Home > Looking ahead to 2024 and some confusing income and tax questions

Looking ahead to 2024 and some confusing income and tax questions

December 23rd, 2023 at 05:31 pm

My friend and neighbor came over this morning to drop off a Christmas present and some cookies she baked. I gave her my present earlier, not knowing if I would see  her again before Christmas, but forgot to put the second half of my gift in the bag, so while she was here, she let me slip it in her pocket. Smile Wonder if she'll peek.

I have not done much Christmas decorating this year, but I did put out this over-the-top, festive tablecloth my Slovakian grandmother made in 1975. Nothing brings me back to Christmases past like this tablecloth. Many a Christmas dinner was enjoyed on it. How she kept it clean, I have no idea. It is not very durable and is made of felt, with lots of beads and sequins, yet somehow I've been able to keep it all these years.

This time of year always flies by after so many weeks of warmup. Before you know it, it will be New Year's, then tax time...ugh.

I am thankful I am not traveling...anywhere...for Christmas. It always seems like such chaos at the airports, and on the roads.

I'm eager to think about what 2024 holds in store for me. It's an important year, as I'll be picking out a Medicare plan next summer and quitting my p/t writing job so I will become fully! That's going to be a big change....meaning, spending down my traditional IRAs for living expenses between age 65 and 69. At 69 and a few months (determined to be the most opportune time to begin) I'll start getting Social Security.

It's another big milestone that will make spending down personal savings unnecessary, but I guess I'll continue to do so, converting the distributions into taxable savings that I'll reinvest, since at age 73 I'll need to start making Required Minimum Distributions as a percentage of my total IRAs.

One thing I haven't really figured out is how, exactly to structure my IRA withdrawals at 65. I recall my mother had her savings with T. Rowe Price, and they made it easy to do RMDs by taking proportionate amounts from all of her funds so that she she could preserve her asset allocation; the balances on each fund was reduced by a little instead of being sold off entirely.

But say I want an income of about $40,000, or $3,333 a month. It doesn't sound like much, but I still have about $1,000 gross coming in monthly from my annuity, so $51K a year is plenty. Should I just have Vanguard make monthly auto deposits to my checking account, proportionately, or is there a better way to do it?

Also, if I take $40,000 a year in traditional IRA income annually from age 65 to 69 (and maybe longer), then I'll have reduced my total traditional IRA monies by about $160,000 so that at 73, my RMDs will be lower, also possibly keeping me in a lower tax bracket.

I don't need that much income with my annuity, and in fact, the less I take from personal savings (taxable distributions) now, the more I get back in property tax credits in my town. I guess that's not as important as reducing RMDs, but it is a generous tax credit; you can make as much as $70,000 and still qualify for $920 off your property taxes. If you made under $45,000, you are eligible for $2,900 off your taxes, and there are a few tiers in between.

I always wanted to take advantage of this program (and a less generous state tax credit), but perhaps $2,900 a year is not all that important in the grand scheme of things.

One final question in my mind is how I should go about buying a new car/SUV. My Honda is 10 years old, at this point, with just 101,000 miles, so I could certainly hold onto it longer, but truth be told I knew within a year of buying it that it didn't really suit my needs. I'm ready to buy a  new vehicle as soon as this month (!), or I could wait another year or so.

What I'm wondering about is how to come up with the roughly $25,000 (after trade-in) for purchase. (I like to avoid car loans.) If I take it out of traditional IRAs, that's taxable income, and so in addition to my local property tax credit, higher taxable income also might affect my Obamacare premium amounts, which might be one reason to wait til age 65 when I'm on Medicare.

It looks like Toyota's current finance rate is 4.99%. I suppose I could withdraw from my Roth IRAs, which is not taxable income, but not sure if that's advisable since I had wanted to use Roth IRA monies to "top off" traditional IRA withdrawals to avoid bumping up into a higher tax bracket. It just would give me greater flexibility.


3 Responses to “Looking ahead to 2024 and some confusing income and tax questions”

  1. LivingAlmostLarge Says:

    Depends if you don't need the $40k income for a bit you can wait until 12/2024 to do a withdrawal of $40k if you are still working. You might want to do that anyway so you aren't hit with income from working and IRA distribution. Depending on your cash flow position you might want a loan and then you know you use your IRA distrbution taken out to pay for the said car.

    Also it depends on where you are, maybe it's worth moving equities out of the IRA instead of cash. But it all depends. These are the nitty gritty details that are individual based when you are looking at retirement when ever move has a "butterfly" effect on what you are doing.

    When you are actually retiring? When do you stop income? What is your monthly bills? How heavy in cash are you so that you can tie up said cash in SGOV? Can you afford to do a lump sum distribution at the end of the year to see how things are going? Is it better to do a car loan before you stop your income?

    Probably questions to run into in depth with a fee based FA or someone else an outside look. It's overwhelming but the thing is everyone's situation is so individual its hard to give generalized advice.

  2. PatientSaver Says:

    Thanks, LAL.

    Yes, I could wait until Sept 2024 to buy the new vehicle becus I will have retired by then so I would have no work income. But either way, I know I'll know I'll need at least $40k to live on, so taking roughly $25K to pay for a new vehicle will always be in addition to the $40k I need for living expenses.

    I hadn't thought of taking a loan and paying for it monthly with IRA distributions, but after spending more time on car dealer sites, it appears Toyota, at least, would charge me over 9% for financing, even with excellent credit. I definitely don't want to pay 9% when there's no need to.

    As far as from which funds to take the money from, I forgot I have a $12K IRA CD maturing in September 2024. I don't want to renew it again, so once that money is deposited in my checking, it will become a taxable distribution. Maybe I will need to wait for that to happen and put that toward the vehicle since otherwise, I would have to pay for a new vehicle with other IRA distributions earlier in the year and then I would get this distribution on top of that, which would really increase my annual income.

  3. LivingAlmostLarge Says:

    When do you stop working? And the $12k isn't income just the interest. The $12k you already paid taxes on. also if you have income in 2024 and cash savings I'm not sure it makes sense to take an IRA distribution until January 2025. Also rates are supposed to be cut next year so it might be worth waiting. A lot of this is in the details.

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