Beware Marginal Tax Rates And Social Security, Expert Warns Retirees

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vnatale
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Beware Marginal Tax Rates And Social Security, Expert Warns Retirees

Post by vnatale » Sat May 13, 2023 8:46 pm

Beware Marginal Tax Rates And Social Security, Expert Warns Retirees

https://www.fa-mag.com/news/how-taxatio ... -222662257

It’s common practice for retirees to proportionately withdraw funds each year from their taxable and tax-deferred accounts to limit their tax liability. However, clients should also be aware that such a strategy ignores their marginal tax rate—what they pay on every additional dollar of income, according to a leading expert on Social Security benefits.

And because proportional withdrawal strategies consider only the tax brackets, clients must navigate the rising and falling pattern of marginal tax rates in retirement, said William Reichenstein, head of research for retiree income at Social Security Solutions, which offers a software platform designed to help advisors and near retirees map retirement strategies.


“A key lesson is that the [marginal tax rates] for most retirees of financial advisors are substantially different from their brackets,” Reichenstein said at Financial Advisor's Invest In Women conference in Atlanta on May 3. “Retirees should factor in their MTRs, and not their tax brackets when they try to decide how to tax efficiently withdraw funds in retirement—where withdrawals in this case is interpreted broadly to include Roth conversions,” he said.

Reichenstein said that, for a wide range of incomes, the taxation of Social Security results in marginal tax rates that rise to 150% and 185% of the tax brackets for lower- and moderate-income households. He explained that the household's Social Security benefits included in a taxpayer’s adjusted gross income depend on their provisional income, or PI, which equals their modified adjusted gross income plus one-half of their Social Security benefits plus tax-exempt interest.
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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