How do you estimate post-retirement income tax?

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RoadRat
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How do you estimate post-retirement income tax?

Post by RoadRat »

As the title said, I'm trying to estimate post-retirement income tax.

I know 401k withdrawals and SS are subject to income tax. What else subject to income tax?
jebmke
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Re: How do you estimate post-retirement income tax?

Post by jebmke »

Some interest and dividends; realized capital gains (although the rate may be zero). Pensions, IRA distributions typically (some exceptions).

Take a look at Form 1040; what I did is use my tax software that I used for my return to do a pro-forma return for my retirement income.
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tomd37
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Re: How do you estimate post-retirement income tax?

Post by tomd37 »

I suggest you look at your 2019 tax return Form 1040, lines 1 through 8b. They list the various types of income resulting in your adjusted gross income on 8b.
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obgraham
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Re: How do you estimate post-retirement income tax?

Post by obgraham »

For me it is simple. We live off our IRA. (that is its purpose). So it is taxable, same as when we earned by working. So is a good chunk of Social Security. So whatever income level you are planning, look up the tax at any online bracket chart, and there you go.

For most of us (not all, I know!) in retirement now, itemization is a thing of the past. Planning is simpler.
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ResearchMed
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Re: How do you estimate post-retirement income tax?

Post by ResearchMed »

RoadRat wrote: Sun Sep 13, 2020 11:13 am As the title said, I'm trying to estimate post-retirement income tax.

I know 401k withdrawals and SS are subject to income tax. What else subject to income tax?
Don't forget that SS has its own tax rules, such that the tax varies with the total amount of your income. You don't just add the total SS income to other income.
At the maximum, you'd only have to pay Federal income tax on 85% of the total of your SS income for the year.

[ETA: It has been pointed out that what I wrote about SS and taxes, just below, may instead apply to ACA brackets. Please check before relying on this.]
There is also a bit of a "gotcha" if you are not already at that 85% rate. A very small extra amount of income can cause a big bump in the total tax paid (it can be more than that extra income).
[Someone else will need to explain it or give a pointer; I'm not familiar with all the specifics.]
Point is, you'd want to avoid just tipping over a threshold if possible.

RM
Last edited by ResearchMed on Sun Sep 13, 2020 1:19 pm, edited 1 time in total.
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prairieman
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Re: How do you estimate post-retirement income tax?

Post by prairieman »

I use TurboTax to calculate and print vouchers. It hasn’t been very close so far, but it doesn’t matter to me. If I owe or get a refund at year’s end, the so be it.
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02nz
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Re: How do you estimate post-retirement income tax?

Post by 02nz »

You could use TaxCaster (https://turbotax.intuit.com/tax-tools/c ... taxcaster/) to get a quick idea. As others have pointed out, Social Security is not taxed the same as other income (like pension payments or IRA distributions). Also, note that the calculation to determine how much of SS income is subject to income tax is not indexed for inflation, unlike the income tax itself.
ResearchMed wrote: Sun Sep 13, 2020 12:13 pm There is also a bit of a "gotcha" if you are not already at that 85% rate. A very small extra amount of income can cause a big bump in the total tax paid (it can be more than that extra income).
[Someone else will need to explain it or give a pointer; I'm not familiar with all the specifics.]
Point is, you'd want to avoid just tipping over a threshold if possible.
This is simply incorrect. There's no "cliff" where if you get say another $1 of Social Security benefits or other income, you owe another $2 or $10 in tax. The marginal tax rate can be high in places, but it's never at or over 100%. This is unlike say the ACA subsidy, where going over the "cliff" by a dollar means you lose thousands in subsidy.

See here: https://www.bogleheads.org/wiki/Taxatio ... y_benefits and look at the "heat map" in particular.
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ResearchMed
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Re: How do you estimate post-retirement income tax?

Post by ResearchMed »

02nz wrote: Sun Sep 13, 2020 12:50 pm You could use TaxCaster (https://turbotax.intuit.com/tax-tools/c ... taxcaster/) to get a quick idea. As others have pointed out, Social Security is not taxed the same as other income (like pension payments or IRA distributions). Also, note that the calculation to determine how much of SS income is subject to income tax is not indexed for inflation, unlike the income tax itself.
ResearchMed wrote: Sun Sep 13, 2020 12:13 pm There is also a bit of a "gotcha" if you are not already at that 85% rate. A very small extra amount of income can cause a big bump in the total tax paid (it can be more than that extra income).
[Someone else will need to explain it or give a pointer; I'm not familiar with all the specifics.]
Point is, you'd want to avoid just tipping over a threshold if possible.
This is simply incorrect. There's no "cliff" where if you get say another $1 of Social Security benefits or other income, you owe another $2 or $10 in tax. The marginal tax rate can be high in places, but it's never at or over 100%. This is unlike say the ACA subsidy, where going over the "cliff" by a dollar means you lose thousands in subsidy.

