not going to spend any more time trying to get it to work.

I would have thought that someone would have a website with a calculator that generates that graph but I was not able to find one.
FiveK
Posts: 13017
Joined: Sun Mar 16, 2014 2:43 pm

### Re: Social Security “Hump” and the new tax rates???

Watty wrote: Mon Jan 15, 2018 8:41 am I tried it in Google sheets then Libreoffice and it was not showing any lines on the graph.
Thanks, the difference in programs probably explains it.
Alan S.
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Location: Prescott, AZ

### Re: Social Security “Hump” and the new tax rates???

In 2017 the last dollar of QDI will be taxed at the same point where ordinary income goes from the 15% to 25% brackets. But in 2018 all of QDI will have been taxed just before ordinary income moves from the 12% to 22% brackets. This makes the marginal rate drop from 49.95% to 22.20% before jumping up to 40.70%. This arises because of a \$100 difference in the 22% ordinary income tax bracket (\$38,700) and the 15% LTCG/QDI tax bracket (\$38,600). (See this 2018 Tax Rate Table in the Wiki.)
There is speculation that this minor deviation will be eliminated by a technical correction of the tax bill to restore conformity with the QDI 0 rate and the top of the 12% bracket. That would simplify various charts and presentations.

The question is when we will know. There will probably be several technical corrections done as a package, so completing the package will take time. Further, since the 0 rate for QDIs will have to be raised, there will be a tax revenue cost to be absorbed.
JBTX
Posts: 9552
Joined: Wed Jul 26, 2017 12:46 pm

### Re: Social Security “Hump” and the new tax rates???

FiveK wrote: Sat Jan 13, 2018 8:41 pm
Watty wrote: Sat Jan 13, 2018 7:51 pm
FiveK wrote: Fri Jan 12, 2018 10:47 pm One may generate similar charts using the personal finance toolbox spreadsheet. E.g., for a single 64 year old with \$24K SS benefit and \$2K in qualified dividends:
I looked at that link but I could not find the a graph like that. Where was that?
The graph is on the 'Calculations' tab, starting ~cell F81. The spreadsheet cell values I used:
G2 = 1
G8 = 64
B38 = 24000
D25 = 2000

Then follow the instruction on the 'Instructions' sheet, ~rows 19-35, to use D31 as the "Column input cell:" for the data table that feeds the graph. The data table is outlined in bold, cells P82:R583, to make it easy to select.

Also set cell P82 = 100, and adjusted the y-axis scale on the chart to get the version posted.

If one is familiar with Excel data tables, this is all straightforward. If not, it's one of those things that may appear very complex at first, but once done a time or two is straightforward after all.

Any questions about the above, just ask. I can probably handle those. Detailed questions (or suggestions) may be best put on the MMM site where the tool is hosted. I believe @nolesrule mentioned getting a quick response there for something.
I tried, again, to use this tool and not having any luck. Perhaps it doesn't work with Excel 2010. I put in the applicable financial information but nothing shows up on the graph.
FiveK
Posts: 13017
Joined: Sun Mar 16, 2014 2:43 pm

### Re: Social Security “Hump” and the new tax rates???

JBTX wrote: Wed Jan 24, 2018 10:19 pm
FiveK wrote: Sat Jan 13, 2018 8:41 pm The graph is on the 'Calculations' tab, starting ~cell F81. The spreadsheet cell values I used:
G2 = 1
G8 = 64
B38 = 24000
D25 = 2000

Then follow the instruction on the 'Instructions' sheet, ~rows 19-35, to use D31 as the "Column input cell:" for the data table that feeds the graph. The data table is outlined in bold, cells P82:R583, to make it easy to select.

Also set cell P82 = 100, and adjusted the y-axis scale on the chart to get the version posted.

If one is familiar with Excel data tables, this is all straightforward. If not, it's one of those things that may appear very complex at first, but once done a time or two is straightforward after all.

Any questions about the above, just ask. I can probably handle those. Detailed questions (or suggestions) may be best put on the MMM site where the tool is hosted. I believe @nolesrule mentioned getting a quick response there for something.
I tried, again, to use this tool and not having any luck. Perhaps it doesn't work with Excel 2010. I put in the applicable financial information but nothing shows up on the graph.
Ahhh - I think you may be correct about Excel 2010. Looking at this comment:
*For Excel 2013 and higher. Unfortunately previous versions do not have the FORMULATEXT
function used in U83 and U84 to automate the graph title. So, if you are using an older version of
Excel you will need to change the graph title by hand.
it may be that more than the graph title is affected. Does it work if you overwrite the formulas in cells U83 and U84 with the text strings D61 and D31 respectively?

In other words, in addition to the five numbers specified above, and changing the data table column input cell, set cells
U83 = D61
U84 = D31

If this works, then in general you would put whatever you use for the "data table column input cell" in cell U84, and whatever cell you chose for Q82 in cell U83.

At the risk of belaboring the point, only the 3 character-long strings D61 and D31 would go in cells U83 & U84 - not =D61 or "D61", etc.
JBTX
Posts: 9552
Joined: Wed Jul 26, 2017 12:46 pm

### Re: Social Security “Hump” and the new tax rates???

FiveK wrote: Wed Jan 24, 2018 10:41 pm
JBTX wrote: Wed Jan 24, 2018 10:19 pm
FiveK wrote: Sat Jan 13, 2018 8:41 pm The graph is on the 'Calculations' tab, starting ~cell F81. The spreadsheet cell values I used:
G2 = 1
G8 = 64
B38 = 24000
D25 = 2000

Then follow the instruction on the 'Instructions' sheet, ~rows 19-35, to use D31 as the "Column input cell:" for the data table that feeds the graph. The data table is outlined in bold, cells P82:R583, to make it easy to select.

Also set cell P82 = 100, and adjusted the y-axis scale on the chart to get the version posted.

If one is familiar with Excel data tables, this is all straightforward. If not, it's one of those things that may appear very complex at first, but once done a time or two is straightforward after all.

Any questions about the above, just ask. I can probably handle those. Detailed questions (or suggestions) may be best put on the MMM site where the tool is hosted. I believe @nolesrule mentioned getting a quick response there for something.
I tried, again, to use this tool and not having any luck. Perhaps it doesn't work with Excel 2010. I put in the applicable financial information but nothing shows up on the graph.
Ahhh - I think you may be correct about Excel 2010. Looking at this comment:
*For Excel 2013 and higher. Unfortunately previous versions do not have the FORMULATEXT
function used in U83 and U84 to automate the graph title. So, if you are using an older version of
Excel you will need to change the graph title by hand.
it may be that more than the graph title is affected. Does it work if you overwrite the formulas in cells U83 and U84 with the text strings D61 and D31 respectively?

In other words, in addition to the five numbers specified above, and changing the data table column input cell, set cells
U83 = D61
U84 = D31

If this works, then in general you would put whatever you use for the "data table column input cell" in cell U84, and whatever cell you chose for Q82 in cell U83.

At the risk of belaboring the point, only the 3 character-long strings D61 and D31 would go in cells U83 & U84 - not =D61 or "D61", etc.
I did put those two strings in those 2 cells, and the graph did populate, but it is showing negative tax. In column S most of the marginal rates are showing -22.2%.

Basically I put ages 72 and 67, Social security income of \$60K (which is for both of us) and \$40k per year TIRA income - and about \$2000 in interest and taxable gains.
FiveK
Posts: 13017
Joined: Sun Mar 16, 2014 2:43 pm

### Re: Social Security “Hump” and the new tax rates???

JBTX wrote: Wed Jan 24, 2018 10:56 pmI did put those two strings in those 2 cells, and the graph did populate, but it is showing negative tax. In column S most of the marginal rates are showing -22.2%.

Basically I put ages 72 and 67, Social security income of \$60K (which is for both of us) and \$40k per year TIRA income - and about \$2000 in interest and taxable gains.
Perhaps it looks much like the following?

