What If

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!

Use the following links to examine the details of each of these
What If situation that you could be facing during your retirement.

  • You prepared properly for year end unexpected income.
    • 22.2% You received a taxable bonus or short term gains.
    • 10.2% You received some long term capital gains.
  • You did not prepare for year end gains and some of your income was LTCGs
    • 49.95% You received a taxable bonus or short term gains.
    • 37.95% You received some long term capital gains.
  • You did not prepare for year end gains and none of your income was LTCGs
    • 40.7% You received a taxable bonus or short term gains.
    • 33.7% You received some long term capital gains.
  • Break Even Detailed examples after Federal, State, and Local taxes.
  • QCD Detailed example of a Qualified Charitable Distribution.

What If you need more cash beyond your Sweet Spot limit?
Iím not a tax accountant, so use everything on this page at your own risk!

This is the highest Marginal Federal Tax Rate paid at any income level, and it is being paid by retired Americans at the top end of their 12% Federal Tax bracket! Columns C and H illustrate your pre-What If income with $2,000 of tax free LTCGs that are exactly at the point where the next dollar will start making your LTCGs taxable. Looking at the What If Changes between columns H and J; when you add an additional $1,000 of income, the Basis for the taxation of your SSB also increases by $1,000 which makes an additional $850 of SSB taxable, your AGI and therefore your Taxable income increases by the total of $1,850 which at the 12% rate increases your Tax Due by $222. In this situation you are being Triple Taxed, so $1,850 of your LTCGs also becomes taxable income at the 15% LTCG Rate which is an additional $277.50 for a total tax increase of $499.50 because of this $1,000 IRA withdraw. Again, this is the highest Marginal Tax Rate paid by any American, 49.95% at a gross income level of only $61,446 in this What If example!

If your SSB benefit level is only $20,000, the 49.95% Marginal Tax Bracket starts lower than the $57,350 Gross Income level, and of course this is only your Federal Taxes, it does not include your State and Local taxes!