See here: https://www.bogleheads.org/wiki/Taxatio ... y_benefits and look at the "heat map" in particular.
Apologies if I was confusing the SS and ACA breakpoint situations.
In any event, to make it clear to others, wherever it occurs, technically, it is *not* that some amount is "taxed at more than 100%". What happens is that if one goes over a given threshold, then "more income" is subject to tax; the tax rate doesn't head up to and above 100%.
Unfortunately, the *effect* of that jump does result in more tax to be paid than that slight amount that bumped past the threshold.

Again, if what I wrote above is only for ACA brackets, then it doesn't apply to OP's question about SS and taxes.
And if OP will be of Medicare age (and not retired early), then the ACA and taxes issue wouldn't apply, either.

RM
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Almost there
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Re: How do you estimate post-retirement income tax?

Post by Almost there »

I have used the following income tax calculator now for a number of years and found it quite accurate. Learned it right here on Bogleheads:

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

Almost there
MathWizard
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Re: How do you estimate post-retirement income tax?

Post by MathWizard »

Besides taxcaster, which is excellent, smartassets has a calculator for federal and state.
02nz
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Re: How do you estimate post-retirement income tax?

Post by 02nz »

ResearchMed wrote: Sun Sep 13, 2020 1:11 pm
02nz wrote: Sun Sep 13, 2020 12:50 pm You could use TaxCaster (https://turbotax.intuit.com/tax-tools/c ... taxcaster/) to get a quick idea. As others have pointed out, Social Security is not taxed the same as other income (like pension payments or IRA distributions). Also, note that the calculation to determine how much of SS income is subject to income tax is not indexed for inflation, unlike the income tax itself.
ResearchMed wrote: Sun Sep 13, 2020 12:13 pm There is also a bit of a "gotcha" if you are not already at that 85% rate. A very small extra amount of income can cause a big bump in the total tax paid (it can be more than that extra income).
[Someone else will need to explain it or give a pointer; I'm not familiar with all the specifics.]
Point is, you'd want to avoid just tipping over a threshold if possible.
This is simply incorrect. There's no "cliff" where if you get say another $1 of Social Security benefits or other income, you owe another $2 or $10 in tax. The marginal tax rate can be high in places, but it's never at or over 100%. This is unlike say the ACA subsidy, where going over the "cliff" by a dollar means you lose thousands in subsidy.

See here: https://www.bogleheads.org/wiki/Taxatio ... y_benefits and look at the "heat map" in particular.
Apologies if I was confusing the SS and ACA breakpoint situations.
In any event, to make it clear to others, wherever it occurs, technically, it is *not* that some amount is "taxed at more than 100%". What happens is that if one goes over a given threshold, then "more income" is subject to tax; the tax rate doesn't head up to and above 100%.
Unfortunately, the *effect* of that jump does result in more tax to be paid than that slight amount that bumped past the threshold.

Again, if what I wrote above is only for ACA brackets, then it doesn't apply to OP's question about SS and taxes.
And if OP will be of Medicare age (and not retired early), then the ACA and taxes issue wouldn't apply, either.

RM
What you wrote does not happen with income tax - an additional dollar of pension or IRA distributions or SS income will cause your taxes to go up by less than a dollar.
chemocean
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Re: How do you estimate post-retirement income tax?

Post by chemocean »

As many on this forum have suggested., the time between your retirement date and the year when you 72 provides an excellent time to convert your traditional IRA to a Roth IRA to minimize your overall tax burden to your and your heirs. Your regular income may be low at this time before possibly taking SS benefits and RMD allowing your Roth conversions to be taxed at a the lowest rate. In addition, the tax rates are scheduled to increase in 2026. Thus, if you convert to the top of the tax bracket that will be the maximum tax bracket you or your heirs will be pay, your tax will remain the same through 2026.
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FiveK
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Re: How do you estimate post-retirement income tax?

Post by FiveK »

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Bogle7
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Re: How do you estimate post-retirement income tax?

Post by Bogle7 »

For us, a lot. 24% Fed marginal and CO state 4.6% marginal.
We are doing Roth conversions so our daughter and grandsons won’t face a tax bill.
This means converting $150K+ per year. And, it will take over 10 years to complete.
TheDDC
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Re: How do you estimate post-retirement income tax?