That shows the marginal tax saving rate (which is why the numbers are negative) for 401k contributions (setting aside the issue of making 401k contributions with no W-2 income).

To get it to use tIRA withdrawals on the x-axis, you have to follow these instructions (see the 'Instructions' tab):

and enter D31 in the "Column input cell:" box.

In Excel 2010, you may have to Choose What-If Analysis→Data Table in the Data Tools group on the Data tab.
Last edited by FiveK on Sun Jul 22, 2018 12:06 pm, edited 1 time in total.
JBTX
Posts: 9552
Joined: Wed Jul 26, 2017 12:46 pm

### Re: Social Security “Hump” and the new tax rates???

........
Last edited by JBTX on Sat Aug 04, 2018 3:25 pm, edited 1 time in total.
JBTX
Posts: 9552
Joined: Wed Jul 26, 2017 12:46 pm

### Re: Social Security “Hump” and the new tax rates???

FiveK wrote: Wed Jan 24, 2018 11:09 pm
JBTX wrote: Wed Jan 24, 2018 10:56 pmI did put those two strings in those 2 cells, and the graph did populate, but it is showing negative tax. In column S most of the marginal rates are showing -22.2%.

Basically I put ages 72 and 67, Social security income of \$60K (which is for both of us) and \$40k per year TIRA income - and about \$2000 in interest and taxable gains.
Perhaps it looks much like the following?

That shows the marginal tax saving rate (which is why the numbers are negative) for 401k contributions (setting aside the issue of making 401k contributions with no W-2 income).

To get it to use tIRA withdrawals on the x-axis, you have to follow these instructions (see the 'Instructions' tab):

and enter D31 in the "Column input cell:" box.

In Excel 2010, you may have to Choose What-If Analysis→Data Table in the Data Tools group on the Data tab.

That seemed to work. Thanks!

This gives a somewhat different result than the Hump. It shows me at 22% rate until about 55k-65k where it hits about 40%, then back down to 22%. Is this using the 2018 new rates? I guess what I don't understand is why the rate spike is so much lower in terms of dollar income than what the hump spreadsheet shows.

Edit: I think I know the difference. The hump spreadsheet shows total income, which includes social security. The MM spreadsheet just shows the 401k withdrawal income. In both cases, it shows me about \$10k-\$15 short of "the hump"

Thanks for walking me through this!
FiveK
Posts: 13017
Joined: Sun Mar 16, 2014 2:43 pm

### Re: Social Security “Hump” and the new tax rates???

JBTX wrote: Wed Jan 24, 2018 11:27 pm That seemed to work. Thanks!

This gives a somewhat different result than the Hump. It shows me at 22% rate until about 55k-65k where it hits about 40%, then back down to 22%. Is this using the 2018 new rates? I guess what I don't understand is why the rate spike is so much lower in terms of dollar income than what the hump spreadsheet shows.

Edit: I think I know the difference. The hump spreadsheet shows total income, which includes social security. The MM spreadsheet just shows the 401k withdrawal income. In both cases, it shows me about \$10k-\$15 short of "the hump"

Thanks for walking me through this!
Great!

Maybe I'll send a PM on the MMM forum about the Excel 2010 issue - unless you have an account there and could provide a first person perspective?

Yes, the MMM spreadsheet is using 2018 rates. Just updated the Taxation of Social Security benefits - Bogleheads wiki. The chart is consistent with the table values grabiner calculated, so we have two approaches giving the same numbers - always a good thing!
smitcat
Posts: 9334
Joined: Mon Nov 07, 2016 10:51 am

### Re: Social Security “Hump” and the new tax rates???

JBTX wrote: Wed Jan 24, 2018 11:20 pm
FiveK wrote: Wed Jan 24, 2018 10:41 pm
JBTX wrote: Wed Jan 24, 2018 10:19 pm
FiveK wrote: Sat Jan 13, 2018 8:41 pm The graph is on the 'Calculations' tab, starting ~cell F81. The spreadsheet cell values I used:
G2 = 1
G8 = 64
B38 = 24000
D25 = 2000

Then follow the instruction on the 'Instructions' sheet, ~rows 19-35, to use D31 as the "Column input cell:" for the data table that feeds the graph. The data table is outlined in bold, cells P82:R583, to make it easy to select.

Also set cell P82 = 100, and adjusted the y-axis scale on the chart to get the version posted.

If one is familiar with Excel data tables, this is all straightforward. If not, it's one of those things that may appear very complex at first, but once done a time or two is straightforward after all.

Any questions about the above, just ask. I can probably handle those. Detailed questions (or suggestions) may be best put on the MMM site where the tool is hosted. I believe @nolesrule mentioned getting a quick response there for something.
I tried, again, to use this tool and not having any luck. Perhaps it doesn't work with Excel 2010. I put in the applicable financial information but nothing shows up on the graph.
Ahhh - I think you may be correct about Excel 2010. Looking at this comment:
*For Excel 2013 and higher. Unfortunately previous versions do not have the FORMULATEXT
function used in U83 and U84 to automate the graph title. So, if you are using an older version of
Excel you will need to change the graph title by hand.
it may be that more than the graph title is affected. Does it work if you overwrite the formulas in cells U83 and U84 with the text strings D61 and D31 respectively?

In other words, in addition to the five numbers specified above, and changing the data table column input cell, set cells
U83 = D61
U84 = D31

If this works, then in general you would put whatever you use for the "data table column input cell" in cell U84, and whatever cell you chose for Q82 in cell U83.

At the risk of belaboring the point, only the 3 character-long strings D61 and D31 would go in cells U83 & U84 - not =D61 or "D61", etc.

Also, I downloaded "The Hump". Updated the rates for 2017 rates - under the assumption that by the time I retire in 2030 or so they will have reversed.

If I am projecting forward, I assume I am doing everything in today's dollars, and assume everything down the road will all proportionately grow with inflation. The one exception I would think would be the taxability o SS income thresholds, which do not increase with inflation. Thus I decreased them about 35%, which was a rough approximation of 15 years or 2% inflation.

At \$60k of SS and \$40k of IRA withdrawals, at gross income of \$82K I am at 28%. I am at \$102k gross income, but at \$113K to \$116k there is a very brief span in the 45-55% marginal rate, then it backs down to approx 25%.

If we both were defer to 70 years old, SS combined is about \$80K, which gets to \$122k gross. At about 128K it shoots up to 55% very briefly, and from about \$129k to \$147k at 48%. So if we defer social security we will have to be very careful to stay below that threshold, although I suspect RMD's would be less than \$40k as we would have drawn down traditional more. Realistically I am sure it could be managed to stay below that.

I always assumed retiring later would be better, but we have a son that may end up on SSI, and as I understand it once one of us go on SS, he can file for SSDI, which is more than SSI - in which case it may make more sense for us to file early.

If I use \$40k of SS benefit (assuming both retire early) and \$42K or ordinary income, that puts us in the 28% marginal rate, although it never really gets higher, and actually drops off to 15% from \$88k to about \$106k.

Of course depending on how things go we may end up drawing more down on the traditional pre retirement, or maybe do Roth conversions. One other complicating factor is if you wanted an ACA policy with subsidies, you lose about \$10K of subsidies from the income ranges \$20k to \$65k, which is a 23% marginal rate in that income range, in addition to whatever your income tax is.

I know everybody always says their rates will be lower in retirement, but it our case I really have a hard time seeing how they would be materially lower.
"but it our case I really have a hard time seeing how they would be materially lower."

It really gets down to each persons exact situation but I do not see how your taxes could be as high as you imagine.
- There is no more 28% rate
- are you MFJ?
- are you figuring on the \$24K dedcution?
- What % of your SS will be taxable?
- Are all of your withdrawals subject to tax?

