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I got a lot from this article, which will be pablum for you tax pros, but easy to understand for us idiots. Also downloaded the report on when to take SS, which was worth the 2 minutes it took to digest.

http://www.fool.com/investing/general/2013/10/20/will-your-2...

For us it will be worth deferring SS til 70, and taking the low income years between retirement and taking SS and pension to convert conventional IRAs to Roths, using our savings and investments to live on and do conversions. This should allow us the maximum ability to configure our income sources to minimize taxes, and pass on our remaining funds at death to our kids in the most tax advantaged way, among other benefits that are more personal to our specific situation.

FWIW,

IP
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"Combined Income"?? First I've heard the use of that term.

The more traditional term used is ones "provisional income", which is 1/2 of household SS benefits + any muni bond interest + modified AGI.

The 'gotchya' in this calc is that the first and second provisional income thresholds (25,000 & 34,000 for single filers and 32,000 & 44,000 for those married filing jointly) are NOT indexed for inflation, which means every year, the percentage of SS beneficiaries having to include some% - up to 85% - as ordinary income, is increasing. For example, for a fairly average couple collecting $26,000 in SS benefits, only has to have at least another $19,000 in household MAGI (which for the vast majority is simply their gross income plus any muni bond interest) to have to start including part of the SS benefits as ordinary income. And this will include all gross income, such as retirement plan/TIRA withdrawals, capital gains, qualifying dividends, interest of all forms and pension payments. The only form of income I can think of that is not included would be qualifying Roth IRA withdrawals and distributions that are return of capital, as one might get from MLPs, some REITs and as part of the payments received from a single premium immediate annuity.

An although I appreciate the tax calculations, be careful not to let the tax tail wag the family financial dog. When to begin SS benefits requires taking into account all household variables....one of which is the tax expense.

BruceM
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When to begin SS benefits requires taking into account all household variables....one of which is the tax expense.

Sure, but this is the tax board, which is why I summarized everything else as: among other benefits that are more personal to our specific situation.

No need to bore you all with our details, which are unlikely to reflect yours.

IP
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"Combined Income"?? First I've heard the use of that term.
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Me, too, as used with that meaning.
Code Section 86 uses the infamous term "modified adjusted gross income" (MAGI) which, for purposes of that section, includes more modifications than elsewhere, such as the new Medicare tax on net investment income, as we've discussed here at some length.

Section 86 also uses the terms "base amount" and "adjusted base amount" in reference to the thresholds at which taxability of benefits kicks in ($25,000, $32,000, $44,000, etc.)

But "combined income" appears to be a term made up for purposes of this article by the author. I've seen it used for in terms of joint vs. separate return filing, or in "innocent spouse" topics.

Bill
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Hi Bruce,

You mention "The only form of income I can think of that is not included would be qualifying Roth IRA withdrawals" - And I was wondering if that is correct? When I was researching this earlier this year I did not find anything that indicated Roth IRA distributions were not included in the determination of taxable SSA benefits. I'll have to go back and review the forms again.

JimA
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"The only form of income I can think of that is not included would be qualifying Roth IRA withdrawals" - And I was wondering if that is correct? When I was researching this earlier this year I did not find anything that indicated Roth IRA distributions were not included in the determination of taxable SSA benefits.

The key word is "qualifying" (which actually should be "qualified"). Qualified Roth distributions never make it into AGI, thus they're not included in the income used to determine the taxable portion of SS benefits.

People often fret that the Roth rules are going to change as Congress gets more and more creative in looking for money. I'm surprised they haven't already changed this calculation to treat qualified Roth distributions the same as they treat tax-exempt interest income and add it in even though it's not part of AGI.

Phil
Rule Your Retirement Home Fool
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Thanks for the clarification - I can see now that I was ending up with ev everything in 15b - when it should be 15a and 15b -

thanks,

JimA
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I'm surprised they haven't already changed this calculation to treat qualified Roth distributions the same as they treat tax-exempt interest income and add it in even though it's not part of AGI.

Gee I hope not Phil. The Roth is almost the only "tax shelter" the average Joe (no ... I'm not talking about you ~aj) has going for them. But the "anointed ones" in Congress have little concern about us "little guys". </rant>

Rich
Arizona
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