Post by TheDDC »

Keep in mind that there is more than income taxes to factor in. If you are enrolled in Medicare there is IRMAA. You want to make sure your total income is under the IRMAA limit otherwise it's just a "stupid tax" that need not be paid.

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scrabbler1
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Re: How do you estimate post-retirement income tax?

Post by scrabbler1 »

I have a spreadsheet which is a skeleton version of my state and federal income tax forms and relevant worksheets such as the QDCG worksheet. I even built in the ACA premium subsidy form and tables. I have a list of dividends (monthly and otherwise) and cap gain distributions which begin as estimates before I gradually replace then with actual figures.
lstone19
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Re: How do you estimate post-retirement income tax?

Post by lstone19 »

02nz wrote: Sun Sep 13, 2020 5:41 pm
ResearchMed wrote: Sun Sep 13, 2020 1:11 pm
Apologies if I was confusing the SS and ACA breakpoint situations.
In any event, to make it clear to others, wherever it occurs, technically, it is *not* that some amount is "taxed at more than 100%". What happens is that if one goes over a given threshold, then "more income" is subject to tax; the tax rate doesn't head up to and above 100%.
Unfortunately, the *effect* of that jump does result in more tax to be paid than that slight amount that bumped past the threshold.

Again, if what I wrote above is only for ACA brackets, then it doesn't apply to OP's question about SS and taxes.
And if OP will be of Medicare age (and not retired early), then the ACA and taxes issue wouldn't apply, either.

RM
What you wrote does not happen with income tax - an additional dollar of pension or IRA distributions or SS income will cause your taxes to go up by less than a dollar.
I concur. The issue is the phase-in of SS income taxability. From looking at how the SS taxable income worksheet works, there is no cliff. For instance, when your income is in the range where the IRS says "up to 85% of SS income may be taxable", that 85% is phasing in by having an additional dollar of income cause a $1.85 increase in taxable income until the full 85% of your SS income is included in taxable income. The result of this is your real marginal income tax rate is 185% of the stated marginal rate. So if you're in the 24% bracket, you'll see a real marginal rate of 44.4%. I believe by the time you reach the 32% bracket, the full 85% of SS income is already in taxable income so the 185% never gets applied to 32% and the 44.4% I mentioned is the highest real marginal rate you'll ever see.
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FiveK
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Re: How do you estimate post-retirement income tax?

Post by FiveK »

lstone19 wrote: Sun Sep 13, 2020 11:04 pm ...the 44.4% I mentioned is the highest real marginal rate you'll ever see.
In a plausible situation, a marginal rate of 1.85 * (12% + 15%) = 49.95% occurs.
NotWhoYouThink
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Re: How do you estimate post-retirement income tax?

Post by NotWhoYouThink »

I have a spreadsheet that shows anticipated income each of the next 20 years - pension, social security, dividends, capital gains, IRA withdrawals, etc.

I apply a factor to each income source based on anticipated effective tax rate, then add up what's left as my spending potential for that year. I also have a column for anticipated spending needs, including insurance, so I can make sure (by planning IRA or investment withdrawals) that my spendable income is at least as great as my expenses.

When tax laws change I change the spreadsheet.
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Re: How do you estimate post-retirement income tax?

Post by tibbitts »

Unfortunately I wasn't paying enough attention for the past 4 years or so before retirement and failed to realized how much my taxes were going to be affected by taxable retirement distributions. I'll pay for that because during those years I was doing too few Roth conversions. So for me I had some lost opportunities before retirement. But what I had never understood was the two-year income lookback for medicare IRMAA. That means effectively fewer years for doing Roth conversions without incurring another significant "tax" on top of income tax. There's no excuse for me not knowing that, it was just never on my radar. And medicare appears to be a "cliff" where a dollar more in income can result in a huge increase in premiums.
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Re: How do you estimate post-retirement income tax?

Post by basspond »

We did an estimate of our income for our estimated taxes. We are just over the 12% tax rate so our taxes will be less using the marginal tax rates then the 15% capital gains/dividend rate.
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FiveK
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Re: How do you estimate post-retirement income tax?

Post by FiveK »

basspond wrote: Mon Sep 14, 2020 11:44 am We did an estimate of our income for our estimated taxes. We are just over the 12% tax rate so our taxes will be less using the marginal tax rates then the 15% capital gains/dividend rate.
There is a $250 niche between the top of the 0% LTCG/QD bracket ($80,000) and the top of the 12% ordinary income bracket ($80,250), but maybe you mean something different...?
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