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It is pretty easy to set up a spreadsheet that adds up your projected income and applies the IRS rules to calculate your tax. My spreadsheet has columns for actual income, qualified dividends, Federal taxable amount, state income, and MAGI, since each is calculated differently. Every time my income changes, I modify the spreadsheet and make a new projection. I have tax withheld from my SS check, and I withhold tax from my RMDs from inherited IRAs. Curiously, Fidelity won't allow you to withhold 100% of an IRA distribution, so I have to have 99% withheld.

Thanks James, great job!

This was very digestible, I’ve watched multiple videos and this explained it the best. Subscribed

Thank you, James. Very Informative video. Can you make a video about Option Overlay? Is this a good investment strategy for IRAs?

You said you're good if you hit safe harbor amounts. But when does that amount need to be paid by?

Wow! I need a glass of wine after this discussion. Nothing is ever easy, is it? Thank you for the insight and the information.

Some income will be reduced such as Social security and pension income. One can prepare for this by allocating asset classes with lower expected returns in tax-deferred income accounts and placing asset classes with higher expected returns in Roth and taxable accounts (i.e., Asset Location). The effect is to slow down the RMD amount due on the tax-deferred account.

Can you pay the IRS estimated payments monthly? That's easier than a big check every 3 months or so.

Your term Average Tax Rate is typically called the Effective Tax Rate. For retirees who do their own income taxes using tax software, they can run a simulated income tax return. Although I am still working, I run a simulated tax return called Retired MFJ, and one titled Retired Survivor. The form can be updated intra-year so the correct taxes are withheld. I prefer to control the payment of income taxes through my tax-deferred accounts to cover the tax bill. As a result, I don't need to fill out multiple W-4s for Social Security and pension. In one brand of tax software, a report titled "Tax History" is automatically generated, which stores the last five years of income tax returns assuming you use the same software.

One advantage of a withholding during IRA conversion or distribution is that a withholding is counted as if it occurred evenly thruout the year. Be careful about penalties. Whenever trying to pay less than 110%, you find the rules have a lot of intricate details. If you don't pay evenly thruout the year, you have to document that your payments matched your income; if you don't pay the 110%, you had better be correct and owe less than $1000, or less than 10%, etc. or you'll pay penalty and interest. Of course, they don't pay you interest and give you a discount because you paid too much! The IRS has no sense of fair play - it's all about them getting their money and if they get some of yours as well, even better.

As usual, James is coming thru with timely videos. Keep up the good work!!

I used the 1040 tax calculator on the Ameriprise site. This did a pretty good job of estimating my taxes in retirement.

This was outstanding and very helpful!! Thanks.

This is useful high level information, but the tricky part in my opinion is actually calculating it and validating it against something to give you confidence that you did it correctly - especially when one has many different income sources. I have built a spreadsheet which works quite well, but I end up over estimating my taxes so that I get a refund. It would be helpful if there was some online template or resource that you could use…

Thanks James for explaining how you can estimate your taxes during retirement. It was very informative and helpful!

Is the simplest and safest way to estimate this year's taxes owed to just pay 110% of last year's taxes? I know there are lots of different situations but would this be the simplest?

AARP has a very good federal tax estimater. You can plug on your estimated amounts of income from your various sources of income and it will give you your estimated taxes. Then you can file quarterly payments with the IRS.

Good video and good topic. I retired about a year ago and have watched a lot of retirement videos from a lot of different people and estimated taxes are rarely covered. I'm still figuring out how it all works....was recently surprised that the second estimated payment was supposed to be in June and not July.

Excellent presentation - clear and comprehensive

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Thank you James for clarify taxes in retirement. It is a complex topic for many of us that are used to just payroll taxes. We all cannot use your services, but we certainly appreciate your "coaching" regarding retirement. Again, thank you for sharing and making your expertise readily available.

Me and my wife made a dream board on the one date we got to go on in the past 10 years, and it was just a bed to take a nap with no kids!!!!!

I assume that if you overpay on the 90% or 110% that you get that back as a refund.

Good topic! And as always, presented extremely well I know that one can never cover any topic completely in a video, but I would have liked to have heard about the difference in timely payments between estimated tax payments and a tax withholding.

