How this Tax Bomb Caused One Retiree to Lose -30% to Taxes

As a retiree, your tax situation will look starkly different than it did when you were working.

In part, this is due to the various tax hurdles you may face throughout retirement. From the Social Security Tax Trap to Medicare Earnings Tests and more...

In this video, we give an example of one of these tax hurdles: Required Minimum Distributions (RMDs).

Watch as a retiree goes from a 0% tax bracket to losing nearly 30% of their RMD to taxes.

This is why it is so important for a retiree to build a forward-looking tax plan at the beginning of retirement. One that can avoid these tax hurdles before it's too late.

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

[eddieloujones]

Heck, I am easily losing 30%. It's called being single and living in NY.

[lalew]

the RMD can be used as QCD to reduce the taxes

[mikepool]

Thanks for the video. I am looking at a similar situation. I guess it's a great "problem" to have. I have lived well below my means, but as I look back, I'm sure I could have done better. Probably could have retired much earlier if I had not bought cars/trucks so often.

[rickyaz]

Spend down the trad’s in your 60s and do Roth conversions

[kimappreciateslife]

Was he single or married? His single SS was 60K? Or did this include his spouse?

[johnscott]

I assume that the 55, 000 was in addition to the 16k he was already taking out? So he really had an RMD of 71, 000? Kind of confusing, because if his RMD was really 55, 000, then the 16k he took out every year would be part of that and his taxes would be entirely different.

[johnscott]

You are incorrect with your statement about double taxation of Social Security. A little background. Social Security used to be tax free, but other forms of retirement income like pensions and annuities were not. So, in 1983, in order to level the playing field, so to speak, taxation of Social Security was introduced. Since people usually only paid half of their SS tax, with the employer paying the other half, the government assumed that they could tax up to 50% of benefits without falling into double taxation. The idea being that since you paid income tax on the FICA withholding from your pay, you shouldn’t have to pay tax on that portion of your benefit. They set the threshold very high for the time but deliberately did not index it to inflation. The idea, again, being that eventually EVERYONE would have to pay SOME tax on their Social Security, unless you were extremely poor. About ten years after this, the chief actuary of the government calculated that the total contributions of individuals would only on average be about 15% of their lifetime benefits. Which meant they could safely tax up to 85% of a persons Social Security without being guilty of double taxation. And this is why we have the current system that we have.