Retirement thoughts Past Present Future

[ovrszd]

It will make you crazy trying to get that right. It's well worthwhile to use H R Block tax software that does all the calculations and can't miss something you might have missed. $35 well spent.

I say this with all due respect.

I choose to do it all. Including all the math. I don't use the auto calculate forms. First thing I do each year is read the "What's new". I've never paid for anything to do with my taxes. One time, 15-20 years ago I had a refund coming and it was overdue. I first got a letter from IRS saying there was an error in my calculations and that line # "whatever" was being changed to "whatever". I patiently waited for the paper corrections to show up. I had made a mathematical error. My refund was actually more than I had calculated.

When I turned 65 I forgot to check the block. Same thing. IRS caught the error and made the correction.

People get all excited about H&R block. "They'll take the heat if there's a problem!!!!" No, they'll simply state to IRS that they correctly calculated the information you provided to them.

 

[buckeyefarmer]

I say this with all due respect.

I choose to do it all. Including all the math. I don't use the auto calculate forms. First thing I do each year is read the "What's new". I've never paid for anything to do with my taxes. One time, 15-20 years ago I had a refund coming and it was overdue. I first got a letter from IRS saying there was an error in my calculations and that line # "whatever" was being changed to "whatever". I patiently waited for the paper corrections to show up. I had made a mathematical error. My refund was actually more than I had calculated.

When I turned 65 I forgot to check the block. Same thing. IRS caught the error and made the correction.

People get all excited about H&R block. "They'll take the heat if there's a problem!!!!" No, they'll simply state to IRS that they correctly calculated the information you provided to them.

Yep, I just did first pass of my taxes in TurboTax. They love patting themselves on the back claiming the found all the deductions that I entered.

My surprise was I transferred a lot of 401k to IRA, and turbo tax showed it as a lot of non taxable income.

 

[Oaktree]

I choose to do it all. Including all the math. I don't use the auto calculate forms. First thing I do each year is read the "What's new". I've never paid for anything to do with my taxes. One time, 15-20 years ago I had a refund coming and it was overdue. I first got a letter from IRS saying there was an error in my calculations and that line # "whatever" was being changed to "whatever". I patiently waited for the paper corrections to show up. I had made a mathematical error. My refund was actually more than I had calculated.

I gave up trying to do taxes by hand 20-odd years ago. Tax software is relatively cheap (especially if you buy it before the end of the year), and makes all those arcane calculations way better than I could. It doesn't help that some of my income is from self-employment, and there are business deductions.

Unfortunately, some of my income is earned in a neighboring state that has an income tax, so I owe on what was earned there. As it happens the HR Block software for whatever reason does not work for non-residents of that state so I have to do it by hand. The forms are very convoluted, and often as not I make an error. Probably half the time I'll either get a bill or refund for over/underpayment.

 

[California]

I say this with all due respect.

I choose to do it all. Including all the math.

Replying with respect- no problem here if you choose to calculate all the intricate stuff yourself. You do you.

For me paying $35 to let the software provide the new terms and conditions that I would have to research for myself each year, is a bargain.

Retired government auditor here, was responsible to know and apply fairly the CFR's (Code of Federal Regulations) and GAAP (Generally Accepted Accounting Principles) related to paying contractors on public works contracts. Specifically, often do the research to discover unallowable costs claimed during and after a huge contract then write an un-disputable recovery demand, if found. Also, responsible to appraise a prospective contractor's accounting system to determine if it is capable of recording costs in conformance with the above, before a contract is signed. See CFR 48. I never want to read IRS's or any other governmentese again in my life! $35 is nothing to buy my way out of that.

Actually I have gotten deep into the mud of IRS regulations administering the trusts of each parent, and assisting re inlaws. After completing all the decedent's tax stuff I went to an Enrolled Agent (specialist) and was told I got it right. Never again! Yeah I have an attitude toward keeping up with government regulations.

 

[Fuddyduddy1952]

I did, but still don't understand what you are saying. How much you receive is based on how much you paid in over your working history. It has nothing to do with spending/saving habits or how much you have in the bank. As a couple people have mentioned, some go through life "working under the table", not paying anything in. Those are the people who don't get much in the end.

