## Bunch Tax Def Withdrawals to minimize tax on SS

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Topic Author
MathWizard
Posts: 4329
Joined: Tue Jul 26, 2011 1:35 pm

### Bunch Tax Def Withdrawals to minimize tax on SS

I'm planning out pending retirement.
About 25% of our retirement assets are Roth, the other 75 tax deferred.

Once I take SS at age 70, our SS benefits will be taxed at 85% if I take
the same out of tax deferred every year (inflation adjusted).
I'll be in the 15% tax bracket then, per current law.

To make things simple, all figure are in 2020 dollars, with 2020 brackets, Std Ded.
MFJ so \$24,800 STD Ded.
Top of what will be 15% bracket in 2020 is 80,250.

For simplicity's sake, call Std Ded + top of bracket 105K.
Assume we will have 40K SS benefits, and will pull 37K from tax def.
This will mean that 85% of SS benefits will be taxed.

If instead, I pull 65K from tax def in year 1, that make 105K in year 1, and
I pay taxes on 85% of SS benefits, as before, but in year 2,
I already have \$28K of what I need, so I only need to another 9K from tax def.
so the calculation for taxability of SS benefits is
20K+9K = 29K which means that none of the SS benefits are taxable, and
I pay 0 in taxes.

This might need to some tweaking to maximize the benefit, but is the
idea of bunching tax def withdrawals to reduce taxation of SS benefits sound?

(I would be doing Roth conversions rather than withdrawing to taxable, but the same idea.)
livesoft
Posts: 73338
Joined: Thu Mar 01, 2007 8:00 pm

### Re: Bunch Tax Def Withdrawals to minimize tax on SS

MathWizard wrote: Sun Aug 16, 2020 3:48 pm Once I take SS at age 70, our SS benefits will be taxed at 85% if I take
the same out of tax deferred every year (inflation adjusted).
I'll be in the 15% tax bracket then, per current law.....
Well, your SS benefits will not be taxed at 85%, so the wording of that sentence is misleading.
This signature message sponsored by sscritic: Learn to fish.
Topic Author
MathWizard
Posts: 4329
Joined: Tue Jul 26, 2011 1:35 pm

### Re: Bunch Tax Def Withdrawals to minimize tax on SS

livesoft wrote: Sun Aug 16, 2020 3:54 pm
MathWizard wrote: Sun Aug 16, 2020 3:48 pm Once I take SS at age 70, our SS benefits will be taxed at 85% if I take
the same out of tax deferred every year (inflation adjusted).
I'll be in the 15% tax bracket then, per current law.....
Well, your SS benefits will not be taxed at 85%, so the wording of that sentence is misleading.
livesoft wrote: Sun Aug 16, 2020 3:54 pm
MathWizard wrote: Sun Aug 16, 2020 3:48 pm Once I take SS at age 70, our SS benefits will be taxed at 85% if I take
the same out of tax deferred every year (inflation adjusted).
I'll be in the 15% tax bracket then, per current law.....
Well, your SS benefits will not be taxed at 85%, so the wording of that sentence is misleading.
Edit: 85% of our SS benefits will be taxed.

Sorry for the poor wording.

The point of the post is to see if the approach is sound,
take extra tax deferred withdrawal one year (converting that to Roth), then
tax less tax deferred keep the sum of 1/2 SS benefits and other non-Roth defined income under 32K.
CAsage
Posts: 1865
Joined: Sun Mar 27, 2016 6:25 pm

### Re: Bunch Tax Def Withdrawals to minimize tax on SS

Found on AARP for 2020: "You’ll be taxed on: up to 50 percent of your benefits if your income is \$25,000 to \$34,000 for an individual or \$32,000 to \$44,000 for a married couple filing jointly; up to 85 percent of your benefits if your income is more than \$34,000 (individual) or \$44,000 (couple)."

Sounds like you need to actually plug this into a tax program. Another factor is that you need to take your RMD annually, so ... what's that minimum? Note that after one of you dies, the surviving spouse will have lower taxable threshold and the same IRA RMD (lots of assumptions there, but you might need to model more).

Actually, I would just refer to the Bogleheads Wiki on this one, and ignore me!

Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.
Topic Author
MathWizard
Posts: 4329
Joined: Tue Jul 26, 2011 1:35 pm

### Re: Bunch Tax Def Withdrawals to minimize tax on SS

CAsage wrote: Sun Aug 16, 2020 4:23 pm Found on AARP for 2020: "You’ll be taxed on: up to 50 percent of your benefits if your income is \$25,000 to \$34,000 for an individual or \$32,000 to \$44,000 for a married couple filing jointly; up to 85 percent of your benefits if your income is more than \$34,000 (individual) or \$44,000 (couple)."

Sounds like you need to actually plug this into a tax program. Another factor is that you need to take your RMD annually, so ... what's that minimum? Note that after one of you dies, the surviving spouse will have lower taxable threshold and the same IRA RMD (lots of assumptions there, but you might need to model more).

Actually, I would just refer to the Bogleheads Wiki on this one, and ignore me!

You are correct about RMDs. I would be able to do this with no restriction for 2 years, age 70 & 71 since the CARES Act eliminated RMDs for those years .

This would also help reduces my tax deferred balance to allow for low RMDs.

I've bunched deductions before,but have never been had the ability to control income.
02nz
Posts: 5555
Joined: Wed Feb 21, 2018 3:17 pm

### Re: Bunch Tax Def Withdrawals to minimize tax on SS

My quick and dirty calculation using TaxCaster shows bunching does NOT make sense. Assuming married, both 70, \$40K in SS and \$37K in IRA distributions, the federal income tax liability is \$2861 (for 2019). Bunching - so \$74K in IRA distributions - raises that to \$9543 (and in the "off" year when you only had SS you'd owe nothing). The figures will be a bit different for 2020 but bunching isn't a good idea, it seems.
#Cruncher
Posts: 3053
Joined: Fri May 14, 2010 2:33 am
Location: New York City
Contact:

### Re: Bunch Tax Def Withdrawals to minimize tax on SS

MathWizard wrote: Sun Aug 16, 2020 3:48 pmAssume we will have 40K SS benefits, and will pull 37K from tax def. This will mean that 85% of SS benefits will be taxed.
Not correct; only \$17,050 of the \$40,000 SS will be taxed. [1] This is one reason why, as 02nz says in the previous post, "bunching isn't a good idea". Using 2020 tax brackets and a \$24,800 standard deduction, [2] your \$65,000 / \$9,000 split (Case 2) causes \$2,300 more (\$8,509 - \$6,230) federal tax than withdrawing \$37,000 each year (Case 1). The following table shows this. [3]

Code: Select all

``````Social Security 50% threshhold      32,000
Social Security 85% threshhold      44,000
Floor: ord income 12% bracket       19,750
Floor: ord income 22% bracket       80,250
----- Case 2 ----
Case 1     Year 1     Year 2
------     ------     ------
Non-SS Ordinary Income              37,000     65,000      9,000
Social Security Benefit             40,000     40,000     40,000
SS Relevant Income                  57,000     85,000     29,000
50% SS taxable                       6,000      6,000        -
85% SS taxable                      11,050     28,000        -
Total SS taxable                    17,050     34,000        -``````

Code: Select all

``````Adjusted gross income               54,050     99,000      9,000
Standard deduction                  24,800     24,800     24,800
Taxable Income                      29,250     74,200        -

Taxable: ord income 12% bracke       9,500     54,450        -
Taxable: ord income 10% bracket     19,750     19,750        -

Tax: ord income 12% bracket          1,140      6,534        -
Tax: ord income 10% bracket          1,975      1,975        -

Total tax                            3,115      8,509        -
Case 1 for two years                 6,230``````
1. See the Wiki's Taxation of Social Security benefits for an explanation of how the taxable portion of SS is determined.
2. If you and your spouse are both age 65 or over, the standard deduction would be \$27,400.
3. The table was prepared with the Compare sheet of my Marginal Tax Rates Excel workbook.
diy60
Posts: 385
Joined: Wed Sep 07, 2016 6:54 pm

