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VAer1  
#1 Posted : Wednesday, September 9, 2020 2:15:34 PM(UTC)
VAer1

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https://www.bankrate.com.../taxes/tax-brackets.aspx

I am not a retiree, but I would like to know more about the system. I am posting here because there are many retirees here.

Take 2020 tax bracket for example, if I(assuming single) withdraw 10K from traditional balance and $9875 from roth balance, and collect 20k from social security retirement. I understand that I don't pay tax on the $9875 roth withdrawal, and I will need to pay tax on the $30k. My question is: which tax bracket should be applied?

1) If only 30k is considered income, then the tax will be 10%*9875 + 12%*(30k-9875)=$3402.5

2) If the roth withdrawal is considered as non-taxable income, then will it push up tax bracket for the 30k? Such as: total income is 39,875 but only 30k is taxable. I mean: will the tax be 12%*30k=$3600 ? Roth withdraw falls into first 10% bracket but it is not taxed.

Thanks.

Edited by user Wednesday, September 9, 2020 2:19:41 PM(UTC)  | Reason: Not specified

TheRealOrange  
#2 Posted : Thursday, September 10, 2020 3:06:28 AM(UTC)
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Originally Posted by: VAer1 Go to Quoted Post
I am not a retiree, but I would like to know more about the system. I am posting here because there are many retirees here.

Take 2020 tax bracket for example, if I(assuming single) withdraw 10K from traditional balance and $9875 from roth balance, and collect 20k from social security retirement. I understand that I don't pay tax on the $9875 roth withdrawal, and I will need to pay tax on the $30k. My question is: which tax bracket should be applied?

1) If only 30k is considered income, then the tax will be 10%*9875 + 12%*(30k-9875)=$3402.5

2) If the roth withdrawal is considered as non-taxable income, then will it push up tax bracket for the 30k? Such as: total income is 39,875 but only 30k is taxable. I mean: will the tax be 12%*30k=$3600 ? Roth withdraw falls into first 10% bracket but it is not taxed.

Thanks.

Since Roth withdrawals are tax free, I don't see how they would be included in taxable income and push someone into the next tax bracket. You also need to consider that not 100% of Social Security is taxable. It depends on your total other income. For 2020, if you earn between $25,000 and $34,000 outside of Social Security, you may have to pay income tax on up to 50 percent of your benefits. If you earn more than $34,000, up to 85 percent of your benefits may be taxable. Assuming taxable Social Security benefits of $20,000 are received, and you withdraw $10,000 from a traditional retirement account, then you will have taxable income of $30,000 (assuming no other income) and would be in the 2020 12% bracket. The Roth withdrawal should have no affect at all; it is not taxable income.
thanks 1 user thanked TheRealOrange for this useful post.
GordonG on 9/14/2020(UTC)
kaljor  
#3 Posted : Sunday, September 13, 2020 10:24:19 PM(UTC)

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The variables in your question make the answer variable. Why? Because the only constant in your example is the basic annuity. And even that has a variable. Your basic annuity is taxable except for the portion of it that you contributed. Your contribution is spread out over 30 years so it's not usually a big part of your annual payment, so for the purpose of answering your question, let’s just pretend that it's all taxable.

You can't control the amount of your annuity, so let's move on.

You next mentioned Social Security. Again, that's fixed; you can't control that, except for deciding when to begin collecting. Your social security payments are taxable, but how much they're taxed is another variable.

Using your example as a single person, all of your taxable annuity plus 1/2 of your SS income plus all of your traditional TSP payments are added together, and if that total is more than $26k, then one half of your SS benefit is taxable. If that total is higher than $34k, then 85% of your benefit is taxable.

Which leads us to the last variable. When you make a withdrawal from your TSP, and you have both a traditional TSP and a Roth TSP, you do get to specify how much you want taken from the traditional and how much from the Roth. If you don't specify, they will pay it out of your account on a pro rata basis, like if 80% of your total TSP is traditional, then then 80% of your withdrawal will be from that balance, and so it will be taxable.

I hope i made it clear. Your question about the tax bracket is only answered by figuring out the total of the items above. Your tax bracket would be based on your total income from the taxable part of your annuity, the taxable part of your TSP withdrawal (the traditional part0, and then adding that to 50% of your social security payments. If you have any other income like a part time job, or interest on a bank account or mutual fund account, that also has to be added, but I tried to keep the example as simple as possible.

In my personal experience, the only thing I can control is the withdrawals I choose to make from my TSP each year. My balance is 100% traditional, so at least that variable is removed for me.
thanks 1 user thanked for this useful post.
GordonG on 9/14/2020(UTC)
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