Tax-free IRA distributions and RMD’s? Tax-free IRA distributions and RMD’s? - Talk of The Villages Florida

Tax-free IRA distributions and RMD’s?

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Old 07-07-2025, 11:27 AM
Plinker Plinker is offline
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Default Tax-free IRA distributions and RMD’s?

The 2025 standard deduction for a married couple filing jointly, age 65 or over, is $34,700. The BBB (Big Beautiful Bill) adds an additional $6,000 per person for these seniors. This increases the standard deduction to $46,700. SS benefits are tax-free if your AGI is under $150,000 if filing jointly.
Let’s assume that this couple has $20,000 in income from taxable sources such as a savings account, CD, etc. and combined SS benefits of $60,000. Since none of their SS is taxable, could they not take an IRA distribution or RMD in the amount of $26,700 ( $46,700 - $20,000) and pay no taxes as their AGI would now be $46,700?
Or, and this is where it gets really interesting, what if they took distributions up to the 10% tax bracket? This bracket goes up to $23,850 for 2025. This would allow a distribution of $50,550 ($26,700 + $23,850) with a tax bill of only $2,385.
You can make a reservation at Stirrups in Ocala if you continue into the 12% tax bracket. In my example, a $100,000 distribution would put you right at the $150,000 AGI amount before your SS would be taxable ($20,000 taxable + 1/2 SS of $60,000 is $30,000+ $100,000 distributions = $150,000). Your tax would be based on an AGI of $73,300 ($120,000 - $46,700) or about $8,300.
Sorry for all the math, but this could be a huge boost for seniors, depending on your numbers.
Okay, math gurus, where did I mess up?
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Old 07-07-2025, 01:41 PM
ton80 ton80 is offline
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Default SS Income is NOT Tax Free! There is only a temporay tax deduction up to 12,000$

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Originally Posted by Plinker View Post
The 2025 standard deduction for a married couple filing jointly, age 65 or over, is $34,700. The BBB (Big Beautiful Bill) adds an additional $6,000 per person for these seniors. This increases the standard deduction to $46,700. SS benefits are tax-free if your AGI is under $150,000 if filing jointly.
Let’s assume that this couple has $20,000 in income from taxable sources such as a savings account, CD, etc. and combined SS benefits of $60,000. Since none of their SS is taxable, could they not take an IRA distribution or RMD in the amount of $26,700 ( $46,700 - $20,000) and pay no taxes as their AGI would now be $46,700?
Or, and this is where it gets really interesting, what if they took distributions up to the 10% tax bracket? This bracket goes up to $23,850 for 2025. This would allow a distribution of $50,550 ($26,700 + $23,850) with a tax bill of only $2,385.
You can make a reservation at Stirrups in Ocala if you continue into the 12% tax bracket. In my example, a $100,000 distribution would put you right at the $150,000 AGI amount before your SS would be taxable ($20,000 taxable + 1/2 SS of $60,000 is $30,000+ $100,000 distributions = $150,000). Your tax would be based on an AGI of $73,300 ($120,000 - $46,700) or about $8,300.
Sorry for all the math, but this could be a huge boost for seniors, depending on your numbers.
Okay, math gurus, where did I mess up?
SS Income is NOT Tax Free. There is only a temporary tax deduction of 12 K$ for couples. The deduction expires in 2028. That is where you messed up. The criteria of AGI less than 150k is for the deduction only.
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Old 07-07-2025, 02:26 PM
Plinker Plinker is offline
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Originally Posted by ton80 View Post
SS Income is NOT Tax Free. There is only a temporary tax deduction of 12 K$ for couples. The deduction expires in 2028. That is where you messed up. The criteria of AGI less than 150k is for the deduction only.
I never said it was permanent. “Messed up” is a bit harsh. Get it while you can.
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Old 07-07-2025, 03:13 PM
ton80 ton80 is offline
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Originally Posted by Plinker View Post
I never said it was permanent. “Messed up” is a bit harsh. Get it while you can.
I used "messed up" since you asked where you messed up. My reply was aimed at explaining where I believe your error was.

Your analysis is based on getting no tax on the 60K SS payments if the AGI were less than 150K for a couple. That is incorrect. The maximum tax relief is the extra 12K deduction if the couple's AGI is less than 150K. The rest, 48K, is part of your AGI and is taxed.

Get it while you can lasts until 2028, correct.
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Old 07-07-2025, 03:27 PM
Plinker Plinker is offline
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Quote:
Originally Posted by ton80 View Post
I used "messed up" since you asked where you messed up. My reply was aimed at explaining where I believe your error was.

