On Apr 17, 6:07 pm, Tad Borek <bore...[at]pacbell.net> wrote:
- quote -

If a person had 15k coming from QDI/CG and 30k from a Roth instead (of
the 45k from QDI/CG) how would the result above change (if at all)?

I add a column to my savings spread sheet to monitor
tax liability on savings and investments. Some have
been fully taxed. Some have unrealized gains and
will be taxed at a gains rate ([at]20% for fed and my state)
and some is deferred income taxed at [at]30%.
If I need to withdrawl principal I can do so from the most
tax-advantage account at the time.


Another concern is means-tested medicare and social
security. Both are such to a minor degree now, but I
see that increasing in the future as remedy to shortfalls.
The people will be adjusting their accounts and income
strategy to minimize their apparent AGI. For example,
one may not want to wait until AGI to start drawing
out IRA/401K because the required amount may
strongly impract their AGI.

this was written in dec 2006
http://www.nysscpa.org/cpajournal/20...ntials/p40.htm

I've been reviewing a bunch of tax returns from 2006 and questioning
some assumptions about retiree taxes.

We talk all the time here about the 15% rate for long-term capital gains
and qualified dividends (QDI/CG), but the rate is 5% at lower income
levels. Meaning "low ordinary income"...you can have a high AGI, from
QDI/CG, and still benefit from these low rates.

Example: 2006, $25,000 in ordinary income (e.g. taxable Social Security
and interest), $45,000 in QDI/CG. Married filing jointly, over age 65,
standard deduction is $11,300 and exemptions are $6,600. Adding that up,
AGI is $70,000 and taxable income is $52,100.

With that QDI/CG, taxes are low. In 2006 the top of the 15% tax bracket
was $61,300 in taxable income...that's the income range that gets a 5%
rate on QDI/CG. The way the worksheet works is to subtract all your
CG/QDI income and then see what's left. So:

$52,100 taxable income less $45,000 QDI/CG income
= $7,100 ordinary income, taxed at OI rate of 10% = $710

Then you "fill up" the rest of the 10% and 15% tax brackets, to $61,300,
with any QDI/CG income (in this case the whole $45,000). That piece is
taxed at 5%. Only any excess above 61300 would be taxed at 15%. In this
example, the tax would be $2960 compared to $7064 if that were all
ordinary income - 4% of AGI instead of 10%. Big difference!

The kicker: after 12/31/07 that 5% rate is 0%. So the example above
would mean $710 in tax on $70,000 in AGI...a 1% tax rate.

Of course it takes substantial assets to kick out $45,000 in QDI/CGs.
But this tax structure, if it stays in place, will very much benefit
taxable accounts in situations where IRAs or annuities seemed to win the
horse race in that past. And retirees (esp. those with low/no MRD) are
most likely to benefit from this, because they don't have earned income
that would otherwise "fill up" the 10% and 15% brackets. Some retirees
should game the brackets starting in 2008, even realizing gains simply
to make use of the 0% rate (before it gets changed again).

-Tad