### Re: Bunch Tax Def Withdrawals to minimize tax on SS

The Personal Toolbox (Calc Tab) is your friend here in this instance. Plugging in \$37000 tIRA and \$40000, only 43% of your SS is taxable income (\$17050). Raising the tIRA to \$65000 will cause 85% of your SS income (\$34000) to be taxable.
Topic Author
MathWizard
Posts: 4329
Joined: Tue Jul 26, 2011 1:35 pm

### Re: Bunch Tax Def Withdrawals to minimize tax on SS

#Cruncher wrote: Sun Aug 16, 2020 8:13 pm
MathWizard wrote: Sun Aug 16, 2020 3:48 pmAssume we will have 40K SS benefits, and will pull 37K from tax def. This will mean that 85% of SS benefits will be taxed.
Not correct; only \$17,050 of the \$40,000 SS will be taxed. [1] This is one reason why, as 02nz says in the previous post, "bunching isn't a good idea". Using 2020 tax brackets and a \$24,800 standard deduction, [2] your \$65,000 / \$9,000 split (Case 2) causes \$2,300 more federal tax than withdrawing \$37,000 each year (Case 1). The following table shows this. [3]

Code: Select all

``````Social Security 50% threshhold      32,000
Social Security 85% threshhold      44,000
Floor: ord income 12% bracket       19,750
Floor: ord income 22% bracket       80,250
----- Case 2 ----
Case 1     Year 1     Year 2
------     ------     ------
Non-SS Ordinary Income              37,000     65,000      9,000
Social Security Benefit             40,000     40,000     40,000
SS Relevant Income                  57,000     85,000     29,000
50% SS taxable                       6,000      6,000        -
85% SS taxable                      11,050     28,000        -
Total SS taxable                    17,050     34,000        -``````

Code: Select all

``````Adjusted gross income               54,050     99,000      9,000
Standard deduction                  24,800     24,800     24,800
Taxable Income                      29,250     74,200        -

Taxable: ord income 12% bracke       9,500     54,450        -
Taxable: ord income 10% bracket     19,750     19,750        -

Tax: ord income 12% bracket          1,140      6,534        -
Tax: ord income 10% bracket          1,975      1,975        -

Total tax                            3,115      8,509        -
Case 1 for two years                 6,230``````
1. See the Wiki's Taxation of Social Security benefits for an explanation of how the taxable portion of SS is determined.
2. If you and your spouse are both age 65 or over, the standard deduction would be \$27,400.
3. The table was prepared with the Compare sheet of my Marginal Tax Rates Excel workbook.
Thanks, this steered me in the right direction.

The taxable income calculation was incorrect in my excel spreadsheet.
I normally program in perl or awk for one off programs, and in a compiled language

Thanks again.
Topic Author
MathWizard
Posts: 4329
Joined: Tue Jul 26, 2011 1:35 pm

### Re: Bunch Tax Def Withdrawals to minimize tax on SS

diy60 wrote: Sun Aug 16, 2020 8:24 pm The Personal Toolbox (Calc Tab) is your friend here in this instance. Plugging in \$37000 tIRA and \$40000, only 43% of your SS is taxable income (\$17050). Raising the tIRA to \$65000 will cause 85% of your SS income (\$34000) to be taxable.
Thanks I am looking at this. There is a wealth of tools in the personal toolbox. My thanks to the person
who wrote it.
kaneohe
Posts: 6688
Joined: Mon Sep 22, 2008 12:38 pm

### Re: Bunch Tax Def Withdrawals to minimize tax on SS

https://www.mortgagecalculator.org/calc ... ulator.php

You might try this calculator. Be sure to toggle the deduction line to get the extra deductions for > 65.
I wasn't able to get a benefit by making 1 yr 0 tax and the other yr w/ higher withdrawal. Seemed like even withdrawal each yr was best.
petulant
Posts: 1901
Joined: Thu Sep 22, 2016 1:09 pm

### Re: Bunch Tax Def Withdrawals to minimize tax on SS

Here are the circumstances that would need to be tested to see if it makes sense:

1. One's RMD or other income already "force" the retiree into a "true" marginal cost of 22.2%.
a. The RMD or other income must be large enough to pass the 50% SS taxability threshold and be in the zone where each additional dollar of other income causes 85% of another dollar of SS to be taxable income.
b. The taxpayer would otherwise be in the 12% income tax bracket, meaning each dollar of income realized results in 12% * 1.85 of tax liability, creating a "true" marginal cost of 22.2%.