Your analysis is based on getting no tax on the 60K SS payments if the AGI were less than 150K for a couple. That is incorrect. The maximum tax relief is the extra 12K deduction if the couple's AGI is less than 150K. The rest, 48K, is part of your AGI and is taxed.

Get it while you can lasts until 2028, correct.
Thank you. Yes, you are correct. This is why I posted the thread. It seemed to be to good to be true. However, would it not allow a distribution up to the new standard deduction?
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Old 07-07-2025, 03:52 PM
ton80 ton80 is offline
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Default SS of 60K Already Puts The Couple in Tax Paying Position

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Originally Posted by Plinker View Post
Thank you. Yes, you are correct. This is why I posted the thread. It seemed to be to good to be true. However, would it not allow a distribution up to the new standard deduction?
Your example of SS = 60K is already more than the increased Standard Deduction. There is no tax free money to be gained. There can be some minor reduced tax rates at the income level breaks but nothing substantial.
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Old 07-08-2025, 06:28 AM
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I normally don't reply to posts but feel obligated on this one. I worked for Jackson Hewitt for 6 tax seasons. What is not being discussed with regards to the blanket statement that 90% of SS recipients will not be taxed on their SS is VERY misleading. While the senior additional $6,000 for single filers and $12,000 for married filers does increase the amount of tax free SS, what is not discussed is that within the IRS tax code there is a formula for calculating how much of your SS is taxable. This formula to my knowledge has not been changed and I seriously doubt with the senior deduction only valid through 2028 that it will be changed. An example is you take 1/2 of your SS and add all your other income to that amount. If the amount for a single filer is under the $25,000 threshold then none of your SS is taxable. Any amount of that total is above $25,000 then all of that amount up to 85% of your SS is taxable. So yes the $6,000 extra for a single filer allows you that extra taxable income but anything beyond is still taxable. This is an individual or married couple base by base situation.
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Old 07-08-2025, 06:33 AM
JRcorvette JRcorvette is offline
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I will just leave it up to my Tax consultant. Hopefully I might save a little money. Since we basically are living off of IRA funds we end up paying a lot in taxes every year.
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Old 07-08-2025, 06:38 AM
retiredguy123 retiredguy123 is offline
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Quote:
Originally Posted by drbmd03 View Post
I normally don't reply to posts but feel obligated on this one. I worked for Jackson Hewitt for 6 tax seasons. What is not being discussed with regards to the blanket statement that 90% of SS recipients will not be taxed on their SS is VERY misleading. While the senior additional $6,000 for single filers and $12,000 for married filers does increase the amount of tax free SS, what is not discussed is that within the IRS tax code there is a formula for calculating how much of your SS is taxable. This formula to my knowledge has not been changed and I seriously doubt with the senior deduction only valid through 2028 that it will be changed. An example is you take 1/2 of your SS and add all your other income to that amount. If the amount for a single filer is under the $25,000 threshold then none of your SS is taxable. Any amount of that total is above $25,000 then all of that amount up to 85% of your SS is taxable. So yes the $6,000 extra for a single filer allows you that extra taxable income but anything beyond is still taxable. This is an individual or married couple base by base situation.
As I understand it, the $6,000 exemption is based only on your age. It has nothing to do with whether or not you are receiving Social Security payments.
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Old 07-08-2025, 07:20 AM
CoachKandSportsguy CoachKandSportsguy is offline
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Quote:
Originally Posted by drbmd03 View Post
I normally don't reply to posts but feel obligated on this one. I worked for Jackson Hewitt for 6 tax seasons. What is not being discussed with regards to the blanket statement that 90% of SS recipients will not be taxed on their SS is VERY misleading. While the senior additional $6,000 for single filers and $12,000 for married filers does increase the amount of tax free SS, what is not discussed is that within the IRS tax code there is a formula for calculating how much of your SS is taxable. This formula to my knowledge has not been changed and I seriously doubt with the senior deduction only valid through 2028 that it will be changed. An example is you take 1/2 of your SS and add all your other income to that amount. If the amount for a single filer is under the $25,000 threshold then none of your SS is taxable. Any amount of that total is above $25,000 then all of that amount up to 85% of your SS is taxable. So yes the $6,000 extra for a single filer allows you that extra taxable income but anything beyond is still taxable. This is an individual or married couple base by base situation.
Just to provide an example of SS and this rule, I went to the the SS web site and entered the following information for the calculations using the 2024 tax year and rates:

Using a SS income of $44,000 per year, $3,667 per month, which is about the FRA max earnings, for two income couple equals $88,000 annual in SS income.