Spending some time working with the IORP and RPM calculators will likley give you some choices that would help manage taxes overall.
JBTX
Posts: 9552
Joined: Wed Jul 26, 2017 12:46 pm

### Re: Social Security “Hump” and the new tax rates???

smitcat wrote: Thu Jan 25, 2018 9:39 am
JBTX wrote: Wed Jan 24, 2018 11:20 pm
FiveK wrote: Wed Jan 24, 2018 10:41 pm
JBTX wrote: Wed Jan 24, 2018 10:19 pm
FiveK wrote: Sat Jan 13, 2018 8:41 pm The graph is on the 'Calculations' tab, starting ~cell F81. The spreadsheet cell values I used:
G2 = 1
G8 = 64
B38 = 24000
D25 = 2000

Then follow the instruction on the 'Instructions' sheet, ~rows 19-35, to use D31 as the "Column input cell:" for the data table that feeds the graph. The data table is outlined in bold, cells P82:R583, to make it easy to select.

Also set cell P82 = 100, and adjusted the y-axis scale on the chart to get the version posted.

If one is familiar with Excel data tables, this is all straightforward. If not, it's one of those things that may appear very complex at first, but once done a time or two is straightforward after all.

Any questions about the above, just ask. I can probably handle those. Detailed questions (or suggestions) may be best put on the MMM site where the tool is hosted. I believe @nolesrule mentioned getting a quick response there for something.
I tried, again, to use this tool and not having any luck. Perhaps it doesn't work with Excel 2010. I put in the applicable financial information but nothing shows up on the graph.
Ahhh - I think you may be correct about Excel 2010. Looking at this comment:
*For Excel 2013 and higher. Unfortunately previous versions do not have the FORMULATEXT
function used in U83 and U84 to automate the graph title. So, if you are using an older version of
Excel you will need to change the graph title by hand.
it may be that more than the graph title is affected. Does it work if you overwrite the formulas in cells U83 and U84 with the text strings D61 and D31 respectively?

In other words, in addition to the five numbers specified above, and changing the data table column input cell, set cells
U83 = D61
U84 = D31

If this works, then in general you would put whatever you use for the "data table column input cell" in cell U84, and whatever cell you chose for Q82 in cell U83.

At the risk of belaboring the point, only the 3 character-long strings D61 and D31 would go in cells U83 & U84 - not =D61 or "D61", etc.

Also, I downloaded "The Hump". Updated the rates for 2017 rates - under the assumption that by the time I retire in 2030 or so they will have reversed.

If I am projecting forward, I assume I am doing everything in today's dollars, and assume everything down the road will all proportionately grow with inflation. The one exception I would think would be the taxability o SS income thresholds, which do not increase with inflation. Thus I decreased them about 35%, which was a rough approximation of 15 years or 2% inflation.

At \$60k of SS and \$40k of IRA withdrawals, at gross income of \$82K I am at 28%. I am at \$102k gross income, but at \$113K to \$116k there is a very brief span in the 45-55% marginal rate, then it backs down to approx 25%.

If we both were defer to 70 years old, SS combined is about \$80K, which gets to \$122k gross. At about 128K it shoots up to 55% very briefly, and from about \$129k to \$147k at 48%. So if we defer social security we will have to be very careful to stay below that threshold, although I suspect RMD's would be less than \$40k as we would have drawn down traditional more. Realistically I am sure it could be managed to stay below that.

I always assumed retiring later would be better, but we have a son that may end up on SSI, and as I understand it once one of us go on SS, he can file for SSDI, which is more than SSI - in which case it may make more sense for us to file early.

If I use \$40k of SS benefit (assuming both retire early) and \$42K or ordinary income, that puts us in the 28% marginal rate, although it never really gets higher, and actually drops off to 15% from \$88k to about \$106k.

Of course depending on how things go we may end up drawing more down on the traditional pre retirement, or maybe do Roth conversions. One other complicating factor is if you wanted an ACA policy with subsidies, you lose about \$10K of subsidies from the income ranges \$20k to \$65k, which is a 23% marginal rate in that income range, in addition to whatever your income tax is.

I know everybody always says their rates will be lower in retirement, but it our case I really have a hard time seeing how they would be materially lower.
"but it our case I really have a hard time seeing how they would be materially lower."

It really gets down to each persons exact situation but I do not see how your taxes could be as high as you imagine.
- There is no more 28% rate
The hump spreadsheet is based on prior rates. Given I’ll retire past 2026 those are the rates per law if they reverse as legislated.

- are you MFJ?
- are you figuring on the \$24K dedcution?
- What % of your SS will be taxable?
Yes, yes, 85%

- Are all of your withdrawals subject to tax?
I was figuring 1 million left in traditional that spits out \$40k per year in approx RMDs. It is quite possible that by social security time that amount may be spent down to a lower number. We also have Roth savings which I am not counting and assuming those get used later in retirement. I could and may do Roth conversions prior to SS but there could be a narrow window between when my wife retires and I pull social Security. Plus there will be liquidity constraints because we don’t have a ton in taxable accounts.

Spending some time working with the IORP and RPM calculators will likley give you some choices that would help manage taxes overall.
Yes last night afterwards I did redo IORP and it only had me in 15% bracket. But I don’t know if it is counting SS impact on marginal rate (im sure it is, but it just doesn’t show up in the bracket.

I’ve got a lot of time to sort through all this and much will likely change in 10-15 years. Complicating factors are it may be better to take SS early due to potential adult child disability. Also if we were to get an exchange policy before Medicare income during those years that pushes up your real marginal rate at least to about \$65k gross.

I’m not too worried about it, I just want to understand it. What is pushing me into the higher marginal rate is the SS hump impact, not because I’m in a high tax bracket. It seems like if you have near max social security for 2 incomes the hump is at higher levels of income than most.
smitcat
Posts: 9334
Joined: Mon Nov 07, 2016 10:51 am

### Re: Social Security “Hump” and the new tax rates???

JBTX wrote: Thu Jan 25, 2018 10:22 am
smitcat wrote: Thu Jan 25, 2018 9:39 am
JBTX wrote: Wed Jan 24, 2018 11:20 pm
FiveK wrote: Wed Jan 24, 2018 10:41 pm
JBTX wrote: Wed Jan 24, 2018 10:19 pm

I tried, again, to use this tool and not having any luck. Perhaps it doesn't work with Excel 2010. I put in the applicable financial information but nothing shows up on the graph.
Ahhh - I think you may be correct about Excel 2010. Looking at this comment:
*For Excel 2013 and higher. Unfortunately previous versions do not have the FORMULATEXT
function used in U83 and U84 to automate the graph title. So, if you are using an older version of
Excel you will need to change the graph title by hand.
it may be that more than the graph title is affected. Does it work if you overwrite the formulas in cells U83 and U84 with the text strings D61 and D31 respectively?

In other words, in addition to the five numbers specified above, and changing the data table column input cell, set cells
U83 = D61
U84 = D31

If this works, then in general you would put whatever you use for the "data table column input cell" in cell U84, and whatever cell you chose for Q82 in cell U83.

At the risk of belaboring the point, only the 3 character-long strings D61 and D31 would go in cells U83 & U84 - not =D61 or "D61", etc.

Also, I downloaded "The Hump". Updated the rates for 2017 rates - under the assumption that by the time I retire in 2030 or so they will have reversed.

If I am projecting forward, I assume I am doing everything in today's dollars, and assume everything down the road will all proportionately grow with inflation. The one exception I would think would be the taxability o SS income thresholds, which do not increase with inflation. Thus I decreased them about 35%, which was a rough approximation of 15 years or 2% inflation.

At \$60k of SS and \$40k of IRA withdrawals, at gross income of \$82K I am at 28%. I am at \$102k gross income, but at \$113K to \$116k there is a very brief span in the 45-55% marginal rate, then it backs down to approx 25%.

