Retirement’s Most Common Tax Obstacle | Explained

Timestamps:
0:00 Retirement's Most Common Tax Hike
0:23 Marginal Tax Rate Explained
1:29 The Social Security Tax Torpedo
2:03 How to Calculate Social Security Taxation
6:13 The 12% Brackets Turns into 22.2%?
7:28 Retirement Tax Brackets
10:17 The 12% Bracket Turns into 49.95%?
11:43 Avoidance Strategies

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Always remember, "You Don't Need More Money; You Need a Better Plan"

[TheJAXguy]

I am a 73 year old retiree with no Roth IRAs. Once I had to start taking RMDs my taxes almost tripled! Have had the Medicare IRMAA penalty too .
Don't get too giggly about all of those tax-deferred accounts. Paying the piper ain't cheap.
Listen to Dave, because he is really good at this. You will be happy that you have a plan.

[CD-qlhz]

Your financial videos are among the best on YouTube. You present a great deal of useful information in a concise understandable way.

[peter-hrgl]

I only look at the effective rate and actually the dollar amount these days. I am now aware of the tax brackets and IRMAA brackets so try to keep the overall tax amount before a specific dollar amount. Online tax calculators help tremendously with that.

[lindad]

I am planning to blast through the tax torpedo / tax hike zone once or twice for Roth conversions. Small pension, plus SS Survivors benefit... no wiggle room for low / no tax conversions. And no reasonable room in my last year of work.

[mitchbandalan]

Watching these videos really open up my eyes to life after work. I dont have a Roth yet but I plan to start it next year. This is the first time I heard about provisional income and how its calculated. I definitely need a tax plan moving forward.

[joannagannon]

Great video Eric! I have learned so much about retirement planning by watching your videos.

I would love to see a video and get some guidance on retirement tax planning if MFJ with $65, 000 in pension income. We are 59. And when we get SS we can’t avoid the SS tax torpedo. So what can we do to minimize its effect?

[cybrainx]

You are the best... no rambles straight to the point

[todddunn]

Finally an accurate video on Social Security taxation. Good work.

[DaveSchmrdr]

I discovered this several years ago. When you mentioned 22.2%, I knew where you were going.
I used an online 1040 tax estimator and did a step process of adjusting things like capital gains, and IRA distributions to come up with the tax amounts. I wasn't astonished as I had guessed where this was going.
I spend more time in tax mitigation than I do adjusting my portfolio. I have lots of unrealized gains which will be realized after my retirement. :)

[trackguy]

Super job!! Give more pauses so we can digest it

[brucestiles]

Why not:
1. Defer Social Security as long as possible, to Age 70 if possible, which will also give you a larger benefit.
2. Do serial Roth conversions every year. Depending on individual circumstances, make total income just below the limit for 22%/25%, or at least below the first IRMAA trigger. The tax brackets for your conversions for 2023 are 0%, 10%, 12%, and maybe some at 22%.
3. Withdraw funds for expenses from the Roth funds -- you were going to spend them someday anyway.
4. Get as much pre-tax converted to Roth at reasonable rates as you can.
5. Keep hugging the upper bracket even while receiving, and accounting for, Social Security.
6. Getting pre-tax funds converted will make the Widow Trap much less painful, or maybe even non-existent.

[EatLeadPal]

Excellent video. I've learned a lot from you. I'm 62 and retiring in a few weeks. I have a large amount in a pre-tax 401k and will be taking SS at 67. I plan on doing aggressive Roth conversions to avoid RMDs.

[melblacke]

this is a really excellent intend to start contributing more to my roth immediately

[walkingdude]

I’m just going to plan that 85% of my SS will be taxed. I’m blessed so the government will get blessed(not the word I would use but it’s YT compliant).

[hammer]

I have a roth ira, a 401k, standard ira, and I'll be receiving a pension. My brain is going to explode in 8 years when I have to figure all this out.

[whitleyca]

Hey Eric - Love your content. Really helpful info to us lay people. I am onboard with the additional $222 at a 22.2% marginal rate. That makes sense to me. I am curious if the effective rate might fit into our analysis? In your example at $30k IRA income, we have a net effective rate of 5.2% ($3, 668 FIT / $70k gross). In the $31k example, we have a net rate of 5.5% ($3, 890 FIT / $71k). While the $222 is absolutely $222 in additional tax, it appears to be a rather small piece of the overall tax situation.

I am struggling with this idea in assessing whether to convert to Roth? We're in 22% marginal bracket, with estimated net rates of 14% no conversion and 16% with conversion. Should net rates even enter the equation?

[davidhastings]

❤❤❤Excellent Explanation 💯 Thank you !!!!

[photosynth]

I was wondering why the first step in the graph for married couples at 9 min in the video is at about $18K? Shouldn't it be the standard deduction for over 65, or about $29K? Even assuming reverting to pre-tax-act rules and values, it was more than 20K when including 2 'exemptions', and about $27K in today's dollars after adjusting for inflation.

[Bondbeer]

I don’t think I can avoid the SS taxation. By delaying SS our combined payment will be at least $70k so $35k counts in calculation plus a $17k pension puts me over right?

[martinguldnerAutisticSwanGuru]

Most financial advisors never talk about the Social Security income taxation because of distributions from traditional IRAs/401ks; they all talk about your tax bracket being less when your retire vs when you are working. Outside an inherited taxable brokerage account and an inherited traditional IRA. 100% of my dedicated retirement accounts are a Roth IRA and Roth 401k.