2. The threshold where 85% of SS is taxable income and no additional SS benefits will be taxable must not be deep into the 22% income tax bracket, or ideally it should be below the 12%/22% border. If SS benefits are very large such that a taxpayer still faces an 85% trigger for each additional dollar but is otherwise in the 22% income tax bracket, the result is a 22% * 1.85 = 40.7% "true" marginal cost. If that space is wide, it would make increased income recognition less valuable.

If these circumstances are met, the retiree could face a situation where the true marginal cost for realizing more income is 22.2% until the maximum 85% of SS benefits are taxable, after which a 12% true marginal cost is reached. In that zone, savings may be realized by recognizing enough income to fill the 12% bracket while still leaving enough income to be realized in future years to use the standard deduction.

In a second source of savings, past the 12% income tax bracket or even with a brief 40.7% marginal cost, the next marginal cost is the 22% income tax bracket. The retiree could have an almost continuous true marginal cost around 22% from \$30-40K of non-SS income to around \$100K of non-SS income (before hitting IRMAA), such that going ahead and realizing more income at the same true marginal cost could eventually get rid of the RMDs driving the true marginal cost of 22.2% in the first place.

The problem with the previous quantitative example from OP and others is that it pursued bunching in a way that gave up the standard deduction, a space that creates a "true" marginal cost of 0%, for the second year. I believe the example would not make bunching look as poor if the total taxable income for Case 2 were distributed between year 1 and year 2 such that year 2 fills the standard deduction with no tax liability with the rest on year 1.

What a few improvements would show is that, if the retiree only needs to recognize a little more income with a "true" marginal cost of 22.2% to either break into a true marginal cost of only 12% and/or reduce the size of RMDs creating a true marginal cost of 22.2% in future years, the investor may be able to achieve tax savings.

It is difficult to say how large these savings are without specific numbers, but it seems like most retirees with a large enough tax-deferred balance to be in the 22.2% true marginal cost zone probably have large SS benefits, meaning a wide 22.2% zone and small/no space in the 12% income tax bracket after 85% of all SS benefits are taxable, and past that pursuing 22% income may not put enough of a dent in the future RMDs to matter.
FiveK
Posts: 10290
Joined: Sun Mar 16, 2014 2:43 pm

### Re: Bunch Tax Def Withdrawals to minimize tax on SS

MathWizard wrote: Sun Aug 16, 2020 3:48 pm Assume we will have 40K SS benefits, and will pull 37K from tax def.
Using the personal finance toolbox mentioned earlier, splitting the \$74K/(every two years) more or less in half (between ~\$33,300 and ~40,700) for each year is best:

The x-axis is the amount withdrawn in the first year, and the y-axis is total federal tax for the two years. As one would expect, the graph is symmetric.
petulant
Posts: 1901
Joined: Thu Sep 22, 2016 1:09 pm

### Re: Bunch Tax Def Withdrawals to minimize tax on SS

FiveK wrote: Mon Aug 17, 2020 1:46 pm
MathWizard wrote: Sun Aug 16, 2020 3:48 pm Assume we will have 40K SS benefits, and will pull 37K from tax def.
Using the personal finance toolbox mentioned earlier, splitting the \$74K/(every two years) more or less in half (between ~\$33,300 and ~40,700) for each year is best:

The x-axis is the amount withdrawn in the first year, and the y-axis is total federal tax for the two years. As one would expect, the graph is symmetric.
This specific combination of ordinary income and SS benefits should not be generalized, however. In the example, the true marginal cost of an additional dollar of income is 22.2% since it's in the 12% income tax bracket and 85% SS formula zone. Thus, income can be added or subtracted across the two years without increasing or decreasing tax liability so long as both years remain in the 22.2% true marginal cost zone. Importantly, due to the low income, it is easier for year two to drop into the 10% * 1.85 = 18.5% zone than it is to escape the 22.2% zone at the top: moving any more than \$3730 from year 2 to year 1 causes year 2's true marginal cost to drop to 18.5%, meaning it costs money to keep moving income to year 1, but the top of the 22.2% marginal cost doesn't arrive until the retiree has moved about \$19940 (year 1 \$56940/year 2 \$17060), well into the standard deduction! That's why the graph is perfectly symmetrical.