If we both were defer to 70 years old, SS combined is about \$80K, which gets to \$122k gross. At about 128K it shoots up to 55% very briefly, and from about \$129k to \$147k at 48%. So if we defer social security we will have to be very careful to stay below that threshold, although I suspect RMD's would be less than \$40k as we would have drawn down traditional more. Realistically I am sure it could be managed to stay below that.

I always assumed retiring later would be better, but we have a son that may end up on SSI, and as I understand it once one of us go on SS, he can file for SSDI, which is more than SSI - in which case it may make more sense for us to file early.

If I use \$40k of SS benefit (assuming both retire early) and \$42K or ordinary income, that puts us in the 28% marginal rate, although it never really gets higher, and actually drops off to 15% from \$88k to about \$106k.

Of course depending on how things go we may end up drawing more down on the traditional pre retirement, or maybe do Roth conversions. One other complicating factor is if you wanted an ACA policy with subsidies, you lose about \$10K of subsidies from the income ranges \$20k to \$65k, which is a 23% marginal rate in that income range, in addition to whatever your income tax is.

I know everybody always says their rates will be lower in retirement, but it our case I really have a hard time seeing how they would be materially lower.
"but it our case I really have a hard time seeing how they would be materially lower."

It really gets down to each persons exact situation but I do not see how your taxes could be as high as you imagine.
- There is no more 28% rate
The hump spreadsheet is based on prior rates. Given I’ll retire past 2026 those are the rates per law if they reverse as legislated.

- are you MFJ?
- are you figuring on the \$24K dedcution?
- What % of your SS will be taxable?
Yes, yes, 85%

- Are all of your withdrawals subject to tax?
I was figuring 1 million left in traditional that spits out \$40k per year in approx RMDs. It is quite possible that by social security time that amount may be spent down to a lower number. We also have Roth savings which I am not counting and assuming those get used later in retirement. I could and may do Roth conversions prior to SS but there could be a narrow window between when my wife retires and I pull social Security. Plus there will be liquidity constraints because we don’t have a ton in taxable accounts.

Spending some time working with the IORP and RPM calculators will likley give you some choices that would help manage taxes overall.
Yes last night afterwards I did redo IORP and it only had me in 15% bracket. But I don’t know if it is counting SS impact on marginal rate (im sure it is, but it just doesn’t show up in the bracket.

I’ve got a lot of time to sort through all this and much will likely change in 10-15 years. Complicating factors are it may be better to take SS early due to potential adult child disability. Also if we were to get an exchange policy before Medicare income during those years that pushes up your real marginal rate at least to about \$65k gross.

I’m not too worried about it, I just want to understand it. What is pushing me into the higher marginal rate is the SS hump impact, not because I’m in a high tax bracket. It seems like if you have near max social security for 2 incomes the hump is at higher levels of income than most.
I would run this on the RPM as well as we are unlikely to work thru all of your details in this post. But taking some of your numbers that you have posted that SS of \$80K would be max taxable of \$68K added to your guess of max \$40k RMD"S and you have \$108K.
Using the std \$24K deduction alone you are at \$84K. The 28% rate begins at twice that for MFJ.
And the effective tax rate is likely less than half that 28% rate you are concerned about.
smitcat
Posts: 9334
Joined: Mon Nov 07, 2016 10:51 am

### Re: Social Security “Hump” and the new tax rates???

"Yes last night afterwards I did redo IORP and it only had me in 15% bracket. But I don’t know if it is counting SS impact on marginal rate (im sure it is, but it just doesn’t show up in the bracket."

We take the IORP and RPM results and run them through our tax software to check the results - they have been very close in the many runs we have checked ourselves.
JBTX
Posts: 9552
Joined: Wed Jul 26, 2017 12:46 pm

### Re: Social Security “Hump” and the new tax rates???

smitcat wrote: Thu Jan 25, 2018 10:47 am
JBTX wrote: Thu Jan 25, 2018 10:22 am
smitcat wrote: Thu Jan 25, 2018 9:39 am
JBTX wrote: Wed Jan 24, 2018 11:20 pm
FiveK wrote: Wed Jan 24, 2018 10:41 pm
Ahhh - I think you may be correct about Excel 2010. Looking at this comment:

it may be that more than the graph title is affected. Does it work if you overwrite the formulas in cells U83 and U84 with the text strings D61 and D31 respectively?

In other words, in addition to the five numbers specified above, and changing the data table column input cell, set cells
U83 = D61
U84 = D31

If this works, then in general you would put whatever you use for the "data table column input cell" in cell U84, and whatever cell you chose for Q82 in cell U83.

At the risk of belaboring the point, only the 3 character-long strings D61 and D31 would go in cells U83 & U84 - not =D61 or "D61", etc.

Also, I downloaded "The Hump". Updated the rates for 2017 rates - under the assumption that by the time I retire in 2030 or so they will have reversed.

If I am projecting forward, I assume I am doing everything in today's dollars, and assume everything down the road will all proportionately grow with inflation. The one exception I would think would be the taxability o SS income thresholds, which do not increase with inflation. Thus I decreased them about 35%, which was a rough approximation of 15 years or 2% inflation.

At \$60k of SS and \$40k of IRA withdrawals, at gross income of \$82K I am at 28%. I am at \$102k gross income, but at \$113K to \$116k there is a very brief span in the 45-55% marginal rate, then it backs down to approx 25%.

If we both were defer to 70 years old, SS combined is about \$80K, which gets to \$122k gross. At about 128K it shoots up to 55% very briefly, and from about \$129k to \$147k at 48%. So if we defer social security we will have to be very careful to stay below that threshold, although I suspect RMD's would be less than \$40k as we would have drawn down traditional more. Realistically I am sure it could be managed to stay below that.

I always assumed retiring later would be better, but we have a son that may end up on SSI, and as I understand it once one of us go on SS, he can file for SSDI, which is more than SSI - in which case it may make more sense for us to file early.

If I use \$40k of SS benefit (assuming both retire early) and \$42K or ordinary income, that puts us in the 28% marginal rate, although it never really gets higher, and actually drops off to 15% from \$88k to about \$106k.

Of course depending on how things go we may end up drawing more down on the traditional pre retirement, or maybe do Roth conversions. One other complicating factor is if you wanted an ACA policy with subsidies, you lose about \$10K of subsidies from the income ranges \$20k to \$65k, which is a 23% marginal rate in that income range, in addition to whatever your income tax is.

I know everybody always says their rates will be lower in retirement, but it our case I really have a hard time seeing how they would be materially lower.
"but it our case I really have a hard time seeing how they would be materially lower."

It really gets down to each persons exact situation but I do not see how your taxes could be as high as you imagine.
- There is no more 28% rate
The hump spreadsheet is based on prior rates. Given I’ll retire past 2026 those are the rates per law if they reverse as legislated.

- are you MFJ?
- are you figuring on the \$24K dedcution?
- What % of your SS will be taxable?
Yes, yes, 85%

- Are all of your withdrawals subject to tax?
I was figuring 1 million left in traditional that spits out \$40k per year in approx RMDs. It is quite possible that by social security time that amount may be spent down to a lower number. We also have Roth savings which I am not counting and assuming those get used later in retirement. I could and may do Roth conversions prior to SS but there could be a narrow window between when my wife retires and I pull social Security. Plus there will be liquidity constraints because we don’t have a ton in taxable accounts.

Spending some time working with the IORP and RPM calculators will likley give you some choices that would help manage taxes overall.
Yes last night afterwards I did redo IORP and it only had me in 15% bracket. But I don’t know if it is counting SS impact on marginal rate (im sure it is, but it just doesn’t show up in the bracket.

I’ve got a lot of time to sort through all this and much will likely change in 10-15 years. Complicating factors are it may be better to take SS early due to potential adult child disability. Also if we were to get an exchange policy before Medicare income during those years that pushes up your real marginal rate at least to about \$65k gross.