Then I used 0, ZERO, income for the other information, which is unlikely for anyone, but gives a base idea of the additional deduction value.

The SS taxable income was $6,000 for a married couple filing jointly, using the 2024 85% formula.

So the 2025 deduction changes the formula by adding enough additional deduction to offset the last 15% of taxable SS income, and a small cushion for those retiring later than FRA getting a larger amount.

So, for those with IRA income, or IRA conversions, the impact is helpful but people will still have to pay some amount of income taxes on the IRA/investment income. So actually modeling out the impact on your particular situation will answer your specific situation.. .

I am leaning towards a small reduction in taxes paid on taxable income for most villagers, but better than no change and much better than increased tax rates for the same amount of income.

However, the impact to the treasury income is probably less than the headline due to most people with max FRA benefits will also have retirement plan sourced income.

Good luck out there!
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Old 07-08-2025, 07:49 AM
Haggar Haggar is offline
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Quote:
Originally Posted by CoachKandSportsguy View Post
Just to provide an example of SS and this rule, I went to the the SS web site and entered the following information for the calculations using the 2024 tax year and rates:

Using a SS income of $44,000 per year, $3,667 per month, which is about the FRA max earnings, for two income couple equals $88,000 annual in SS income.

Then I used 0, ZERO, income for the other information, which is unlikely for anyone, but gives a base idea of the additional deduction value.

The SS taxable income was $6,000 for a married couple filing jointly, using the 2024 85% formula.

So the 2025 deduction changes the formula by adding enough additional deduction to offset the last 15% of taxable SS income, and a small cushion for those retiring later than FRA getting a larger amount.

So, for those with IRA income, or IRA conversions, the impact is helpful but people will still have to pay some amount of income taxes on the IRA/investment income. So actually modeling out the impact on your particular situation will answer your specific situation.. .

I am leaning towards a small reduction in taxes paid on taxable income for most villagers, but better than no change and much better than increased tax rates for the same amount of income.

However, the impact to the treasury income is probably less than the headline due to most people with max FRA benefits will also have retirement plan sourced income.

Good luck out there!
The problem I'm having is the concept of "reducing taxation of social security income". The increased standard deduction for the next four years (if you quality by not having a higher AGI) is a reduction of taxable income. So if you had taxable income from social security or/and investments and/or pensions and/or a business is it the social security or the other income that would be reduced by up to $12,000.

It eliminates taxes if you only had $12,000 of taxable income. It effectively does lower the bracket your income falls into if you did have tax.

It was estimated that 68% of taxpayers paid no income because their income was too low. This will increase the percentage now not paying.

Because income taxes on social security go into the Social Security tax fund OMB estimated the fund will now be depleted in 2032 - a year earlier than had this provision not been passed. So the BBB just passes the buck down the line!
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  #12  
Old 07-08-2025, 05:57 PM
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Let's get back to the topic please, Tax-free IRA distributions and RMD’s?
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Old 07-08-2025, 06:29 PM
Stu from NYC Stu from NYC is offline
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I suspect the IRS will make the final decisions on how this will work. In the meantime waiting on my CPA to tell me how this will work and how to handle my RMD when this takes effect.
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Old 07-09-2025, 07:25 AM
Pat2015 Pat2015 is offline
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Quote:
Originally Posted by ton80 View Post
I used "messed up" since you asked where you messed up. My reply was aimed at explaining where I believe your error was.

Your analysis is based on getting no tax on the 60K SS payments if the AGI were less than 150K for a couple. That is incorrect. The maximum tax relief is the extra 12K deduction if the couple's AGI is less than 150K. The rest, 48K, is part of your AGI and is taxed.

Get it while you can lasts until 2028, correct.
Whoever tries to cut that on Seniors in 2028 is looking at political suicide. I think it’s safe to say that’s not going anywhere.

Last edited by Pat2015; 07-09-2025 at 07:26 AM. Reason: Spelling
  #15  
Old 07-09-2025, 08:01 AM
ton80 ton80 is offline
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Default Law is Already in Effect. No change required in 2028

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Whoever tries to cut that on Seniors in 2028 is looking at political suicide. I think it’s safe to say that’s not going anywhere.
I am not sure what you are referring to.

The current law ( BBB Tax Law) now is: The maximum tax relief is the extra 12K deduction if the couple's AGI is less than 150K.

The rest, 48K in the OP's example, is part of his AGI and will be taxed. There is no change required in 2028.
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