The math turns out differently if the other income to be realized is closer to the 12% bracket. Imagine it is \$100,000 to be realized over two years with annual SS of \$40,000. Here, a 50/50 split across two years creates a liability of \$11,378. However, since the amount in each year is close to the 22.2%/12% threshold, a better strategy is to bunch by withdrawing \$73650 in one year and \$26350 in the other year. That strategy reduces the total liability to \$9673. It recognizes ordinary income to the top of the 12% bracket after all SS is taxable in the first year, then it fills up the standard deduction and a bit into the 10% * 1.85 = 18.5% marginal cost zone in the second year.
FiveK
Posts: 10290
Joined: Sun Mar 16, 2014 2:43 pm

### Re: Bunch Tax Def Withdrawals to minimize tax on SS

petulant wrote: Mon Aug 17, 2020 2:26 pm This specific combination of ordinary income and SS benefits should not be generalized, however.
...
The math turns out differently if the other income to be realized is closer to the 12% bracket.
Yes, results often differ when the inputs change.

The chart is a specific answer to the OP's specific example.

The method of using that particular tool to provide an answer in picture form quickly, however, is a generic strategy that could be applied to other income situations.
marcopolo
Posts: 3469
Joined: Sat Dec 03, 2016 10:22 am

### Re: Bunch Tax Def Withdrawals to minimize tax on SS

MathWizard wrote: Sun Aug 16, 2020 9:00 pm
#Cruncher wrote: Sun Aug 16, 2020 8:13 pm
MathWizard wrote: Sun Aug 16, 2020 3:48 pmAssume we will have 40K SS benefits, and will pull 37K from tax def. This will mean that 85% of SS benefits will be taxed.
Not correct; only \$17,050 of the \$40,000 SS will be taxed. [1] This is one reason why, as 02nz says in the previous post, "bunching isn't a good idea". Using 2020 tax brackets and a \$24,800 standard deduction, [2] your \$65,000 / \$9,000 split (Case 2) causes \$2,300 more federal tax than withdrawing \$37,000 each year (Case 1). The following table shows this. [3]

Code: Select all

``````Social Security 50% threshhold      32,000
Social Security 85% threshhold      44,000
Floor: ord income 12% bracket       19,750
Floor: ord income 22% bracket       80,250
----- Case 2 ----
Case 1     Year 1     Year 2
------     ------     ------
Non-SS Ordinary Income              37,000     65,000      9,000
Social Security Benefit             40,000     40,000     40,000
SS Relevant Income                  57,000     85,000     29,000
50% SS taxable                       6,000      6,000        -
85% SS taxable                      11,050     28,000        -
Total SS taxable                    17,050     34,000        -``````

Code: Select all

``````Adjusted gross income               54,050     99,000      9,000
Standard deduction                  24,800     24,800     24,800
Taxable Income                      29,250     74,200        -

Taxable: ord income 12% bracke       9,500     54,450        -
Taxable: ord income 10% bracket     19,750     19,750        -

Tax: ord income 12% bracket          1,140      6,534        -
Tax: ord income 10% bracket          1,975      1,975        -

Total tax                            3,115      8,509        -
Case 1 for two years                 6,230``````
1. See the Wiki's Taxation of Social Security benefits for an explanation of how the taxable portion of SS is determined.
2. If you and your spouse are both age 65 or over, the standard deduction would be \$27,400.
3. The table was prepared with the Compare sheet of my Marginal Tax Rates Excel workbook.
Thanks, this steered me in the right direction.

