Taxes when retired.

[jacwjames]

Originally Posted by RVPioneer

Yes, it obviously is not a retirement tax forum. It is an RV forum and many folks who participate on this forum are either retired or near retirement. Many have sage advice to offer and many seek that advice.

I agree with this, the forum is filled with people who have been through what I am currently researching. Why not ask for advice.

I also do not take everything as gospel. I've read a number of posts and immediately researched the topic. I do not make decisions hastily, I'll spend hours researching something no matter how mundane it seems, that's just me.


I appreciate all the people who posted with detailed and thoughtful answers.

[dssl]

I agree with some others Roth IRA conversions are something you should seriously consider.

After the 2018 tax rate reductions the tax rates are low by all historic measures, and yet we are running up a huge deficit. For this reason it is likely that the tax rates will be significantly higher in the future then they are now.

You should also look down the road if you allow your pre tax retirement accounts to grow and then you add in your other income sources and you are likely to be in a very high tax bracket when your social security and RMDs kick in. Add to that the latest tax changes that make passing on those pre-tax retirement accounts are tax wise problematic (can only be stretched out 10 years instead of over the lifetime).

The current tax rates are set to expire in 2025 , so this may be a relatively small window of availability to do ROTH conversions.

For a married couple you can have something like 320k in income and have a marginal tax rate of 24%. It seems unlikely that down the road you will be in a lower tax bracket then that, so I suspect doing Roth conversion up to that income will be a good strategy for you.

The point is if you have significant assets you should not worry so much about how much taxes you are paying now, but instead be more concerned with lowering your average tax rate over the lifetime of your assets.

[RVPioneer]

Originally Posted by RVPioneer

In rounded numbers, income for a married couple filing jointly from 0-20K is taxed at 10%, 20-80K is taxed at 12%. Subtract the standard deductions for a married couple of $24K and the 90K of income is reduced to 66K of taxable income. All of the 66K will be taxed at a rate of 12% or less for a total of ~$7500. This is a marginal tax rate of 8.33% on the gross income of $90K.

Correction: The last sentence should have read “effective” tax rate rather than marginal.

[BikesAndGuns]

Here's something else to consider. It's not just how long you'll live but how long your spouse will live. Check this out: https://www.msn.com/en-us/money/retirement/the-social-security-decision-you-might-regret-if-youre-married/ar-BBZmNxG?li=BBnbfcN

[jacwjames]

There have been a number of suggestions regarding options for savings accounts.

Does anyone use Health Savings Accounts HSA. I read a good article this AM.

I had checked on these ~5 years ago but my bank did not offer this as a savings options. Can anyone recommend a savings institution that handles these.

Probably wouldn't help offset taxes this year but possibly next year. Might be a good way to move money out of an IRA into another account and avoid taxes now and in the future when the money is used since not taxes are owed on earnings as long as the money is used for medical reasons.

[powercat_ras]

Health Savings Account (HSA) is a good way to tax shelter some income if you are below age 65. However, you MUST participate in a qualifying High Deductible Health Plan (HDHP).

You can deposit up to $ 4,550 in a HSA this year ( $ 3,550 if under age 55 ). This directly reduces your taxable income. In effect you are setting aside money to pay for health care costs, including Dental and Vision care, not paid for by your insurance tax free. The reduction in taxable income also can help you get and or increase the subsidy you get to help cover the cost of Affordable Care Act HDHP Health Insurance.

You can't pay insurance premiums with HSA funds. Withdrawals from the HSA for health care are not taxed.

If you withdraw funds from the HSA before age 65 for other than health care before age 65, there is a 20% penalty similar to early IRA withdrawals. After age 65, all withdrawals are penalty free.

HSA Wikipedia

[wnytaxman]

Randy, great summary on the HSA. They can be a great vehicle to help shelter funds and to provide for tax relief for future medical expenses. As you stated there can be no more contributions into the HSA once you reach age 65. We have many clients that had contributed the maximum into their HSA's every year to help defray some of their medical expenses in their more senior years.

Some have said that it is "a no-brainer" to sign up at 62 or your full retirement age. I would disagree with that comment because every person's situation is different. Your potential longevity, your spouse's potential longevity, having kids under the age of 18 when you reach full retirement age, and more. It is a very personal decision and one that requires the proper research.

In the course of this thread it has been mentioned that the current tax law will expire in 2025. With many years of experience I can tell you that the shelf life of any tax law is only until the next Congress meets. The likelihood of there being major changes to the tax code in the very near future is quite high considering the current debt and the push for increased social spending. My own opinion is that you will never, ever see tax rates this low again. That may have an impact on your decision as to IRA withdrawals or when to sign up for Social Security.

Some have mentioned the Roth IRA as being a great tax savings tool. I would agree with that assessment. My major concern with the Roth IRA is that some Congress at some point in the future may look at all those Roth increases and decide to tax them. Before you say, "That can't happen." I would like to remind you that Social Security was NEVER going to be taxed. I have no inside information that the Roth will ever become taxable. My gut tells me that somewhere down the line, as our need for increased tax revenue grows, that the Roth may be a potential target.

