High-Income Retirees Tax Rates May Be Higher Than Expected
Though high-income retirees are looking forward to lower taxes once they’ve exited the workplace, they can still expect to pay stealth taxes in the form of Social Security income levies and higher Medicare premiums. Their tax bracket may go from 24 percent to 22 percent, but because of Social Security taxes, their marginal rate goes from 24 percent to 40.7 percent.
When it comes to Social Security benefits, whether you pay taxes on your benefits will depend on your combined income. That is, the sum of your adjusted gross income, nontaxable interest and half of your Social Security benefits.
If you filed as single and your combined income is $25,000 to $34,000 (or $32,000 to $44,000 if you’re married and filing jointly), you can expect to pay income taxes on up to 50 percent of your benefits. For filers whose combined income runs over $34,000 if single or $44,000 for married and filing jointly, up to 85 percent of their Social Security benefits may be subject income taxes.
High-income retirees can also expect to shell out more in monthly premiums for Medical Part B (doctor’s visits) and Part D (prescription drugs). The standard Part B premium in 2018 is $134 per month. Whether you pay more will depend on your modified adjusted gross income — or your total adjusted gross income plus your tax-exempt interest income — from two years earlier.
If your income rises one more dollar above the bracket, it could cause your premiums to rise. In that sense, if your 2016 modified adjusted gross income exceeded $85,000 (single) or $170,000 (married and filing jointly), you can expect to pay higher premiums.
By having your savings spread across taxable accounts, tax-deferred accounts like your traditional IRA, your 401(k) or your 403(b) or tax-free accounts like your Roth IRA, retirees can manage their withdrawals and minimize the levies they pay. fffffffff