The taxable income calculation was incorrect in my excel spreadsheet.
I normally program in perl or awk for one off programs, and in a compiled language

Thanks again.
it's like solving one of those "word problems" in math class.
A MathWizard should have no problem with it.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Topic Author
MathWizard
Posts: 4329
Joined: Tue Jul 26, 2011 1:35 pm

### Re: Bunch Tax Def Withdrawals to minimize tax on SS

marcopolo wrote: Mon Aug 17, 2020 3:16 pm
MathWizard wrote: Sun Aug 16, 2020 9:00 pm
#Cruncher wrote: Sun Aug 16, 2020 8:13 pm
MathWizard wrote: Sun Aug 16, 2020 3:48 pmAssume we will have 40K SS benefits, and will pull 37K from tax def. This will mean that 85% of SS benefits will be taxed.
Not correct; only \$17,050 of the \$40,000 SS will be taxed. [1] This is one reason why, as 02nz says in the previous post, "bunching isn't a good idea". Using 2020 tax brackets and a \$24,800 standard deduction, [2] your \$65,000 / \$9,000 split (Case 2) causes \$2,300 more federal tax than withdrawing \$37,000 each year (Case 1). The following table shows this. [3]

Code: Select all

``````Social Security 50% threshhold      32,000
Social Security 85% threshhold      44,000
Floor: ord income 12% bracket       19,750
Floor: ord income 22% bracket       80,250
----- Case 2 ----
Case 1     Year 1     Year 2
------     ------     ------
Non-SS Ordinary Income              37,000     65,000      9,000
Social Security Benefit             40,000     40,000     40,000
SS Relevant Income                  57,000     85,000     29,000
50% SS taxable                       6,000      6,000        -
85% SS taxable                      11,050     28,000        -
Total SS taxable                    17,050     34,000        -``````

Code: Select all

``````Adjusted gross income               54,050     99,000      9,000
Standard deduction                  24,800     24,800     24,800
Taxable Income                      29,250     74,200        -

Taxable: ord income 12% bracke       9,500     54,450        -
Taxable: ord income 10% bracket     19,750     19,750        -

Tax: ord income 12% bracket          1,140      6,534        -
Tax: ord income 10% bracket          1,975      1,975        -

Total tax                            3,115      8,509        -
Case 1 for two years                 6,230``````
1. See the Wiki's Taxation of Social Security benefits for an explanation of how the taxable portion of SS is determined.
2. If you and your spouse are both age 65 or over, the standard deduction would be \$27,400.
3. The table was prepared with the Compare sheet of my Marginal Tax Rates Excel workbook.
Thanks, this steered me in the right direction.

The taxable income calculation was incorrect in my excel spreadsheet.
I normally program in perl or awk for one off programs, and in a compiled language

Thanks again.
it's like solving one of those "word problems" in math class.
A MathWizard should have no problem with it.
The problem was my experience with Excel. I do fine in compiled languages and even awk or perl,
but the if statements in Excel are very limited, or my knowledge of them is.

I was trying to do too much with my limited experience with Excel.
I believe that I had it OK in my programs, since I could nest ifs.

I had hoped to embed all the formulas in the spreadsheet, so that my wife could change
the Roth and tax deferred balances, or the withdrawals from either to see
how this would affect balances and taxes in succeeding years.

Being able to change the balances because I have to assume a return to plan, but
while executing the plan, the ROI will not be constant.
petulant
Posts: 1901
Joined: Thu Sep 22, 2016 1:09 pm

### Re: Bunch Tax Def Withdrawals to minimize tax on SS

MathWizard wrote: Mon Aug 17, 2020 3:49 pm
marcopolo wrote: Mon Aug 17, 2020 3:16 pm
MathWizard wrote: Sun Aug 16, 2020 9:00 pm
#Cruncher wrote: Sun Aug 16, 2020 8:13 pm
MathWizard wrote: Sun Aug 16, 2020 3:48 pmAssume we will have 40K SS benefits, and will pull 37K from tax def. This will mean that 85% of SS benefits will be taxed.
Not correct; only \$17,050 of the \$40,000 SS will be taxed. [1] This is one reason why, as 02nz says in the previous post, "bunching isn't a good idea". Using 2020 tax brackets and a \$24,800 standard deduction, [2] your \$65,000 / \$9,000 split (Case 2) causes \$2,300 more federal tax than withdrawing \$37,000 each year (Case 1). The following table shows this. [3]

