I never thought having too much income would be a problem

[Jane]

I am a 70 year old woman. I am currently working, but beginning next year I will not be. That means i will have to start taking the RMD from my 401k which is worth about $500k. I have a second 401k from a previous employer worth about $300k. Also I started collecting social security this year at $2800/month.

Last year my gross taxable income was under $60k because I put 40% of my salary in my 401k. That of course will stop and ALL my income with be taxable. I'll probably have a gross income of over $90k next year (I get a pension from my old employer).

What tax surprises do I have to look forward to? I think my Medicare premium will go up? Of course my tax bracket will go up. What else should I brace myself for?

thanks

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[Troubled]

On Monday, October 5, 2015 at 7:30:05 PM UTC-4, Jane wrote:
> I am a 70 year old woman. I am currently working, but beginning next year I will not be. That means i will have to start taking the RMD from my 401k which is worth about $500k. I have a second 401k from a previous employer worth about $300k. Also I started collecting social security this year at $2800/month.
>
> Last year my gross taxable income was under $60k because I put 40% of my salary in my 401k. That of course will stop and ALL my income with be taxable. I'll probably have a gross income of over $90k next year (I get a pension from my old employer).
>
> What tax surprises do I have to look forward to? I think my Medicare premium will go up? Of course my tax bracket will go up. What else should I brace myself for?
>

If I had that question I would get a copy of some tax software and run the numbers. Even last years would be okay. There might be free software on line.

Your question is way too complicated for anyone to answer.

[Retired]

On 10/5/15 7:28 PM, Jane wrote:
> I am a 70 year old woman. I am currently working, but beginning
> next year I will not be. That means i will have to start taking
> the RMD from my 401k which is worth about $500k. I have a second
> 401k from a previous employer worth about $300k. Also I started
> collecting social security this year at $2800/month.
>
> Last year my gross taxable income was under $60k because I put 40%
> of my salary in my 401k. That of course will stop and ALL my
> income with be taxable. I'll probably have a gross income of over
> $90k next year (I get a pension from my old employer).
>
> What tax surprises do I have to look forward to? I think my
> Medicare premium will go up? Of course my tax bracket will go up.
> What else should I brace myself for?
>
> thanks
>

Also can look forward to taxation of a portion of your SS benefit. It
is a sliding scale, where up to 85% of the benefit can be taxed at
your bracket rate.

I'm currently taxed on about 14% of my benefit, at the 15% bracket,
which means the IRS takes back about $1400/year of my SS benefits.

See http://www.irs.gov/publications/p915/index.html where there is a
worksheet to calculate the hit.

YMMV

[Alan]

On 10/5/15 4:28 PM, Jane wrote:
> I am a 70 year old woman. I am currently working, but beginning next year I will not be. That means i will have to start taking the RMD from my 401k which is worth about $500k. I have a second 401k from a previous employer worth about $300k. Also I started collecting social security this year at $2800/month.
>
> Last year my gross taxable income was under $60k because I put 40% of my salary in my 401k. That of course will stop and ALL my income with be taxable. I'll probably have a gross income of over $90k next year (I get a pension from my old employer).
>
> What tax surprises do I have to look forward to? I think my Medicare premium will go up? Of course my tax bracket will go up. What else should I brace myself for?
>
> thanks
>

Extrapolating from your numbers, your SSA benefit becomes taxable. Most
probably, the maximum amount of 85% of your benefit will become taxable.
Medicare premiums for 2016 are based on your 2014 tax return MAGI (AGI
plus tax-exempt interest). 2017 premiums will be based on your 2015 tax
return. Currently, the safe harbor is $85,000 of MAGI before your
premium flips into the higher rate.

So.... you will probably need to make sure that you have adequate tax
withholding for federal and state (if you live in a tax state) income
taxes. You can elect to have volunteer federal tax withholding on your
SSA benefit.

[Roger Fitzsimmons]

On Monday, October 5, 2015 at 4:30:05 PM UTC-7, Jane wrote:
> I am a 70 year old woman. I am currently working, but beginning next year I will not be. That means i will have to start taking the RMD from my 401k which is worth about $500k. I have a second 401k from a previous employer worth about $300k. Also I started collecting social security this year at $2800/month.
>
> Last year my gross taxable income was under $60k because I put 40% of my salary in my 401k. That of course will stop and ALL my income with be taxable. I'll probably have a gross income of over $90k next year (I get a pension from my old employer).
>
> What tax surprises do I have to look forward to? I think my Medicare premium will go up? Of course my tax bracket will go up. What else should I brace myself for?
>
> thanks

I use a spreadsheet I found at https://sites.google.com/site/excel1040/ to project my taxes. It takes a little getting used to, but once you do, I've found it excellent for reasonable projections and also "what-if's." I'm not sure if that spreadsheet also projects the Medicare Part B premium.

There's a glitch under current law that could really spike your Part B premium (has to do with most current SS beneficiaries not getting a COLA) but there's not much you can do about that if they don't fix it.

There's probably not much you can do about it but grin and bear it. My mother passed away in 2014 and my father will go from paying almost no federal income tax in 2014 to paying $5K in 2015. Sometimes you just have to render unto Caesar that which is Caesar's.

[Bill Brown]

On 10/5/2015 7:28 PM, Jane wrote:
> I am a 70 year old woman. I am currently working, but beginning next year I will not be. That means i will have to start taking the RMD from my 401k which is worth about $500k. I have a second 401k from a previous employer worth about $300k. Also I started collecting social security this year at $2800/month.
>
> Last year my gross taxable income was under $60k because I put 40% of my salary in my 401k. That of course will stop and ALL my income with be taxable. I'll probably have a gross income of over $90k next year (I get a pension from my old employer).
>
> What tax surprises do I have to look forward to? I think my Medicare premium will go up? Of course my tax bracket will go up. What else should I brace myself for?
>
> thanks
>

Good news! Your after tax income will also go up.

You are correct, except for 15% of your Social Security benefits it
appears that all your income will be taxable. It appears to me that you
have a good handle on what to expect.

Good luck.