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I found the following post at morningstar in Sue Stevens area of personal finance.

My question: if you changed the age to 66 years, assumed max SS income for 2004 (1) and married filing joint, what is the taxable income and AGI one could have and still remain in 15% bracket?

Related question: does realized capital gains have an impact on the tax bracket? Or does the amount of IRA distribution control the bracket? IOW, does one need to find a porportional withdrawal amount from IRAs vs taxable to maximize income in the 15% bracket?

<<<I'm a 60-year-old retiree who is an experienced investor with over $1 million in a 401(k) and IRAs and $400,000 in taxable accounts. This is just as background.

I want to say "amen" in particular to your suggestions in "Smart Ways to Tap Your Retirement Accounts" about withdrawing enough from deferred accounts to stay within the 15% tax bracket. I'm not sure many seniors realize that a couple married filing jointly in 2004 can have taxable income of $58,100 and still be in the 15% bracket. With the standard deduction of $9,700 (2004) and $6,200 (2004) in exemptions, they can have $74,000 in adjusted gross income. Of course, this bracket allows such a couple to pay only 5% on capital gains and dividends for the next few years. Such a deal!

My personal strategy for now is to take distributions and use aftertax funds as needed to remain in the 15% bracket as long as I can. I plan especially to be in the 15% bracket in 2008 so I can take all the capital gains possible when they will not be taxable. I also am planning to convert as much as I can from traditional IRAs to my Roth IRA, as long as I can keep taxable income below $58,100. (I'm not positive these small conversions to Roth are the right strategy, but it seems to make sense to me.) Of course, when I hit age 70½ I'll have to start taking required miniumum distributions and may then be in a higher tax bracket, but perhaps I can stay in the 15% bracket until then.>>>

I tried entering what-ifs into a 2003 trial version of Turbo Tax. I think I got roughly $60K from IRA, $5K LT gain, max SS $22K(?) still maintained 15% bracket. 66 years is a few years into the future and I'm not sure 2003 TT liked some of my entries. (birthdate, SS)

IOW, I tried but I think I butchered TT.

Thanks for any help with adjusting the "original post" to 66 years with max SS and remaining in 15% bracket.


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My question: if you changed the age to 66 years, assumed max SS income for 2004 (1) and married filing joint, what is the taxable income and AGI one could have and still remain in 15% bracket?

The top of the 15% bracket for MFJ filing status is $58,100 in taxable income (2004). Using the standard deduction (both spouses 65) this translates into AGI of $75,900. Note that everything is inflation adjusted each year.

Related question: does realized capital gains have an impact on the tax bracket? Or does the amount of IRA distribution control the bracket? IOW, does one need to find a porportional withdrawal amount from IRAs vs taxable to maximize income in the 15% bracket?

I'm thinking your goal is to keep the taxation of your capital gains at 5%. If I'm right, income is income is income when determining the bracket.

Phil
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Thanks Phil.

Could you expand a little on why LT capital gains influence the tax bracket if they are supposed to be taxed at either at 5% or 15%?

Also, I thought the max SS would affect my scenario as opposed to the original. But, if I understand you correctly then AGI minus SS is the nut for IRA and capital gain income?. (SS entirely taxed in 15% bracket?)

Maybe it would be easiest for me to understand if given $0 IRA income, $75,900 capital gains, no SS. Is the tax 5% or 15%?

I'm really mixed up. Believe it or not, I entered taxes for a CPA 10 years ago. I think TT is throwing me. I'm used to entering data directly? not through questions. I'm using the "free 2003" version of TT.

I would like to be able to enter various data assumptions (not through questionaire) and see/print the different results. Do I need to buy the 2004 TT to experiment like that? enter data directly? (I won't file using TT for 2004. Still need a professional for a few more years.)

Finally, what are your thoughts on how to use the 2008 window for zero capital gains tax? That's amazing. 30 day wash rules apply, I assume.

Couldn't one sell all positions and rebuy 31+ days later, generating no tax and a higher basis for future selling? Or at the least, plan to use a cash position in 2008 to buy more of a current holding, wait 31+ days, and then sell the lower basis shares, thereby paying no tax on sale and still owning position at a higher basis? I'm kind of surprised there isn't more discussion about this 2008 tax quirk now.

Recap: I'd like to be able to do "what ifs" without doing a spreadsheet. Is that possible without going through a long questionaire then losing the data when new assumptions entered? With the trial TT, if you want to print result, you must buy the program.

Any way around buying something I'm never going to use. I don't plan to file my own taxes until maybe 2008. (Sole proprietor now and want the CPA signature on return.)

I'm sorry for the length of this post. I'll appreciate anything you care to comment on.

Lethean














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I'm sorry for the length of this post. I'll appreciate anything you care to comment on.

When you talk about Social security, I assume you're talking about receiving social security. That can become a bit messy, as the amount of your social security that is taxable will depend on how much other income you are reporting. At certain points, adding $100 of additional income will also make another $85 of your social security taxable. That is effectively almost doubling your tax rate. So there's a bit of slipperiness in things here.

My suggestion would be to stop being overly cost conscious, and spring for the tax software. Or better yet, take your figures to your tax preparer and pay for a bit of professional advice. A good tax pro will have the planning tools to help you reach the goal you're looking for. And you do have a good general plan, but I think it will take some professional assistance to get you there.

--Peter
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Could you expand a little on why LT capital gains influence the tax bracket if they are supposed to be taxed at either at 5% or 15%?

If you look at Part IV of Schedule D you'll see that it shifts the rate at the top of the 15% bracket. That's all I meant.

Also, I thought the max SS would affect my scenario as opposed to the original. But, if I understand you correctly then AGI minus SS is the nut for IRA and capital gain income?. (SS entirely taxed in 15% bracket?)

Completely wrong; sorry if I somehow mislead you. Peter has already briefly discussed taxation of your SS benefit. The portion of it, if any, that is taxed is taxed the same as any other ordinary (non-capital gain) income.

Maybe it would be easiest for me to understand if given $0 IRA income, $75,900 capital gains, no SS. Is the tax 5% or 15%?

5%

I'm really mixed up. Believe it or not, I entered taxes for a CPA 10 years ago. I think TT is throwing me. I'm used to entering data directly? not through questions. I'm using the "free 2003" version of TT.

I would like to be able to enter various data assumptions (not through questionaire) and see/print the different results. Do I need to buy the 2004 TT to experiment like that? enter data directly? (I won't file using TT for 2004. Still need a professional for a few more years.)

Finally, what are your thoughts on how to use the 2008 window for zero capital gains tax?

Well, when I'm having trouble getting to sleep I fanticize about winning a big lottery jackpot. Planning for zero cap gains tax in 2008 will be about the same level of fantasy.

Phil
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