I’m not too worried about it, I just want to understand it. What is pushing me into the higher marginal rate is the SS hump impact, not because I’m in a high tax bracket. It seems like if you have near max social security for 2 incomes the hump is at higher levels of income than most.
I would run this on the RPM as well as we are unlikely to work thru all of your details in this post. But taking some of your numbers that you have posted that SS of \$80K would be max taxable of \$68K added to your guess of max \$40k RMD"S and you have \$108K.
Using the std \$24K deduction alone you are at \$84K. The 28% rate begins at twice that for MFJ.
And the effective tax rate is likely less than half that 28% rate you are concerned about.
I understand I’ll likely be in the 15% bracket, or maybe the 25% rate which starts at \$76k. But the taxability of social security pushes the marginal rate higher in our case.
FiveK
Posts: 13017
Joined: Sun Mar 16, 2014 2:43 pm

### Re: Social Security “Hump” and the new tax rates???

smitcat wrote: Thu Jan 25, 2018 9:39 am It really gets down to each persons exact situation but I do not see how your taxes could be as high as you imagine.
...
Spending some time working with the IORP and RPM calculators will likley give you some choices that would help manage taxes overall.
JBTX's numbers are correct.

With RPM, if you are looking at row 188 on the 'Base' tab, those numbers are the "bracket" rates. They may or may not be the same as the marginal tax rate to which JBTX refers.
smitcat
Posts: 9334
Joined: Mon Nov 07, 2016 10:51 am

### Re: Social Security “Hump” and the new tax rates???

FiveK wrote: Thu Jan 25, 2018 1:29 pm
smitcat wrote: Thu Jan 25, 2018 9:39 am It really gets down to each persons exact situation but I do not see how your taxes could be as high as you imagine.
...
Spending some time working with the IORP and RPM calculators will likley give you some choices that would help manage taxes overall.
JBTX's numbers are correct.

With RPM, if you are looking at row 188 on the 'Base' tab, those numbers are the "bracket" rates. They may or may not be the same as the marginal tax rate to which JBTX refers.
In this post I was replying to JTBX's specific concern that his taxes in retirement appear to be higher to him than what others are seeing/saying.
I do not see JBTX referring to any RPM numbers on this post.
Are you saying that the following numbers are correct for JTBX?
"If I use \$40k of SS benefit (assuming both retire early) and \$42K or ordinary income, that puts us in the 28% marginal rate"

I believe he and others may be confusing real tax marginal rates and effective rates with transitional rates.
So the question is what will JTBX taxes be if he is MFJ with \$40K of SS and \$42K of ordinary income in retirement?
What will his Fed taxes due total on that \$82K and what will that effective tax be in % on the \$82K?
FiveK
Posts: 13017
Joined: Sun Mar 16, 2014 2:43 pm

### Re: Social Security “Hump” and the new tax rates???

smitcat wrote: Thu Jan 25, 2018 4:10 pm In this post I was replying to JTBX's specific concern that his taxes in retirement appear to be higher to him than what others are seeing/saying.
I do not see JBTX referring to any RPM numbers on this post.
Are you saying that the following numbers are correct for JTBX?
"If I use \$40k of SS benefit (assuming both retire early) and \$42K or ordinary income, that puts us in the 28% marginal rate"
Yes, those numbers (using 2017 tax rates) are correct. One can use the 2017 version of the personal finance toolbox spreadsheet from this post to confirm.

Agreed, JBTX did not refer to RPM. I just noted that, at least on the row mentioned, the RPM numbers are "brackets" and not necessarily the correct "marginal rates".
I believe he and others may be confusing real tax marginal rates and effective rates with transitional rates.
So the question is what will JTBX taxes be if he is MFJ with \$40K of SS and \$42K of ordinary income in retirement?
What will his Fed taxes due total on that \$82K and what will that effective tax be in % on the \$82K?
I'm pretty sure what is meant by "effective rates", but how are you defining "real tax marginal rates" and "transitional rates"? Same as Marginal tax rate - Bogleheads?

Again using 2017 rates, no other income, and standard deduction, in JBTX's scenario the federal income tax would be ~\$4,023. One may certainly calculate an effective rate from that. In choosing how much of a traditional to Roth conversion one might make, though, the marginal rates for various conversion amounts will be more useful than an effective rate, correct?
JBTX
Posts: 9552
Joined: Wed Jul 26, 2017 12:46 pm

### Re: Social Security “Hump” and the new tax rates???

I was referring to the marginal rate, as indicated by the Hump graph. I was visually looking at the graph, so I can't say whether the rate is exactly 25% or 28%. I don't have it in front of me.

The marginal rate includes the tax bracket, plus the incremental impact of the additional impact of social security, so the marginal rate in some places is higher than the income tax bracket.

Intuitively, if I had no other income when drawing my SS, I would have no income taxes. However, having \$40k of RMD income makes a substantial part of our \$60 or \$80k social security income 85% taxable. That is what pushes up the marginal rate above the tax bracket. I am thinking that give our SS income is higher than most - 2 max or near max earners, this exaggerates the impact in our case.
smitcat
Posts: 9334
Joined: Mon Nov 07, 2016 10:51 am

### Re: Social Security “Hump” and the new tax rates???

FiveK wrote: Thu Jan 25, 2018 5:20 pm
smitcat wrote: Thu Jan 25, 2018 4:10 pm In this post I was replying to JTBX's specific concern that his taxes in retirement appear to be higher to him than what others are seeing/saying.
I do not see JBTX referring to any RPM numbers on this post.
Are you saying that the following numbers are correct for JTBX?
"If I use \$40k of SS benefit (assuming both retire early) and \$42K or ordinary income, that puts us in the 28% marginal rate"
Yes, those numbers (using 2017 tax rates) are correct. One can use the 2017 version of the personal finance toolbox spreadsheet from this post to confirm.

Agreed, JBTX did not refer to RPM. I just noted that, at least on the row mentioned, the RPM numbers are "brackets" and not necessarily the correct "marginal rates".
I believe he and others may be confusing real tax marginal rates and effective rates with transitional rates.
So the question is what will JTBX taxes be if he is MFJ with \$40K of SS and \$42K of ordinary income in retirement?
What will his Fed taxes due total on that \$82K and what will that effective tax be in % on the \$82K?
I'm pretty sure what is meant by "effective rates", but how are you defining "real tax marginal rates" and "transitional rates"? Same as Marginal tax rate - Bogleheads?

Again using 2017 rates, no other income, and standard deduction, in JBTX's scenario the federal income tax would be ~\$4,023. One may certainly calculate an effective rate from that. In choosing how much of a traditional to Roth conversion one might make, though, the marginal rates for various conversion amounts will be more useful than an effective rate, correct?
Agreed- About \$4,000 or so for \$82K. Not typically so poor compared to the working years.
Yes marginal rates will be valuable whenever comparing choices of conversions or timing.
smitcat
Posts: 9334
Joined: Mon Nov 07, 2016 10:51 am

### Re: Social Security “Hump” and the new tax rates???

JBTX wrote: Thu Jan 25, 2018 5:53 pm I was referring to the marginal rate, as indicated by the Hump graph. I was visually looking at the graph, so I can't say whether the rate is exactly 25% or 28%. I don't have it in front of me.

The marginal rate includes the tax bracket, plus the incremental impact of the additional impact of social security, so the marginal rate in some places is higher than the income tax bracket.

Intuitively, if I had no other income when drawing my SS, I would have no income taxes. However, having \$40k of RMD income makes a substantial part of our \$60 or \$80k social security income 85% taxable. That is what pushes up the marginal rate above the tax bracket. I am thinking that give our SS income is higher than most - 2 max or near max earners, this exaggerates the impact in our case.
"Intuitively, if I had no other income when drawing my SS, I would have no income taxes."
With little income you will have no taxes, but saying that it would be zero is likely not accurate. Dependent upon which SS payments you want to model you can quickly check it with tax software.