[RVPioneer]

Does anyone really believe that taxes will be increased out of concern for the level of debt?

Don’t forget that the public debt increased from 10 Trillion to 20 Trillion under the previous administration.

[dssl]

Originally Posted by wnytaxman

Some have mentioned the Roth IRA as being a great tax savings tool. I would agree with that assessment. My major concern with the Roth IRA is that some Congress at some point in the future may look at all those Roth increases and decide to tax them. Before you say, "That can't happen." I would like to remind you that Social Security was NEVER going to be taxed. I have no inside information that the Roth will ever become taxable. My gut tells me that somewhere down the line, as our need for increased tax revenue grows, that the Roth may be a potential target.

Since the ROTH has already been taxed it's hard to imagine that they would double-tax the money. If they wanted somehow reduce the benefits of the accounts they could require an RMD for the accounts, and if they wanted to be extreme they could end the tax benefit for Roth accounts i.e. the money in Roth accounts would become just like any other after tax account and any future gains would be taxed.

If you want to talk about extreme measures that could impact people that had good incomes and saved like they were encouraged to do then they could add some kind of means test to Social Security. This would seem very unfair in that you would be penalizing people for saving. The way Social Security works people who make near the social security maximum taxable income already get the worst deal, since if you make less you get a higher percentage of your income back and pay less taxes, and if you make oodles of money then you pay a very small percentage of your income.

They certainly need to figure out how to fix the projected shortfalls in the social security system. In addition they need to figure out how to get our federal deficit under control which in my mind is part of the same problem. Given the current political environment it's hard to imagine them resolving any of these issues in the near future. Unfortunately waiting will cause the required changes to be more extreme and painful.

[wnytaxman]

Originally Posted by dssl

Since the ROTH has already been taxed it's hard to imagine that they would double-tax the money. If they wanted somehow reduce the benefits of the accounts they could require an RMD for the accounts, and if they wanted to be extreme they could end the tax benefit for Roth accounts i.e. the money in Roth accounts would become just like any other after tax account and any future gains would be taxed.

If you want to talk about extreme measures that could impact people that had good incomes and saved like they were encouraged to do then they could add some kind of means test to Social Security. This would seem very unfair in that you would be penalizing people for saving. The way Social Security works people who make near the social security maximum taxable income already get the worst deal, since if you make less you get a higher percentage of your income back and pay less taxes, and if you make oodles of money then you pay a very small percentage of your income.

They certainly need to figure out how to fix the projected shortfalls in the social security system. In addition they need to figure out how to get our federal deficit under control which in my mind is part of the same problem. Given the current political environment it's hard to imagine them resolving any of these issues in the near future. Unfortunately waiting will cause the required changes to be more extreme and painful.

I don't see them taxing the original investment into the Roth's but I do see the potential for them to go after the earnings of a Roth. Part of the logic would go along the lines of "you must be rich to afford a Roth." Would it be unfair? Absolutely, but the draw of large amounts of untaxed dollars would appear to be too much for some.


So far Washington has avoided addressing the debt, but when you consider that the largest single holder of that debt is the Social Security Fund the need to address the issue increases dramatically.

[Spk64]

Thread Warning!
Lets not stray from the original topic and keep politics out of the discussion.

Steve as Site Staff

[astrocamper]

My parents are 91 and they just moved from their home to a managed care facility. My father worked one day a week until he was 80. My wife parents are in their late 80s and still living in their home. My wife and I are 62 and plan to work until 66+. We are fortunate that we both still enjoy our work. We will start collecting at our 66.5 year full benefit age.

I always tell people at their retirement parties that they are fortunate to be able to retire at the time of their choice.

[awol50]

Originally Posted by jacwjames

There have been a number of suggestions regarding options for savings accounts.

Does anyone use Health Savings Accounts HSA. I read a good article this AM.

I had checked on these ~5 years ago but my bank did not offer this as a savings options. Can anyone recommend a savings institution that handles these.

Probably wouldn't help offset taxes this year but possibly next year. Might be a good way to move money out of an IRA into another account and avoid taxes now and in the future when the money is used since not taxes are owed on earnings as long as the money is used for medical reasons.

Fidelity offers hsa accounts for individuals. At zero cost I read. Check it out.
As long as you are covered by an HSA eligible health plan you are good to go. All contributions to an HSA end when you go on Medicare.

[RVPioneer]

Originally Posted by wnytaxman

I don't see them taxing the original investment into the Roth's but I do see the potential for them to go after the earnings of a Roth. Part of the logic would go along the lines of "you must be rich to afford a Roth." Would it be unfair? Absolutely, but the draw of large amounts of untaxed dollars would appear to be too much for some.


So far Washington has avoided addressing the debt, but when you consider that the largest single holder of that debt is the Social Security Fund the need to address the issue increases dramatically.

Actually, for 2020 a married couple earning more than $206K is not eligible to contribute to a Roth. A Roth is not a tool for the truly rich.