INDUSTRY INSIGHT

SPONSORED CONTENT

Sometimes it makes sense to spread out retirement distributions .

In some situations , taking retirement plan distributions over multiple years can be beneficial . Let ’ s assume that you can take a distribution of $ 10,000 and stay in the 12 % federal tax bracket . If you take more than that , your distribution would be taxed at 22 %. If you take $ 20,000 , you would pay $ 3,400 . If you took $ 10,000 per year over a two-year period ( assuming no other changes in your tax situation ), you would pay $ 2,400 .

Tax brackets are different for a couple than they are for an individual .

In 2022 , a married couple filing a joint tax return with one spouse age 65 or older and using a standard deduction can have a taxable income of $ 110,650 and still be in the 12 % tax bracket . A single taxpayer over age 65 can have taxable income of $ 56,475 and still be in the 12 % tax bracket . If a couple needs $ 80,000 in taxable income to cover their expenses , the highest tax rate on that income is 12 %. If one of them dies and the surviving spouse needs $ 70,000 , that person will have $ 13,525 taxed in the 22 % tax bracket .

Social Security taxation changes with your income .

Anywhere from 0 %– 85 % of Social Security payments are taxable depending on your income . The IRS uses a figure called “ combined income ” to calculate how much of your Social Security payments are taxable . If you are married and your combined income is below $ 32,000 , your Social Security payments are not taxed . If your income is between $ 32,000 and $ 44,000 , 50 % of the Social Security benefit will show up on your tax return , and if your combined income is over $ 44,000 , 85 % of your benefit will show up on your tax return . Understanding this and coordinating your retirement distributions accordingly can impact the amount of tax you pay on your Social Security payments .

Capital gains taxes change with your income . There are two types of capital gains , short-term and long-term .

Short-term gains are taxed at a person ’ s ordinary income tax bracket and can be as high as 37 %. Long-term capital gains are usually taxed at 0 %, 15 %, or 20 %. They could be higher in certain situations , but these are the most common rates .

Assume that you are single and retire in January 2023 and don ’ t have any income in that calendar year . Perhaps you have $ 44,625 of long-term capital gains from the sale of stock and pay $ 0 federal income tax . If you are married , that amount is double . Cashing out long-term capital gains over multiple years could potentially lessen or eliminate the federal tax impact in some situations .

Sources Internal Revenue Service . ( 2021 , November 10 ). IRS provides tax inflation adjustments for tax year 2022 [ News release ]. https :// www . irs . gov / newsroom / irs-provides-tax-inflation-adjustments-for-taxyear-2022

Mengle , R . ( 2022 , November 3 ). What are the capital gains tax rates for 2022 vs . 2023 ? Kiplinger . https :// www . kiplinger . com / taxes / capital-gains-tax / 602224 / capital-gains-tax-rates

Social Security . ( n . d .). Income taxes and your Social Security benefit . https :// www . ssa . gov / benefits / retirement / planner / taxes . html

Securities and advisory services offered through Commonwealth Financial Network ®, member FINRA / SIPC , a registered investment adviser . Fixed insurance products and services offered through CES Insurance Agency or Strategic Path Wealth Management .

This Industry Insight was written by Brian Hill .

Brian is the president of Strategic Path Wealth Management . Strategic Path focuses on helping its clients make the transition from work to retirement . Brian specializes in complex planning , tax solutions , and portfolio management .

412.489.5174 | strategicpathwm . com

MT . LEBANON ❘ WINTER 2022 17