- quote -

This is what I calculated. I have a older woman who gets the extra $1300
on her std deduction for her age. So her zero bracket is $9700 total.
This chart assumes $15,000 in Social Security benefits. If SS weren't
part of the picture, she would be in the 15% bracket for income up to
$31,850 + $9700 = $41550. You can see she now enjoys a 46% rate from a
bit over $31k to $36k. This chart better illustrates what I tried to
verbalize. With some time and patience, I can probably write a
spreadsheet that does this automatically, for different levels of social
security income. (note: this is from 2006 Turbo Tax, but it proves the
point)

IRA TAX Mar Rate
10000 31
11000 131 100
12000 231 100
13000 333 102
14000 433 100
15000 533 100
16000 633 100
17000 733 100
18000 909 176
19000 1134 225
20000 1359 225
21000 1584 225
22000 1809 225
23000 2034 225
24000 2259 225
25000 2484 225
26000 2709 225
27000 2956 247
28000 3234 278
29000 3511 277
30000 3789 278
31000 4066 277
32000 4426 360
33000 4889 463
34000 5351 462
35000 5814 463
36000 6276 462
37000 6576 300
38000 6826 250
39000 7076 250
40000 7326 250

One should also take in account the effect on one's
mAGI, the figure medicare uses to set means-tested
premium. Could be very significant in a few years
the way medicare charges are skyrocketing.

- quote -

is the phantom rate on all income, or just income above the 0% tax
bracket?

Bill Woessner wrote:
- quote -

100% implies Social Security doesn't come into the mix. (Your post then
talked about Roth not impacting SS benefits)

I look at http://www.fairmark.com/refrence/index.htm and see that for
2007, their exemptions and standard deduction add to $17500. Take that
out of the traditional IRA and the tax is zero. That seems a no-brainer
to me. If they were planning to make any charitable donation (above the
amount where the extra paperwork wasn't more effort than the tax
savings) they should do that from the traditional IRA, it's only good
for this year.

The rest depends on the exact amounts in either account and how much
they need to withdraw each year. They can take another $15650 and stay
in the 10% bracket for that withdrawal (so total of $33150).

On a side note; I started analyzing the impact of IRA/other income on SS
benefits (for an older single woman) and found, with $15000/yr of Social
Security, that a 'phantom' tax rate of 27.7% kicks in around $27K IRA
withdrawal, and 46.3% at $31K. This for a woman who would otherwise be
paying 15%.

So my advice is to look at the Social Security income, pull up Turbo
Tax, and review these phantom rates. You may find that if over that
rate, and back to 25% it may make sense to 'top off' the 25% bracket
with Roth conversion or further traditional IRA withdrawals. Then in the
next year, perhaps lower withdrawals to avoid that 46%.

JOE

Hypothetical situation: Husband and wife retire at age 59.5 and their
retirement assets are equally split between Roth IRAs and traditional
IRAs. They will rely on these assets to generate 100% of their
retirement income. Should they withdraw from the Roth first or the
traditional first? Or split the withdrawals? I can make a case for
all three.

If you take the withdrawal from the Roth IRA, you don't have to
withdraw extra money to pay for taxes. That leaves more of your money
invested. In addition, Roth distributions don't affect the tax on
Social Security benefits.

If you take the withdrawal from the traditional IRA, you will be
leaving more tax-free money for your heirs. You'll also be lowering
your future RMD.

Finally, by splitting the withdrawals between the two IRA types,
you'll stay more tax-diversified.

So what do you think, MIFP?

--Bill