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 more cash beyond your Sweet Spot limit?
40.7% is the extremely high marginal tax rate that most of us will face during our retirement. Your pre-What If is at or already in the 22% Federal Tax Bracket. The extra $1,000 of taxable income also increase the Basis for the taxation of your Social Security benefits which increases the your Taxable SSB by an additional $850. Your AGI and Taxable income increases by the total of $1,850 which increase your Total Tax Due by $407 at the 22% Federal Tax Rate.