Using "what If" form to estimate taxes when I turn 72 / Premium Tax Credit or Repayment Smart worksheet

[thinders1951]

I wanted to use the "what If" form to help me "predict" my possible tax bill when I turn 72 and have to take a RMD from my 401K

My 2019 tax situation is pretty straightforward. I qualify for the standard deduction, my income is SSA , a $500/mo pension, and a $10 K distribution from an inherited IRA, which I closed out in 2019.

I used the data from 2019 and copied over the data into a new column.

The only value I changed was I  "upped" my IRA distribution fromm the $10K used in 2019 to a value greater than what I expect the RMD to be when I turn 72.

That bumped my total income, as expected. It bumped the SSA taxable amount, as expected

Another field "popped up" and populated on the Premium Tax Credit or Repayment Smart worksheet  on line C (tax credit).  This worksheet was blank when I filled out my 2019 taxes.

Can someone outline to me what the worksheet is used for ?

I tried reading the IRS.gov site for information, but I can not cut through the jargon (for me) to figure it out.

Thanks!!!!

[rjs · Accepted solution]

The Premium Tax Credit is a subsidy for low-income people who purchase health insurance from the Marketplace or exchange ("Obamacare"). Line C on the Smart Worksheet is "Household income for premium tax credit." It's the income amount that would be used to calculate the credit. But you probably have Medicare and didn't buy insurance from the exchange, so none of this applies to you. Line A of the Smart Worksheet, "Insurance thru exchange" says No. The amount on line C is just there in case it's needed. You can ignore it. It does not affect the calculation of your tax.

[thinders1951]

Thanks!

[dmertz]

If adding the RMD did not make the Social Security income fully 85% taxable, you might want to consider distributions from the 401(k) of more than your RMD.  As additional income causes and equal amount of Social Security income to become taxable (until 85% of Social Security income is taxed), your marginal tax rate is 1.85 times your tax bracket rate.  Once 85% of Social Security income is taxed, your marginal tax rate drops back down to your tax bracket rate (ignoring other things that might affect your marginal tax rate, but the results of your what-if scenario doesn't seem to suggest any).  Over the long term, you might find that you pay less in taxes by taking out more over fewer years than if you limit your distributions to just the RMD over more years.  Also, tax brackets are scheduled in 2026 to revert to previous higher levels.  For amounts that you don't need to spend, you could directly roll the amount in excess of your RMD over to a Roth IRA rather than simply taking a regular distribution.

[thinders1951]

Thanks!

[thinders1951]

Thanks for the very thoughtful response.

How would I test to ensure I am at the SSA max? Must be an easy math approach.

Thanks again

[rjs]

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@thinders1951 wrote:

How would I test to ensure I am at the SSA max? Must be an easy math approach.

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The math might not be all that easy. On the What-If Worksheet, if the taxable social security on line 20b is 85% of the total social security on line 20a you're at the maximum. You could keep increasing the IRA distribution or 401(k) distribution until line 20b stops increasing (it won't go above 85%), and look for the point at which it just hits 85%.

[thinders1951]

Perfect!

Thanks