Excellent video! We have income via social security, brokerage and pensions. I do my own taxes using Turbo Tax and what I do after I file my taxes is to make a copy of the turbo tax file and edit the income, capital gains, etc. to get a picture of what our taxes will look like for the upcoming year so I can adjust our withholding as needed. As the year progresses, I will update the file with any major changes to make sure I am on top of it. I realize, that the tax laws and brackets change constantly, however, I do get a pretty good picture of what my liability will be and can take the actions to meet those liabilities early in the year.

I needed this but OMG why does it have to be so convoluted? 😂

Thank you James! That was very informative and helpful. We're not at retirement age, but it's really helpful to start thinking forward about how to navigate taxes when in the years approaching retirement.

Excellent lesson, I had to figure out most of this myself.

The Future is not ours to see. Take the money and run !

James I agree with your premise , But. in your example the Annuity pays out 60k a year for more than 15 years. What if you invested 4% of your annuity payout to keep up with inflation. What were the numbers look like?

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Basic stuff

Fantastic information. Thank you.

Since their income is high, do they contribute to an IRA or to their brokerage account?

It's their money.

100 percent true. I’m approaching retirement and while I am in a good position to have the ‘dream home’ increasingly I don’t think I want it. I don’t want the hassle or, as he notes, being tied down with having to worry about what to do with it while away doing things I really want to do. Not sure what we’ll do as flexibility will be key in retirement but of course I also want to live in something nice when we are at home. Guess we’ll see what seems best when time comes.

I don’t invest in any bonds because often they don’t even keep up with inflation. Then there are the expense ratios on top of low returns. Better off with less conservative funds until the market actually begins a slide. In my experience, financial advisors use the word, “uncertainty,” to scare investors into buying funds overpriced and underperforming.

Retirement? That’s okay for our parents and grandparents but we are going to have to work until we die or starve

I don't know if this has been mentioned or not. As an adult (and working), I had dogs (Airedale and Wire Hair Fox terrier). However, as I've retired, I've been traveling like crazy (Europe/Asia). And for up to 30 days at a time. I still love dogs, but it is not fair to have a dog and also be gone a lot. When my traveling days are done, then I will get a "rescue" dog, not a puppy, to live out my days. Spending Hint: Who cares what you look like. I buy alot of used clothes (shirts, pants, etc) at GoodWill, Salvation Army. Just make sure that they are in good shape and wash before wearing.

1) I don't have any idea of my life expectancy. 2) I don't have a portfolio. 3) I'm single and 61. 4) I haven't any children. 5) I need it now. My Daddy used to say, before he left this cold, cruel world, ''Sometimes you just gotta get what you can get while you can get it.''

Love all of your videos, but this one was especially informative. Thank you

@rootfp - Hi James. I am retired and have been living off my savings while doing Roth conversions of my pre tax 401k. By savings, I mean after tax money in a savings account. I was wondering if it's a bad idea to completely depleat my savings. Should I go ahead and start using some of my pre tax 401k to live off of and keep some of the savings or should I just use all the savings and then use my 401k after the savings? I will start getting my pension in about another year and will keep holding off on ss for awhile, so at this time, I don't really have any income except my savings. The other option is some money from brokerage account but I really would like those stocks to keep growing before I sell them. So the options are either my savings or my 401k. I appreciate your opinion. Thanks.

I think I know the answer to this question, but I must admit I am a bit confused, because the scenarios I have seen do not apply to ours. Both my wife and I have worked 35 years, and I am 2 years older than her. My full retirement age is 67, so is hers. Due to investments, annuities, etc, our plan is for me to retire at 64, and her at 62. I am not too concerned about the reduction, as I know the numbers, what concerns me is my wife's reduced. She has worked very hard, and unless I am misunderstanding , because she is my spouse hers is going to be reduced. CAn someone shed some light on this.....I am only 56 and but this does concern me. Thank you

100 % asset management is not the answer for retirement either….,

Timing is everything.

30 years is a long time frame. The average 65 year old is only going to make it to 85ish.

1: Plan with a Financial Advisor . 2: Be frugal and minimal on spending (don’t buy what you don’t need). 3: Save and invest money towards retirement (Roth IRA/401k) 4: Save to(Invest) it’s a proven way to get richer very important to financial success.

its obvious we NEED a simpler tax system! Esp when you retire and expected to live off that till you die....ridiculous

Was hoping for a bit more insight other than the 4% rule. Maybe a specific drawdown from which buckets as specific stages of the business cycle.

Taking social security as early as possible. I don't need it for anything so I'd rather start pulling asap.