"However, having \$40k of RMD income makes a substantial part of our \$60 or \$80k social security income 85% taxable."
Yes- raising your income will cause taxes to be due, and with SS only 85% will be taxable under current rules.

" I am thinking that give our SS income is higher than most - 2 max or near max earners, this exaggerates the impact in our case."
If you take SS early and spoend the same you will likley have a higher RMD to contend with. If you take SS later you will likley be spending down some of the other funds. You may be able to Roth converty as well. And if and when one spouse survives the other all of these tax caluclations change a lot, as well as survivor Ss payments. These variables are the exact reason why I find both the IORP and RPM to be so valuable for comparing and testing the variations quickly. When I get close to what looks like a good plan i can then check for life span variables and make sure the survivor assets are best for us. Checking any runs that are a favored choice with tax software is a final check.
I think you will find that your actual taxes are not as high as imagined in retirement compared to your current concerns. But it is a great time to compare those possible outcomes by utilizing these tools to model the variations and choices.
JBTX
Posts: 9552
Joined: Wed Jul 26, 2017 12:46 pm

### Re: Social Security “Hump” and the new tax rates???

smitcat wrote: Thu Jan 25, 2018 6:48 pm
JBTX wrote: Thu Jan 25, 2018 5:53 pm I was referring to the marginal rate, as indicated by the Hump graph. I was visually looking at the graph, so I can't say whether the rate is exactly 25% or 28%. I don't have it in front of me.

The marginal rate includes the tax bracket, plus the incremental impact of the additional impact of social security, so the marginal rate in some places is higher than the income tax bracket.

Intuitively, if I had no other income when drawing my SS, I would have no income taxes. However, having \$40k of RMD income makes a substantial part of our \$60 or \$80k social security income 85% taxable. That is what pushes up the marginal rate above the tax bracket. I am thinking that give our SS income is higher than most - 2 max or near max earners, this exaggerates the impact in our case.
"Intuitively, if I had no other income when drawing my SS, I would have no income taxes."
With little income you will have no taxes, but saying that it would be zero is likely not accurate. Dependent upon which SS payments you want to model you can quickly check it with tax software.

"However, having \$40k of RMD income makes a substantial part of our \$60 or \$80k social security income 85% taxable."
Yes- raising your income will cause taxes to be due, and with SS only 85% will be taxable under current rules.

" I am thinking that give our SS income is higher than most - 2 max or near max earners, this exaggerates the impact in our case."
If you take SS early and spoend the same you will likley have a higher RMD to contend with. If you take SS later you will likley be spending down some of the other funds. You may be able to Roth converty as well. And if and when one spouse survives the other all of these tax caluclations change a lot, as well as survivor Ss payments. These variables are the exact reason why I find both the IORP and RPM to be so valuable for comparing and testing the variations quickly. When I get close to what looks like a good plan i can then check for life span variables and make sure the survivor assets are best for us. Checking any runs that are a favored choice with tax software is a final check.
I think you will find that your actual taxes are not as high as imagined in retirement compared to your current concerns. But it is a great time to compare those possible outcomes by utilizing these tools to model the variations and choices.

Forgive me if I’m wrong, but I don’t feel like you are quite getting it in terms the SS impact of income tax and on the marginal rate. You mention “only” 85% of SS is taxable. But if I had no other income (or very low income) none of that SS is taxable. So that \$40k of RMD causes some portion of my SS to 85% taxable. That additional tax is attributable to my RMD income, not my social security income, and causes my marginal tax rate to increase.

I fully understand the concept of managing tax rates and doing conversions to that end. I had never really thought about it until I came to this site. The kicker is with my wife being 5 years younger than me, and with a special needs kid, it is quite possible that I will start taking SS before my wife stops working, so we may not have the opportunity to do Roth conversions at a very low rate.
smitcat
Posts: 9334
Joined: Mon Nov 07, 2016 10:51 am

### Re: Social Security “Hump” and the new tax rates???

JBTX wrote: Thu Jan 25, 2018 7:10 pm
smitcat wrote: Thu Jan 25, 2018 6:48 pm
JBTX wrote: Thu Jan 25, 2018 5:53 pm I was referring to the marginal rate, as indicated by the Hump graph. I was visually looking at the graph, so I can't say whether the rate is exactly 25% or 28%. I don't have it in front of me.

The marginal rate includes the tax bracket, plus the incremental impact of the additional impact of social security, so the marginal rate in some places is higher than the income tax bracket.

Intuitively, if I had no other income when drawing my SS, I would have no income taxes. However, having \$40k of RMD income makes a substantial part of our \$60 or \$80k social security income 85% taxable. That is what pushes up the marginal rate above the tax bracket. I am thinking that give our SS income is higher than most - 2 max or near max earners, this exaggerates the impact in our case.
"Intuitively, if I had no other income when drawing my SS, I would have no income taxes."
With little income you will have no taxes, but saying that it would be zero is likely not accurate. Dependent upon which SS payments you want to model you can quickly check it with tax software.

"However, having \$40k of RMD income makes a substantial part of our \$60 or \$80k social security income 85% taxable."
Yes- raising your income will cause taxes to be due, and with SS only 85% will be taxable under current rules.

" I am thinking that give our SS income is higher than most - 2 max or near max earners, this exaggerates the impact in our case."
If you take SS early and spoend the same you will likley have a higher RMD to contend with. If you take SS later you will likley be spending down some of the other funds. You may be able to Roth converty as well. And if and when one spouse survives the other all of these tax caluclations change a lot, as well as survivor Ss payments. These variables are the exact reason why I find both the IORP and RPM to be so valuable for comparing and testing the variations quickly. When I get close to what looks like a good plan i can then check for life span variables and make sure the survivor assets are best for us. Checking any runs that are a favored choice with tax software is a final check.
I think you will find that your actual taxes are not as high as imagined in retirement compared to your current concerns. But it is a great time to compare those possible outcomes by utilizing these tools to model the variations and choices.

Forgive me if I’m wrong, but I don’t feel like you are quite getting it in terms the SS impact of income tax and on the marginal rate. You mention “only” 85% of SS is taxable. But if I had no other income (or very low income) none of that SS is taxable. So that \$40k of RMD causes some portion of my SS to 85% taxable. That additional tax is attributable to my RMD income, not my social security income, and causes my marginal tax rate to increase.

I fully understand the concept of managing tax rates and doing conversions to that end. I had never really thought about it until I came to this site. The kicker is with my wife being 5 years younger than me, and with a special needs kid, it is quite possible that I will start taking SS before my wife stops working, so we may not have the opportunity to do Roth conversions at a very low rate.
"Forgive me if I’m wrong, but I don’t feel like you are quite getting it in terms the SS impact of income tax and on the marginal rate. You mention “only” 85% of SS is taxable. But if I had no other income (or very low income) none of that SS is taxable."
If you had no other income but you both had max SS (at 70) you would likely be paying taxes.

"The kicker is with my wife being 5 years younger than me, and with a special needs kid, it is quite possible that I will start taking SS before my wife stops working, so we may not have the opportunity to do Roth conversions at a very low rate."
I do not know your particulars but my wife is 6 years younger than I and has a very high SS pia as well as myself. One of our preferred solutions at this time will be for me to wait till 70 or near that while my wife claims around age 64. Between my age of 63 and 70 and before either of us claim SS we will do Roth conversions. In our case this give us the best combination of lower taxes and protection for the later years for one or both of us.
JBTX
Posts: 9552
Joined: Wed Jul 26, 2017 12:46 pm

### Re: Social Security “Hump” and the new tax rates???

smitcat wrote: Thu Jan 25, 2018 7:20 pm
JBTX wrote: Thu Jan 25, 2018 7:10 pm
smitcat wrote: Thu Jan 25, 2018 6:48 pm
JBTX wrote: Thu Jan 25, 2018 5:53 pm I was referring to the marginal rate, as indicated by the Hump graph. I was visually looking at the graph, so I can't say whether the rate is exactly 25% or 28%. I don't have it in front of me.

