The 0% capital gains bracket can create unique planning opportunities. The standard deduction for those who are married and filing jointly is $25,100. Those who are married and over age 65 or blind receive an additional $1,350. A married couple filing jointly, both over 65, could have $108,600 of capital gains and pay no federal income tax at all, as long as the gain is the only thing on the return. Understanding the interaction between different types of income like capital gains, ordinary income and Social Security is essential to maximizing this opportunity.
2. Social Security Taxation
As your taxable income increases, the potential tax you have to pay on Social Security benefits can also increase quickly. The combination of Social Security income with other taxable income could result in being subject to an effective marginal tax rate as high as 49.95% on a portion of your income. Delaying Social Security benefits increases the monthly benefit you are entitled to receive and gives you more time to withdraw from pretax retirement accounts without creating an overlap between the two income sources.
3. Medicare Premiums
Medicare Part B and Part D premiums are based on modified adjusted gross income. For people who are older than 65 or within two years of enrolling in Medicare, beware that Roth conversions can trigger premium surcharges. Understanding these thresholds will help you identify how much you should convert to the Roth.