The Tax Time Bomb is real...for some people.
As I read through a few pages of replies to OP, it became obvious that some BHs have enough retirement assets that taxes might be an irritant, but not really a problem. I am not one of them, and good for them.
For me, I planned for my retirement and next April I will see exactly how successfully my planning will pay off.
I retired on January 5th, 2024, the first pay period of my former employer in the new year. I could have retired effective 12-31-23, but delayed until January 5th to be eligible for 2 additional Roth Contributions for my wife and me. I was also able to devote my entire final paycheck, less taxes, to my Roth Account in my 403b. Once those funds were posted, I transferred everything to my Vanguard Roth accounts and never looked back.
Now as far as my taxes are concerned, by delaying my Social Security filing for my personal benefits until age 70, I maxed out my SS Benefits. From age 66-70, I collected spousal benefits on, my wife's account as she filed for her benefits at age 62, and I was grandfathered in under the old filing system. When I filed at age 70, she filed for her spousal benefits on my account. In 2024, we are receiving $72,144 in social security, which is only partially taxable.
In mid, 2023, anticipating my retirement in 2024, I purchased 4 annuities. 3 were funded with Roth Dollars and 1 was funded with traditional IRA dollars. When my wife turns 70, on 9-5-24, we will begin receiving payouts from 2 of the 4 annuities. (They are all joint life annuities with cash refund provisions, as well as LTCi Doubler Provisions.) These two payments will be Income Tax Free, as they are 2 of the 3 funded with Roth Dollars.
In 2029, we will "turn on " the other two annuities, which will both be Roth payments by then, as I will be doing "piecemeal, internal Roth Conversions" on the one annuity that was purchased with Traditional IRA dollars. I will be paying whatever taxes due on those dollars at a 10-12% tax rate.from my VG Brokerage account.
Lastly, I will be taking a 1.5% withdrawal monthly from my Vanguard equity holdings, annually between September 2024 and September 2029, and the combination of these funds will provide an Annual Income of right at $121,000, however, very little of the income will actually be taxable, and our non discretionary retirement expenses are slightly over $50,000 annually.
I will have a better grasp of exactly how much my taxes will be before this year end, and make any appropriate adjustments accordingly.
Because our income is guaranteed, and our SS benefits have their built in COLA, our remaining portfolio is 95% invested in VTI/VXUS (90/10%) and the remains 5% is in BRKB, in a self managed VG account. In any year the market declines, I will suspend my VG withdrawals and take the 1.5% from our 2.5 years of cash. Our annuities serve as our bond holdings, for fixed income.
I realize that for many BHs, annuities are unpopular, and that's OK with me. As someone in the responses before me reminded us, "Personal Finance is...Personal." My plan will be great for us, and I hope your solution to minimizing your taxes works for you.
But The Tax Time Bomb...is real. You just don't have to be standing around it when it explodes.
As I read through a few pages of replies to OP, it became obvious that some BHs have enough retirement assets that taxes might be an irritant, but not really a problem. I am not one of them, and good for them.
For me, I planned for my retirement and next April I will see exactly how successfully my planning will pay off.
I retired on January 5th, 2024, the first pay period of my former employer in the new year. I could have retired effective 12-31-23, but delayed until January 5th to be eligible for 2 additional Roth Contributions for my wife and me. I was also able to devote my entire final paycheck, less taxes, to my Roth Account in my 403b. Once those funds were posted, I transferred everything to my Vanguard Roth accounts and never looked back.
Now as far as my taxes are concerned, by delaying my Social Security filing for my personal benefits until age 70, I maxed out my SS Benefits. From age 66-70, I collected spousal benefits on, my wife's account as she filed for her benefits at age 62, and I was grandfathered in under the old filing system. When I filed at age 70, she filed for her spousal benefits on my account. In 2024, we are receiving $72,144 in social security, which is only partially taxable.
In mid, 2023, anticipating my retirement in 2024, I purchased 4 annuities. 3 were funded with Roth Dollars and 1 was funded with traditional IRA dollars. When my wife turns 70, on 9-5-24, we will begin receiving payouts from 2 of the 4 annuities. (They are all joint life annuities with cash refund provisions, as well as LTCi Doubler Provisions.) These two payments will be Income Tax Free, as they are 2 of the 3 funded with Roth Dollars.
In 2029, we will "turn on " the other two annuities, which will both be Roth payments by then, as I will be doing "piecemeal, internal Roth Conversions" on the one annuity that was purchased with Traditional IRA dollars. I will be paying whatever taxes due on those dollars at a 10-12% tax rate.from my VG Brokerage account.
Lastly, I will be taking a 1.5% withdrawal monthly from my Vanguard equity holdings, annually between September 2024 and September 2029, and the combination of these funds will provide an Annual Income of right at $121,000, however, very little of the income will actually be taxable, and our non discretionary retirement expenses are slightly over $50,000 annually.
I will have a better grasp of exactly how much my taxes will be before this year end, and make any appropriate adjustments accordingly.
Because our income is guaranteed, and our SS benefits have their built in COLA, our remaining portfolio is 95% invested in VTI/VXUS (90/10%) and the remains 5% is in BRKB, in a self managed VG account. In any year the market declines, I will suspend my VG withdrawals and take the 1.5% from our 2.5 years of cash. Our annuities serve as our bond holdings, for fixed income.
I realize that for many BHs, annuities are unpopular, and that's OK with me. As someone in the responses before me reminded us, "Personal Finance is...Personal." My plan will be great for us, and I hope your solution to minimizing your taxes works for you.
But The Tax Time Bomb...is real. You just don't have to be standing around it when it explodes.
Statistics: Posted by HENRYGRUGER — Fri Aug 30, 2024 11:54 pm — Replies 176 — Views 19811