I want to know what federal tax brackets, exemptions, and the standard

deduction will be when I turn 70 1/2 and have to start RMDs. For me, this

is about ten years or so into the future.

Of course the law can change at any time, but currently tax brackets,

the personal exemption, and the standard deduction increase with

inflation. According to this article from the Tax Foundation, the IRS

uses the CPI-U to make the adjustment:

*The IRS uses the Consumer Price Index (CPI) to adjust the value of the*

parameters. It does this by taking the tax parameter’s base value and

multiplying it by the current year’s CPI and dividing it by the base

year’s CPI. For example, the base value for the top of the 10 percent

income tax bracket is $7,000 with a base year of 2002. This is multiplied

by 2014’s CPI-U of 235.69 and divided by 2002’s value of 178.68. The

result is $9,225 (after rounding).

parameters. It does this by taking the tax parameter’s base value and

multiplying it by the current year’s CPI and dividing it by the base

year’s CPI. For example, the base value for the top of the 10 percent

income tax bracket is $7,000 with a base year of 2002. This is multiplied

by 2014’s CPI-U of 235.69 and divided by 2002’s value of 178.68. The

result is $9,225 (after rounding).

I haven't the foggiest notion how to predict the CPI-U, but I think

I can fake the adjustments with the Excel FV() (future value) function.

Suppose:

**y**is the year I turn 70 1/2. Then

**y - 2017**must be the number of years

to inflate the tax brackets, standard deduction, and personal exemption.

**2%**is annual inflation from now to y. (Two percent is the fed's inflation

target).

**37,950**is the upper bound of the 15% tax bracket in 2017

The calculation is:

inflation adjusted 15% bracket upper bound = FV(2%, y - 2017, 0, 37,950)

Example:

So if y - 2017 is 10, and annual inflation is 2% over that period, the top of the 15% tax bracket in 2027 is 46,260.84.

But bracket boundaries seem always to be multiples of 50. That far in the future, I'm

not sure it pays to put too fine a point on whether to round up or down.

it. I let Excel pick the nearest multiple of 50 with MROUND().

Continuing the example above, the new bracket boundary is MROUND(46,260.84,50)

or 46,300. Thus the upper bound of the 2027 15% tax bracket for single filers is 46,300.

Doing the same for the personal exemption and standard deduction,

2027 personal exemption for single filers: 4900

2027 standard deduction for single filers: 7700

Bracket boundaries for 2027 for single filers:

10% ends at 11400

15% ends at 46300

25% ends at 112050

28% ends at 229550

Remember you heard it here first.

1) Is there a better method to estimate future tax brackets, or a conventional method to do so? Planners

must have to do this all the time.

2) My estimate depends heavily on correctly predicting inflation. I used 2% because that is the Fed's target inflation rate. However,

according to this web site of historical inflation rates

http://www.inflation.eu/inflation-rates ... tates.aspx

annual inflation over the last ten years has ranged from .09% to 4.08%:

CPI United States 2016 2.07 %

CPI United States 2015 0.73 %

CPI United States 2014 0.76 %

CPI United States 2013 1.50 %

CPI United States 2012 1.74 %

CPI United States 2011 2.96 %

CPI United States 2010 1.50 %

CPI United States 2009 2.72 %

CPI United States 2008 0.09 %

CPI United States 2007 4.08 %

so maybe using 2% isn't sound. I'm not sure what I could do about it.

3) Don't forget we are not allowed to speculate about future legislation. I am aware

of certain tax reform proposals that could turn my estimate on its head. I'm keen

to map out my Roth conversions for the next ten years. If the facts change, I'll change

my plan.

Thanks!