These are probably the most important pages on this website!
We are all used to telling our employer how many exemptions we have so they can make the proper tax deductions during the year. For most of us the first time we look at our potential taxes is in January of the following year when we get our W-2s in the mail.
We can do basically the same thing during retirement, but now that we have seen what our Personal Tax Hump looks like and realize that we can save thousands of dollars each year if we avoid those extreme marginal tax rates, we should all consider doing the opposite! Start doing your tax calculation this January, not next January, and keep asking yourself What If every time you decide to create extra taxable income!
What If you need another cash withdraw
within your Sweet Spot?
An additional $1,000 withdraw from your IRA or other taxable source will fall within the 12% Federal tax bracket if it occurs within your Personal Sweet Spot. But, that withdraw will also increase the Basis for the taxation of your Social Security benefits, at the 85% level that will increase your taxable SSB by an additional $850. You will then pay 12% of the total $1,850 taxable income increase, $222, which is a Marginal Tax Rate of 22.2% of the original $1,000 withdraw!