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Social Insecurity
This chart assumes a married couple, also 65, with Social Security income of $25,000. Keep in mind, this couple should enjoy a combined standard deduction and personal exemption total of $18,900. The next $15,100 should enjoy a tax rate of 10%. You see above, at $34,000 of 401(k) or IRA withdrawals, they are already at a phantom 27.75% bracket. Their income from $51K through $59K enjoys the 15% rate, and then they are back up to 25% until they hit their next bracket, 28% some $62K later. In this example, there is less room to maneuver to avoid this phantom high rate of tax once retired and collecting Social Security. During the years leading up to retirement, this oddity should be reviewed and planned for. Perhaps delaying the first Social Security payments a few years, which would raise your Social Security income but also give extra time to convert some money to a Roth. Again, please note, this article was based on 2006 tax rates. Any questions or comment, please use the link to the left to contact me.

Until next month, JOE
(my thanks to MIFP posters Elle and Elizabeth for their critique and suggestions while I was writing this article.)