I do know of one couple, both deceased now, who ran a hotel during their working years. She did the day to day operations while he worked a full time job. Everything went on his tax returns so she was unable to collect on her own account as she hadn't paid enough in.

You're correct in that the amount of social security you receive is based on how much you paid in over your working history. Where I believe it gets confusing has nothing to do with working under the table ,i.e. unreported income, but a person can invest in stocks or mutual funds that pay a lot of capital gains and dividends which are reinvested. At some point that person for years everything is above board...nothing hidden, but they paid in, then they're in a high income tax bracket.
They never see the money since it's reinvested but taxed on it.
They may have, say, $1/2M in dividends and capital gains, never see it but taxed on it as income. That affects the social security they receive, a pittance since most of it is taxed.
This continues year after year on the same investments because the person is no longer employed but investments are snowballing with increasing gains.
#1476 I showed what happens investing $5,000 and $1,000 adding $100/month in the S&P 500 over time.

 

[3Ts]

I've been following this thread for a while and read I think most of the posts but still unsure of a few things as I approach retirement in a few years, I plan to use 401K funds starting at 59-1/2 and then SS at 62.

Let's say SS.gov today shows at 62 I get $2000.00, how much of that will I actually get net?

As for the 401K, Let's say I will have $1.5M in it when I retire at 59-1/2. Do we withdraw from that weekly, monthly or annually?
I assume it will be taxed based on the chart above in post 1594?

To determine how much SS income you'll get, the right answer is "it depends". Since you have both a 401k and a SS income, you'll have to include both to determine your Gross income, then that number determines the % of your SS that is taxed.

In my case I have a pension, SS, 401k, and dividends/interest on accounts. I have to add all that up to determine my gross income then that determines what my percentage of SS is being taxed. In addition, when you get medicare, that dollar amount changes based on your gross income as well but based on a prior years tax return (it's either 1 or 2 years earlier).

 

[3Ts]

People get all excited about H&R block. "They'll take the heat if there's a problem!!!!" No, they'll simply state to IRS that they correctly calculated the information you provided to them.

I use a CPA to do my taxes, same thing applies. He has made it clear that he does the taxes based on unaudited information I provide to him. Therefore, they are not liable for incorrect information I provide. They will defend & guide me thru any IRS audit, but will charge me for their time. Now, having said that, we have had discussions about what/how to file. I have records that support claims for more than the "normally accepted deduction amount", but the CPA has advised that the amount is not sufficient to offset the IRS queries that would be generated so I follow the CPA's suggestion to use the standard deduction.

 

[RSKY]

I've been following this thread for a while and read I think most of the posts but still unsure of a few things as I approach retirement in a few years, I plan to use 401K funds starting at 59-1/2 and then SS at 62.

Let's say SS.gov today shows at 62 I get $2000.00, how much of that will I actually get net?

As for the 401K, Let's say I will have $1.5M in it when I retire at 59-1/2. Do we withdraw from that weekly, monthly or annually?
I assume it will be taxed based on the chart above in post 1594?

I'm going to tell you what I did when I retired in 2011 at age 57. The laws may have changed since then but I feel that I did the correct thing for my financial well being twelve years ago and now. Please check with laws in your state and get advice from somewhere else besides me on this forum. But compared to others in the same situation I did everything correctly.

First, and this is very important, don't set up withdrawals out of your 401K. Roll that 401K over into an IRA. My advisor at Fidelity was the one who gave me this advice. If I had just used my 401K I would have had to set up monthly payments and would be stuck with that amount until the fund was exhausted. I was also restricted on what the money could be invested in. With an IRA I can change or cancel the monthly withdrawals. I can take out a certain amount at one time if I need to. Or I can cancel the withdrawals until I get to the age ( I believe that is 72-1/2 ) when I must start taking them. I lived on what I took out of the IRA from 59-1/2 to age 62 when SS started. But I haven't taken anything out for nearly four years now. Just haven't needed it and letting it grow. If I need cash to buy a car or something I get on the website and at the most four days later the money is in my checking account.

