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Basic tax question
Old 01-02-2011, 09:23 AM   #1
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Basic tax question

I've got so many spreadsheets projecting things for retirement (4 years away) that I need a spreadsheet to keep track of them all.

I have a projected income and budget spreadsheet and I just ran all the numbers through Turbo Tax as if I had just completed my first year of retirement. It seems I greatly overestimated the tax I will owe.

Can someone confirm this is correct?

1) Withdrawals from 401k and 457b, I pay tax as if it is regular income.
2) Withdrawals from Taxable accounts I pay tax on the capital gains.
3) Withdrawals from Roth IRA, I pay no tax?
4) Dividends on Taxable accounts I pay tax on but not on dividends within a 401k or 457b.

I think my problem came in that I projected paying tax on the entire amount on withdrawals from my Taxable accounts...not just the capital gains from those sales.

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Old 01-02-2011, 09:29 AM   #2
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Did you try using TaxCaster? It does an excellent job in an easy way, so less hassle than full-blown TurboTax and less chance of making a mistake.

1. Yes.
2. Yes, but the cap gains could be a small fraction of your withdrawal. You could even have a loss and/or the gain could be offset by carryover losses.
3. Correct, unless you mess up and don't follow the rules.
4. Dividends have 2 tax rates: qualified (as low as 0%) and non-qualified. Try to make sure all your dividends are qualified especially if you are in a high tax bracket.

5. Don't forget the foreign tax credit.
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