Bob Drake

Comments:

• Jonathan, You are calculating an average over the total income. I prefer a marginal impact thought process. Let's say in your example the taxable income was $98,000 or $1,000 into the IRMAA bracket. Part B marginal impact is 65.90 x 12/1000 > 79% so the cliff cost you mention is alot(plus Part D). When you have income control, e.g. Roth conversions, I'd take it up to just shy of the next IRMAA bracket of $123,000. The marginal rate for Part B only is then: 65.90x12/26,000 or 3%. So for me personally, I try to max out an IRMAA bracket while staying below the 32% tax bracket. Can't do that exactly as you don't know precisely what the IRMAA bracket is for two years hence when that year's income is applied to IRMAA, but in seven years I've been doing it have come pretty close without going over my targetted bracket, so realistic marginal IRMAA tax for me is 10 to 12 % higher than full bracket calculation. Again I add in part D in combination when doing this, but just wanted to use your example. I love the article though and when planning go through many/most of the considerations you cover. Bob

  Post: Juggling for Retirees

  Link to comment from January 21, 2023

• Richard, when doing future tax projections, one should also consider any potential IRRMA 'tax' impact also.as well as the taxability of SS - a potential large impact when transitioning through the lightly taxed range for SS until you hit the full 85% taxability as each dollar of other income can increase SS taxability by as much as another 50 to 85% until taxability is maxed out. The 22% bracket times 1.85 actually contains an effective 40.7% bracket within its range for some You comment however that you expect to be in the 24% bracket in the future, so I expect your SS will be fully taxed(85%) or close to it? Can be complicated - there are some YTube videos that cover the topic for those not well versed in. Good luck in your crystal balling. On top of that, you can't control what Congress will do in the future, so I periodically reevaluate and just hope my decisions reasonably workout. You meniton inheritance considerations - one of mine too. When the Secure Act changed inherited IRA rules I had to update my recently redone Will and beneficiary breakdown of who gets what - Roth, IRA or non IRA money. And keep track of capital gain step up money too - to preserve or cash out if you have the ability to choose. Lots to think about, but instead of puzzles as other seniors do.....

  Post: Running the Numbers

  Link to comment from December 14, 2022

• Good stuff Logan. I have done so for 50 years. While working I used to massviely under withhold for front end of a year and then increase to high levels around August/September to just meet safe harbor requirements. As you point out, withheld tax doesn't have to match up with income time frame like estimated payments are technically supposed to. I currently volunteer doing taxes with AARP and I inform folks of their oppurtunity cost when they seriously over withhold and get a huge refund. Some appreciate and heed the advice, but a large portion still want to see that big refund in the spring however! For some it is a forced savings and they like the big "surprise" refund. Oh well, to each his own.

  Post: When Late Is Okay

  Link to comment from December 14, 2022

• I have nothing against dividends, but I am not driven by either dividend paying companies or those that don't and reinvest their cash flow. What is important is the total return expected whether as capital gain or dividend. Dividends aren't free money. If a stock is at $100 and it pays out a $2 dividend the immediate new value is $98. If in an IRA and reinvest you still have $100 of that stock. If in a taxable account you have $100 less any tax paid on the $2. Like others have commented, I in my younger years used to reinvest using DRIPS or otherwise as it was a low cost way to put the dividend back to work. As others have pointed out however, investing fees today are usually not a cost driver any longer. Tax treatment is my driver. If I need cash flow(retired and in my 70s) I don't reinvest dividends in a taxable account. If the investment is in a tax differred qccount I generally do reinvest dividends automatically to keep the cash invested, and when I need cash just sell some shares - most of investments are in funds so fractional shares to get whatever I need is easy. Berkshire is a great company (doesn't pay dividends) as are the dividend paying ones mentioned - I have no problem with investing either. My decision is where to invest in a dividend paying company(or fund) vs a no/low dividend paying company(or fund) - IRA or taxable account.

  Post: Watching Them Grow

  Link to comment from December 10, 2022

• Good plan - especially saving early(magic of compounding) - if one starts right away you won't have to adapt to a cuttback. I am two months away from your last bullet. The only thing I didn't do was LTC insurance. Important area, but I read too many articles about people whose premiums got unexpectedly jacked up to unaffordable levels via fine print, less coverage than expected(fine print), etc. Because I started saving early I thought I was in decent shape to self insure.

  Post: Through the Ages

  Link to comment from November 30, 2022

• Well this article is "inspiring" me to ask for advice from readers. I purchased 10K of I bonds this year at Treasury direct and another 5K from my tax refund. The 5K refund is paid out in paper bonds in various denomitations. I realized I don't want to hold paper bonds - inconvenient at best for me and potential heirs. Does anyone know if these can be deposted in my Treasury Direct Account somehow? Thought I saw a comment awhile back that is possible somehow, but don't know the procedure is. However I don't want it to impact the 10K limit for 2023 either. Thanks to anyone who can help. Bob D

  Post: Giving Thanks

  Link to comment from November 26, 2022

• Rick, Your article really brought out the interest from all of us retired engineers it seems! LOL I retired at 50(long story) and been playing this game for awhile now. A mistake early on was just anyalyzing the next few years only. Do your best to take a longer view as the tax man will throw you a curve now and then. I don't know if you will be impacted, but IRMAA is another cliff to watch out for and grows over time if ones RMDs grow faster than inflation which is common. Another one is taxability of SS as you mentioned - this is a bit more complex than first meets the eye as some will have the percentage taxable increase with increasing RMDs(or other income). Watch out for, as it also impacts the IRMAA cliff(and it sounds like a NJ cliff for you). When not impacted by a significant cliff I have chosen to spend down my post tax savings to reduce future income and do Roth conversions(being mindful of cliffs) to reduce the cliffs in the future which could be large. Also on SS even when income maxes out its taxability at 85%, a larger future precentage from SS vs other income is a "win". By spending from taxable pool now and taking from SS later you move more income to non taxable in teh long run. Also, as Congress is also impacting you, you cannot be perfect. I turn 72 in 2023 and watching for Secure Act 2.0 to perhaps get one more year of Roth conversions if start age increases from 72 to 73. Yeah, us engineers like to analyze!!

  Post: Some Now More Later

  Link to comment from November 18, 2022

• Agree - and still saving copies of a couple of your WSJ columns from years ago as a guiding light/reminder. Thank you.

  Post: News You Can’t Use

  Link to comment from October 29, 2022

• If I hear one more mention about opening up a brokerage account for the signup bonus, whilst the real "investment " returns are in credit card sign up bonuses..... HEY you kids get off my lawn!!!

  Post: No I for Me

  Link to comment from February 24, 2022

• Carry four: AMEX Blue preferred for groceries(6%), Chase Biz for dining, office and home supply stores(3%), BJs for BJs instore(3%) and gas(add'l $0.10/gal - eliminates need to carry the membership card), Fidelity Elan for other(2%). Do not carry but use: Amazon card for Amazon online only(5%), an airline card of the moment to get sign up bonus miles, use for upcoming trip - cancel and repeat. Couple of legacy bonus cards, no longer rewarding competitively but keep in the drawer and use once a year to keep active and keep my ave card age high for FICO. Take whichever of the above for international travel that don't charge currency conversion adders(only time Amazon Prime may be carried).

  Post: What’s the best strategy for collecting and using credit card rewards?

  Link to comment from February 19, 2022