The marginal rate includes the tax bracket, plus the incremental impact of the additional impact of social security, so the marginal rate in some places is higher than the income tax bracket.

Intuitively, if I had no other income when drawing my SS, I would have no income taxes. However, having \$40k of RMD income makes a substantial part of our \$60 or \$80k social security income 85% taxable. That is what pushes up the marginal rate above the tax bracket. I am thinking that give our SS income is higher than most - 2 max or near max earners, this exaggerates the impact in our case.
"Intuitively, if I had no other income when drawing my SS, I would have no income taxes."
With little income you will have no taxes, but saying that it would be zero is likely not accurate. Dependent upon which SS payments you want to model you can quickly check it with tax software.

"However, having \$40k of RMD income makes a substantial part of our \$60 or \$80k social security income 85% taxable."
Yes- raising your income will cause taxes to be due, and with SS only 85% will be taxable under current rules.

" I am thinking that give our SS income is higher than most - 2 max or near max earners, this exaggerates the impact in our case."
If you take SS early and spoend the same you will likley have a higher RMD to contend with. If you take SS later you will likley be spending down some of the other funds. You may be able to Roth converty as well. And if and when one spouse survives the other all of these tax caluclations change a lot, as well as survivor Ss payments. These variables are the exact reason why I find both the IORP and RPM to be so valuable for comparing and testing the variations quickly. When I get close to what looks like a good plan i can then check for life span variables and make sure the survivor assets are best for us. Checking any runs that are a favored choice with tax software is a final check.
I think you will find that your actual taxes are not as high as imagined in retirement compared to your current concerns. But it is a great time to compare those possible outcomes by utilizing these tools to model the variations and choices.

Forgive me if I’m wrong, but I don’t feel like you are quite getting it in terms the SS impact of income tax and on the marginal rate. You mention “only” 85% of SS is taxable. But if I had no other income (or very low income) none of that SS is taxable. So that \$40k of RMD causes some portion of my SS to 85% taxable. That additional tax is attributable to my RMD income, not my social security income, and causes my marginal tax rate to increase.

I fully understand the concept of managing tax rates and doing conversions to that end. I had never really thought about it until I came to this site. The kicker is with my wife being 5 years younger than me, and with a special needs kid, it is quite possible that I will start taking SS before my wife stops working, so we may not have the opportunity to do Roth conversions at a very low rate.
"Forgive me if I’m wrong, but I don’t feel like you are quite getting it in terms the SS impact of income tax and on the marginal rate. You mention “only” 85% of SS is taxable. But if I had no other income (or very low income) none of that SS is taxable."
If you had no other income but you both had max SS (at 70) you would likely be paying taxes.

"The kicker is with my wife being 5 years younger than me, and with a special needs kid, it is quite possible that I will start taking SS before my wife stops working, so we may not have the opportunity to do Roth conversions at a very low rate."
I do not know your particulars but my wife is 6 years younger than I and has a very high SS pia as well as myself. One of our preferred solutions at this time will be for me to wait till 70 or near that while my wife claims around age 64. Between my age of 63 and 70 and before either of us claim SS we will do Roth conversions. In our case this give us the best combination of lower taxes and protection for the later years for one or both of us.

I'm still learning about a lot of this stuff, but by filing early, we may be able to receive \$8000 per year more on SSDI vs SSI once one of us files. That would be \$64,000 over 8 years 62 to 70. I don't know how the math plays out on that in terms of what is optimal, 62 vs 67 vs 70, but it definitely tilts it a little more to early SS filing. It could very well be that my wife is still working when I file - thus no opportunity to do Roth conversions at very low rates.
JBTX
Posts: 9552
Joined: Wed Jul 26, 2017 12:46 pm

### Re: Social Security “Hump” and the new tax rates???

Looking at the hump, if you assume \$80K social security, and \$40k per year ordinary income, the supporting detail says you are in a range of 27.75% marginal rate. That range starts at about \$16380 of ordinary income, and goes up to \$46,500 or ordinary income. From there it shoots up briefly over 50%, then back to 46.25% up to \$67K of ordinary income. Then at that point you have taxed all 85% of your social security income, and the marginal rate drops to 25%.

So with \$80k of social security income, you can have as little as \$17k of ordinary income, and get to a 27.75% marginal rate. So you need to have less than approx \$466k of traditional savings left (17k / 0.0365 rmd factor) if you want to avoid the 27.75% rate, and be at a lower 18.5 marginal rate.
#Cruncher
Posts: 3510
Joined: Fri May 14, 2010 2:33 am
Location: New York City
Contact:

### Re: Social Security “Hump” and the new tax rates???

JBTX wrote: Wed Jan 24, 2018 11:20 pmIf I am projecting forward, I assume I am doing everything in today's dollars, and assume everything ... will ... grow with inflation. The one exception ... would be the ... SS income thresholds, which do not increase with inflation.Thus I decreased them about 35%, which was a rough approximation of 15 years [of] 2% inflation.
...
If I use \$40k of SS benefit (assuming both retire early) and \$42K [of] ordinary income, that puts us in the 28% marginal rate, although it never really gets higher, and actually drops off to 15% ...
I hope you mean "divided them by 1.35", JBTX, rather than "decreased them about 35%" since 1.02 ^ 15 = 1.35.

Code: Select all

``````                  Joint    Divided
Return   by 1.35
------   -------
50% threshhold    32,000    23,700
85% threshhold    44,000    32,600``````
And the marginal rate is actually 27.75%, not 28%. This equals 15% X 1.85 since it is occurring when each \$100 of non-SS income causes \$85 more of SS to be taxed. The marginal rate drops to 15% when non-SS income reaches the point where the maximum 85% or \$34,000 of SS has been made taxable. (See Taxation of SS benefits in the Wiki for more explanation.)
FiveK wrote: Thu Jan 25, 2018 5:20 pm... using 2017 rates, no other income, and standard deduction, in JBTX's scenario the federal income tax would be ~\$4,023.
Using 2017 brackets, SS thresholds, standard deductions and exemptions for joint filers under age 65, the tax is actually about \$5,443 as shown in the first column of the table below (prepared with the Compare sheet of my Marginal Tax Rates spreadsheet). But using the reduced SS thresholds JBTX said he was using, the tax would be about \$6,664 as shown in the third column.

Code: Select all

``````                                   2017      2017 w Adj SS Thresholds
------    -------------------------
Rate:  ord income bracket 1          10%        10%   -------------->
Rate:  ord income bracket 2          15%        15%   -------------->
Floor: ord income bracket 2       18,650     18,650   -------------->
Social Security 50% threshhold    32,000     23,700   -------------->
Social Security 85% threshhold    44,000     32,600   -------------->
Social Security Benefit           40,000     40,000   -------------->
Non-SS Ordinary Income            42,000    [24,708]  42,000  [47,365]
SS Relevant Income                62,000     44,708   62,000   67,365
50% SS taxable                     6,000      4,450    4,450    4,450
85% SS taxable                    15,300     10,292   24,990   29,550
Total SS taxable                  21,300     14,742   29,440  [34,000]``````

