In our last blog post, we discussed what is the retirement income's "Tax Torpedo".
Now we will use an example to illustrate.
An Example
You are retired now. Your retirement income comes from your IRA withdrawals and Social Security benefits.
If you are in the 25% tax bracket, you would pay 25 cents on an extra dollar withdrawn from your IRA account as ordinary income tax, and, now pay attention to this - you also have to pay another 21.25 cents on the Social Security dollar!
This means your effective marginal tax rate on that extra IRA dollar is 46.25%. If you add State tax, the marginal tax rate will be over 50%!
Now do you see the power of "Tax Torpedo"?!
Note the first Combined Income threshold is $32,000 for a married couple, and the second threshold is at $44,000, and they are not indexed for inflation; so over time, more and more retirees will be subject to the ‘Tax Torpedo’!
Next blog post we will discuss how to avoid the "Tax Torpedo".
Now we will use an example to illustrate.
An Example
You are retired now. Your retirement income comes from your IRA withdrawals and Social Security benefits.
If you are in the 25% tax bracket, you would pay 25 cents on an extra dollar withdrawn from your IRA account as ordinary income tax, and, now pay attention to this - you also have to pay another 21.25 cents on the Social Security dollar!
This means your effective marginal tax rate on that extra IRA dollar is 46.25%. If you add State tax, the marginal tax rate will be over 50%!
Now do you see the power of "Tax Torpedo"?!
Note the first Combined Income threshold is $32,000 for a married couple, and the second threshold is at $44,000, and they are not indexed for inflation; so over time, more and more retirees will be subject to the ‘Tax Torpedo’!
Next blog post we will discuss how to avoid the "Tax Torpedo".
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