With the 401Ks that I had before retirement I was restricted in what I could invest in. With the IRA I have more than 9500 Mutual Funds to choose from. Or I can let them manage it for me. I can also buy brokered CDs for no fee. That is what I'm doing now. Buying short term CDs of 3, 6, 9, and 12 month duration.

As for your taxes that will depend on your income. Money taken from an IRA or 401K will be considered income and taxable. As will SS income, pensions, etc. If your income is high enough you will pay taxes on everything.

 

[Bearsixty7]

I'm going to tell you what I did when I retired in 2011 at age 57. The laws may have changed since then but I feel that I did the correct thing for my financial well being twelve years ago and now. Please check with laws in your state and get advice from somewhere else besides me on this forum. But compared to others in the same situation I did everything correctly.

First, and this is very important, don't set up withdrawals out of your 401K. Roll that 401K over into an IRA. My advisor at Fidelity was the one who gave me this advice. If I had just used my 401K I would have had to set up monthly payments and would be stuck with that amount until the fund was exhausted. I was also restricted on what the money could be invested in. With an IRA I can change or cancel the monthly withdrawals. I can take out a certain amount at one time if I need to. Or I can cancel the withdrawals until I get to the age ( I believe that is 72-1/2 ) when I must start taking them. I lived on what I took out of the IRA from 59-1/2 to age 62 when SS started. But I haven't taken anything out for nearly four years now. Just haven't needed it and letting it grow. If I need cash to buy a car or something I get on the website and at the most four days later the money is in my checking account.

With the 401Ks that I had before retirement I was restricted in what I could invest in. With the IRA I have more than 9500 Mutual Funds to choose from. Or I can let them manage it for me. I can also buy brokered CDs for no fee. That is what I'm doing now. Buying short term CDs of 3, 6, 9, and 12 month duration.

As for your taxes that will depend on your income. Money taken from an IRA or 401K will be considered income and taxable. As will SS income, pensions, etc. If your income is high enough you will pay taxes on everything.

This is closer to what I was looking for, Thank you!
I had already read or watched a webinar/video that said I would have to move my 401K to an IRA. I have already opened up an IRA with a minimum amount deposited but don't have anything going into it. I did this because somewhere in my research I thought it said I needed to open it 5 years prior to retiring, I may have misunderstood with so much information out there. I tried to open a Roth but in the process online it said I didn't qualify.
As I said earlier, I plan to only withdraw from the 401K/IRA what I need to live comfortably on, then when I'm eligible for SS, reduce what I withdraw from 401K/IRA.

As long as I can make changes month to month, I should be ok and can adjust withdraws as needed to be comfortable yet minimize income tax as much as possible.

Medical Insurance/Health care is the biggest concern. Not sure what I will do from 59-1/2 to 65 until I'm eligible for Medicare/Medicaid/Etc and the different Plan's.

 

[MossRoad]

This is closer to what I was looking for, Thank you!
I had already read or watched a webinar/video that said I would have to move my 401K to an IRA. I have already opened up an IRA with a minimum amount deposited but don't have anything going into it. I did this because somewhere in my research I thought it said I needed to open it 5 years prior to retiring, I may have misunderstood with so much information out there. I tried to open a Roth but in the process online it said I didn't qualify.
As I said earlier, I plan to only withdraw from the 401K/IRA what I need to live comfortably on, then when I'm eligible for SS, reduce what I withdraw from 401K/IRA.

As long as I can make changes month to month, I should be ok and can adjust withdraws as needed to be comfortable yet minimize income tax as much as possible.

Medical Insurance/Health care is the biggest concern. Not sure what I will do from 59-1/2 to 65 until I'm eligible for Medicare/Medicaid/Etc and the different Plan's.

Just remember if you try and roll a traditional 401K into a ROTH IRA, you'll be socked with taxes. If you roll it into a traditional IRA, you won't. You'll only be taxed on the withdrawals from the traditional IRA as you make them.

Some may think it's better to pay all the taxes on it now, as taxes are not likely to ever decrease. Some may not. So do your homework before you move anything.