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You may have stopped working, but Uncle Sam is still digging into your pocket.
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.
"For a lot of retirees, the thinking is, Oh, they're retired and their tax bracket is going down," said William Reichenstein, professor emeritus at Baylor University.
He led a discussion on tax-efficient withdrawal strategies in retirement at the Financial Planning Association's annual conference in Chicago this week.
"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 — it will increase sharply," he said.
That rate can jump to more than 46 percent after the reduced rates on individual income taxes expire at the end of 2025, he said.
Here's why lower income-tax brackets may not necessarily translate into a smaller tax bite overall.
Those payroll taxes may be history once you've stopped working, but remember that you're still facing a slate of additional levies.
For instance, there's the 3.8 percent net investment income tax, which is applicable if you have net investment income and a modified adjusted gross income that exceeds $200,000 if single or $250,000 if married and filing jointly. For married taxpayers who file separately, the applicable MAGI is $125,000.
There's also the capital gains rate you'll pay as you sell appreciated securities out of your taxable account: These are assessed at a top rate of 20 percent.
Aside from these levies, you also have taxes that apply in particular to retirees.
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.
But that's not all.
High-income retirees can also expect to shell out more in monthly premiums for Medicare 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," Reichenstein said.
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. See below.
The same goes for Medicare Part D premiums.
Given the volley of taxes that can hit retirees, financial advisors need to work with clients to evaluate which pots of money they should use first as they retire.
By having their 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.
Correction: This story has been updated to correct that the $125,000 modified adjusted gross income level for the 3.8 percent net investment income tax applies to married taxpayers who file separately.
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