Code: Select all

``````Adjusted gross income             63,300     39,450   71,440   81,365
Deductions plus Exemptions        20,800     20,800   20,800   20,800
Taxable Income                    42,500    [18,650]  50,640   60,565
Taxable: ord income bracket 2     23,850        -     31,990   41,915
Taxable: ord income bracket 1     18,650     18,650   18,650   18,650
Tax: ord income bracket 2          3,578        -      4,799    6,287
Tax: ord income bracket 1          1,865      1,865    1,865    1,865
Total tax                          5,443      1,865    6,664    8,152
Increased non-SS ord income                       17,292    5,365
Increased taxable SS                              14,698    4,560
Increased tax                                      4,799    1,489
Marginal SS taxable                               85.00%   85.00%
Marginal tax rate                                 27.75%   27.75%``````
The 27.75% marginal rate begins with \$24,708 of non-SS income, the point where taxable income reaches the \$18,650 floor of the 15% tax bracket. It continues until \$47,365 of non-SS income when SS taxable reaches \$34,000 which is the maximum 85% of the \$40,000 SS benefit.

Request to posters: When quoting a long post, please include only what you are responding to. Quoting the entire post willy-nilly makes the thread hard to follow. The forum software includes a little up-arrow after "wrote:" that readers can click if they want to read all of the post being quoted from.
FiveK
Posts: 13017
Joined: Sun Mar 16, 2014 2:43 pm

### Re: Social Security “Hump” and the new tax rates???

#Cruncher wrote: Thu Jan 25, 2018 10:48 pm
FiveK wrote: Thu Jan 25, 2018 5:20 pm... using 2017 rates, no other income, and standard deduction, in JBTX's scenario the federal income tax would be ~\$4,023.
Using 2017 brackets, SS thresholds, standard deductions and exemptions for joint filers under age 65, the tax is actually about \$5,443....
Correct. Typo of 2017 instead of 2018.
SS = \$40K
tIRA withdrawal = \$42K
MFJ, ages 72 and 67.
2018 tax = \$4023
2017 tax = \$5068
Yes, \$5443 if 2017 and both <65.
JBTX
Posts: 9552
Joined: Wed Jul 26, 2017 12:46 pm

### Re: Social Security “Hump” and the new tax rates???

#Cruncher wrote: Thu Jan 25, 2018 10:48 pm
JBTX wrote: Wed Jan 24, 2018 11:20 pmIf I am projecting forward, I assume I am doing everything in today's dollars, and assume everything ... will ... grow with inflation. The one exception ... would be the ... SS income thresholds, which do not increase with inflation.Thus I decreased them about 35%, which was a rough approximation of 15 years [of] 2% inflation.
...
If I use \$40k of SS benefit (assuming both retire early) and \$42K [of] ordinary income, that puts us in the 28% marginal rate, although it never really gets higher, and actually drops off to 15% ...
I hope you mean "divided them by 1.35", JBTX, rather than "decreased them about 35%" since 1.02 ^ 15 = 1.35.

Code: Select all

``````                  Joint    Divided
Return   by 1.35
------   -------
50% threshhold    32,000    23,700
85% threshhold    44,000    32,600``````
And the marginal rate is actually 27.75%, not 28%. This equals 15% X 1.85 since it is occurring when each \$100 of non-SS income causes \$85 more of SS to be taxed. The marginal rate drops to 15% when non-SS income reaches the point where the maximum 85% or \$34,000 of SS has been made taxable. (See Taxation of SS benefits in the Wiki for more explanation.)
FiveK wrote: Thu Jan 25, 2018 5:20 pm... using 2017 rates, no other income, and standard deduction, in JBTX's scenario the federal income tax would be ~\$4,023.
Using 2017 brackets, SS thresholds, standard deductions and exemptions for joint filers under age 65, the tax is actually about \$5,443 as shown in the first column of the table below (prepared with the Compare sheet of my Marginal Tax Rates spreadsheet). But using the reduced SS thresholds JBTX said he was using, the tax would be about \$6,664 as shown in the third column.

Code: Select all

``````                                   2017      2017 w Adj SS Thresholds
------    -------------------------
Rate:  ord income bracket 1          10%        10%   -------------->
Rate:  ord income bracket 2          15%        15%   -------------->
Floor: ord income bracket 2       18,650     18,650   -------------->
Social Security 50% threshhold    32,000     23,700   -------------->
Social Security 85% threshhold    44,000     32,600   -------------->
Social Security Benefit           40,000     40,000   -------------->
Non-SS Ordinary Income            42,000    [24,708]  42,000  [47,365]
SS Relevant Income                62,000     44,708   62,000   67,365
50% SS taxable                     6,000      4,450    4,450    4,450
85% SS taxable                    15,300     10,292   24,990   29,550
Total SS taxable                  21,300     14,742   29,440  [34,000]``````

Code: Select all

``````Adjusted gross income             63,300     39,450   71,440   81,365
Deductions plus Exemptions        20,800     20,800   20,800   20,800
Taxable Income                    42,500    [18,650]  50,640   60,565
Taxable: ord income bracket 2     23,850        -     31,990   41,915
Taxable: ord income bracket 1     18,650     18,650   18,650   18,650
Tax: ord income bracket 2          3,578        -      4,799    6,287
Tax: ord income bracket 1          1,865      1,865    1,865    1,865
Total tax                          5,443      1,865    6,664    8,152
Increased non-SS ord income                       17,292    5,365
Increased taxable SS                              14,698    4,560
Increased tax                                      4,799    1,489
Marginal SS taxable                               85.00%   85.00%
Marginal tax rate                                 27.75%   27.75%``````
The 27.75% marginal rate begins with \$24,708 of non-SS income, the point where taxable income reaches the \$18,650 floor of the 15% tax bracket. It continues until \$47,365 of non-SS income when SS taxable reaches \$34,000 which is the maximum 85% of the \$40,000 SS benefit.

Request to posters: When quoting a long post, please include only what you are responding to. Quoting the entire post willy-nilly makes the thread hard to follow. The forum software includes a little up-arrow after "wrote:" that readers can click if they want to read all of the post being quoted from.
Thanks for the follow up. Seems like your numbers are pretty close to what the other models came up with. I’m pretty sure I divided by 1.35. At this point I’m not that concerned about quite that level of precision.

As to your advice on how to quote, which I have violated in this response, I am not sure how to easily quote just a paragraph while using a mobile phone. The advantage of quoting with the user is you get a notification of response. Having posted in various forums for years i am actually used to embedded conversations but that is just a personal preference. That was you get to see a history of an exchange in one post.
smitcat
Posts: 9334
Joined: Mon Nov 07, 2016 10:51 am

### Re: Social Security “Hump” and the new tax rates???

"Forgive me if I’m wrong, but I don’t feel like you are quite getting it in terms the SS impact of income tax and on the marginal rate. You mention “only” 85% of SS is taxable. But if I had no other income (or very low income) none of that SS is taxable."
If you had no other income but you both had max SS (at 70) you would likely be paying taxes.

"The kicker is with my wife being 5 years younger than me, and with a special needs kid, it is quite possible that I will start taking SS before my wife stops working, so we may not have the opportunity to do Roth conversions at a very low rate."
I do not know your particulars but my wife is 6 years younger than I and has a very high SS pia as well as myself. One of our preferred solutions at this time will be for me to wait till 70 or near that while my wife claims around age 64. Between my age of 63 and 70 and before either of us claim SS we will do Roth conversions. In our case this give us the best combination of lower taxes and protection for the later years for one or both of us.
[/quote]

I'm still learning about a lot of this stuff, but by filing early, we may be able to receive \$8000 per year more on SSDI vs SSI once one of us files. That would be \$64,000 over 8 years 62 to 70. I don't know how the math plays out on that in terms of what is optimal, 62 vs 67 vs 70, but it definitely tilts it a little more to early SS filing. It could very well be that my wife is still working when I file - thus no opportunity to do Roth conversions at very low rates.
[/quote]

It appears that your have a very unique and special situation that poses a challenge much beyond a simple SS election. I would guess that your best results might come from first searching out best approaches with similar help groups for special needs kids. That perhaps coupled with a conversation with an appropriate attorney early on may help you allocate your funds beginning now to best suite your requirements. I would also guess that the financial choices will become secondary to the advice you may receive from folks that have 'been there done that" already with some level of success.
Whateve you do I wish you the best of luck with your plans.