Code: Select all

``````Social Security 50% threshhold      32,000
Social Security 85% threshhold      44,000
Floor: ord income 12% bracket       19,750
Floor: ord income 22% bracket       80,250
----- Case 2 ----
Case 1     Year 1     Year 2
------     ------     ------
Non-SS Ordinary Income              37,000     65,000      9,000
Social Security Benefit             40,000     40,000     40,000
SS Relevant Income                  57,000     85,000     29,000
50% SS taxable                       6,000      6,000        -
85% SS taxable                      11,050     28,000        -
Total SS taxable                    17,050     34,000        -``````

Code: Select all

``````Adjusted gross income               54,050     99,000      9,000
Standard deduction                  24,800     24,800     24,800
Taxable Income                      29,250     74,200        -

Taxable: ord income 12% bracke       9,500     54,450        -
Taxable: ord income 10% bracket     19,750     19,750        -

Tax: ord income 12% bracket          1,140      6,534        -
Tax: ord income 10% bracket          1,975      1,975        -

Total tax                            3,115      8,509        -
Case 1 for two years                 6,230``````
1. See the Wiki's Taxation of Social Security benefits for an explanation of how the taxable portion of SS is determined.
2. If you and your spouse are both age 65 or over, the standard deduction would be \$27,400.
3. The table was prepared with the Compare sheet of my Marginal Tax Rates Excel workbook.
Thanks, this steered me in the right direction.

The taxable income calculation was incorrect in my excel spreadsheet.
I normally program in perl or awk for one off programs, and in a compiled language

Thanks again.
it's like solving one of those "word problems" in math class.
A MathWizard should have no problem with it.
The problem was my experience with Excel. I do fine in compiled languages and even awk or perl,
but the if statements in Excel are very limited, or my knowledge of them is.

I was trying to do too much with my limited experience with Excel.
I believe that I had it OK in my programs, since I could nest ifs.

I had hoped to embed all the formulas in the spreadsheet, so that my wife could change
the Roth and tax deferred balances, or the withdrawals from either to see
how this would affect balances and taxes in succeeding years.

Being able to change the balances because I have to assume a return to plan, but
while executing the plan, the ROI will not be constant.
Nesting IF formulas can get very unwieldy, even after just one nested IF formula. The better practice in my experience has been to spread the logic or steps across many more cells in a more complicated sheet, then place simplifying results in a more aesthetic sheet (similar to the way that personal finance toolbox is organized).
petulant
Posts: 1901
Joined: Thu Sep 22, 2016 1:09 pm

### Re: Bunch Tax Def Withdrawals to minimize tax on SS

FiveK wrote: Mon Aug 17, 2020 2:39 pm
petulant wrote: Mon Aug 17, 2020 2:26 pm This specific combination of ordinary income and SS benefits should not be generalized, however.
...
The math turns out differently if the other income to be realized is closer to the 12% bracket.
Yes, results often differ when the inputs change.

The chart is a specific answer to the OP's specific example.

The method of using that particular tool to provide an answer in picture form quickly, however, is a generic strategy that could be applied to other income situations.
True enough, but I am hoping readers don't get confused that just because there is no benefit to bunching *in the example* doesn't mean there is never a benefit from bunching.
FiveK
Posts: 10290
Joined: Sun Mar 16, 2014 2:43 pm

### Re: Bunch Tax Def Withdrawals to minimize tax on SS

petulant wrote: Mon Aug 17, 2020 4:02 pm
FiveK wrote: Mon Aug 17, 2020 2:39 pm
petulant wrote: Mon Aug 17, 2020 2:26 pm This specific combination of ordinary income and SS benefits should not be generalized, however.
...
The math turns out differently if the other income to be realized is closer to the 12% bracket.
Yes, results often differ when the inputs change.

The chart is a specific answer to the OP's specific example.

The method of using that particular tool to provide an answer in picture form quickly, however, is a generic strategy that could be applied to other income situations.
True enough, but I am hoping readers don't get confused that just because there is no benefit to bunching *in the example* doesn't mean there is never a benefit from bunching.
Fair point, and I agree 100% that "evaluate your own situation" is best practice.