In both instances, people likely to
be in high tax brackets after retirement may prefer to hold a high proportion of municipal bonds, which are generally exempt from federal tax and sometimes from state and local taxes as well.
For those who expect to
be in a higher tax bracket after retirement, a Roth IRA may be attractive for that reason.
For those who expect to
be in a higher tax bracket after retirement, a Roth IRA may be attractive for that reason.
Not exact matches
After all this my CPA
is telling me that I
'm in the
highest tax bracket and where I sit currently for 2015 I'll owe approximately $ 185k
in taxes!!!
Although municipal bond yields
are generally lower than taxable bond fund yields, some investors
in higher tax brackets may find they have a
higher after -
tax yield from a
tax - free municipal bond fund investment instead of a taxable bond fund investment.
But
after considering the impact of
taxes, the taxable - equivalent yield (the return required on a taxable bond to make it equal to the return of a
tax - exempt bond) of municipal bonds
was a full percentage point
higher, at 3.75 %, for investors
in the
highest (37 %)
tax bracket.
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My question
is, if you take some amount
in excess of your RMD (calculated to
be just under that which would bump you into the next
higher tax bracket) and «roll it over» into a Roth IRA,
are the earnings
tax free
after 5 years?
His investors — the ones
in the
highest tax bracket — might
be «only» netting 40 % or so
after tax.
But
after considering the impact of
taxes, the taxable - equivalent yield (the return required on a taxable bond to make it equal to the return of a
tax - exempt bond) of municipal bonds
was a full percentage point
higher, at 3.75 %, for investors
in the
highest (37 %)
tax bracket.
Although
tax - exempt bonds might have a lower interest rate than taxable bonds, if you
're in a
high tax bracket, your
after -
tax rate of return might
be higher.
It
's quite possible the
after -
tax returns on these traditional ETFs may have
been higher for investors who
were not
in the
highest tax brackets.
But based on the difference
in after tax retirement income (my specific calc showed $ 67k for rrsp and 43k for non-rrsp), you'd have to
be in a much much
higher tax bracket to close this difference.
I
was wondering if it
is a valid retirement strategy [
after retiring] to withdraw the first couple lower
tax brackets worth of income from the taxable traditional 401k thus taking advantage of lower rates, and then switching over to withdrawing from the
tax - free Roth 401k for income that would normally
be in the
higher brackets and thus
taxed at a
higher rate.
If you
're in a
high bracket, she says you probably do want to max out on your RRSP contribution to get a deduction and produce more
after tax money.
But a traditional deductible IRA may
be a better tool if you want to lower your yearly
tax bill while you
're still working (and probably
in a
higher tax bracket than you'll
be in after you retire).
This strategy
is best carried out when you
are temporarily
in a low
tax bracket perhaps because you
are between jobs or if you expect to
be in a
higher tax bracket in the future, as
is the case sometimes with retirees who may have the RMD from their IRA
after the age of 70 1/2.
Depending on your income, you may
be in a lower or
higher tax bracket after you retire.