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Possible to estimate taxes in retirement?
Old 05-31-2008, 08:21 AM   #1
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Possible to estimate taxes in retirement?

I have a question for any of you tax experts. Well, you dont need to be an expert...just have a good guestimate I suppose.

What I want to know is this: If I have an income in retirement of $215,000, how much income will I have after taxes?

I know there are a million things to factor in but Im hoping to come up with a ballpark figure based on averages.

The income will be coming from these sources:
~50% from 401k
~40% from regular taxable accounts
~10% from Roth IRA

Assume we will not own a house so I will use a standard deduction (married). We will have one other dependant for a couple more years.

This years TurboTax shows I had an effective tax rate of 13.7%. Im looking for something like this if its possible. Is there any way to get an estimate of my future effective tax rate 7 years from now (assuming tax laws are the same as today of course). Off the top of my head Im guessing it will be closer to 20%?

If I just go to turbo tax and type in these numbers and assume my income is W-2 income will I get anywhere close?
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Old 05-31-2008, 08:26 AM   #2
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Try this site/tool. You can plug in your "assumptions" and where the income is actually coming from. It's good (IMHO) to do "ballpark what-if's":

1040 Tax Calculator - Financial Calculators from Dinkytown.net

- Ron
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Old 05-31-2008, 08:58 AM   #3
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rs----thanks for the link. Looks like a nice handy thing to have around.
Have a question tho........when I input data into the income sheet, I put
in numbers for tax exempt interest; also ordinary dividends and qualified dividends as they usually show up on my 1099s; also gross SS. I found total income and AGI much higher than I expected and to me it looks like the
calculator is just adding up all the numbers and not taking out the tax exempt interest or the part of SS that is not taxable. Also my 1099s usually have ordinary dividends that are the total (inclusive of qualified dividends) and the calculator is ignoring that and adding qualified to ordinary dividends, essentially doubling the dividends.

Do you find the same ? I guess you can work around that by not inputting the tax exempt income, subtracting the qualified div from the "gross ordinary" dividends and inputting the "net ordinary" dividends, and calculating the taxable part of SS separately...........but otherwise, the calculator can be deceiving.
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Old 05-31-2008, 09:00 AM   #4
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Thank You. That was exactly what I was looking for.
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Old 05-31-2008, 09:07 AM   #5
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Originally Posted by kaneohe View Post
rs----thanks for the link. Looks like a nice handy thing to have around.
Have a question tho........when I input data into the income sheet, I put
in numbers for tax exempt interest; also ordinary dividends and qualified dividends as they usually show up on my 1099s; also gross SS. I found total income and AGI much higher than I expected and to me it looks like the
calculator is just adding up all the numbers and not taking out the tax exempt interest or the part of SS that is not taxable. Also my 1099s usually have ordinary dividends that are the total (inclusive of qualified dividends) and the calculator is ignoring that and adding qualified to ordinary dividends, essentially doubling the dividends.

Do you find the same ? I guess you can work around that by not inputting the tax exempt income, subtracting the qualified div from the "gross ordinary" dividends and inputting the "net ordinary" dividends, and calculating the taxable part of SS separately...........but otherwise, the calculator can be deceiving.
Sorry - I'm ER'ed and don't have much income beyond my SPIA and VA Disability check (very small). The remainder income comes from my rollover IRA (tax deferred). Won't be drawing SS till I'm 70 (10 years hence) so my income situation is "simple".

- Ron
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Old 05-31-2008, 11:49 AM   #6
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Thats a nice calculator. I have been plugging assumptions into tax software but that little tool is easier and great for ballpark - whatifs.
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Old 05-31-2008, 02:39 PM   #7
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Tax Calculator - Tax Tools and Calculators - H&R Block

here's another one.......similar to the first but it doesn't seem to have the problems
that I encountered with the first one. Didn't know it existed till this thread motivated me to go looking so thanks for that.
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Old 05-31-2008, 02:52 PM   #8
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When you write that 40% of the income will come from regular taxable accounts it will depend on what you mean by that. You have got to remember that return of capital is tax-free, that long-term cap gains are taxed at max rate of 15%, and qualified dividends are also tax at max rate of 15%.

So if -in your taxable account- you sell $100K of stock or fund with a cost basis of $103K, you actually reduce your taxes and get $100K of tax-free income.

OTOH if you sell $100K of stock with a cost basis of $50K, then the gain is $50K and the tax is just $7.5K.

Your idea to use TurboTax is the best one, but you gotta really look at your taxable holdings and enter the appropriate numbers in the appropriate places.
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Old 05-31-2008, 05:13 PM   #9
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When you write that 40% of the income will come from regular taxable accounts it will depend on what you mean by that. You have got to remember that return of capital is tax-free, that long-term cap gains are taxed at max rate of 15%, and qualified dividends are also tax at max rate of 15%.

So if -in your taxable account- you sell $100K of stock or fund with a cost basis of $103K, you actually reduce your taxes and get $100K of tax-free income.

OTOH if you sell $100K of stock with a cost basis of $50K, then the gain is $50K and the tax is just $7.5K.

Your idea to use TurboTax is the best one, but you gotta really look at your taxable holdings and enter the appropriate numbers in the appropriate places.
Thats a very good point. I hadnt even thought of that. My taxes will be much lower than I was thinking.

Unfortunately its also going to be alot harder to estimate this far out as well.
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Old 05-31-2008, 05:14 PM   #10
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The 50% that comes from the 401k is taxed as ordinary income though, correct?
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Old 05-31-2008, 07:10 PM   #11
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The 50% that comes from the 401k is taxed as ordinary income though, correct?
Exactly, "withdrawls" from the 401k or regular IRA are taxable as ordinary income, the same as salary. No tax on a Roth.

BTW, thanks for raising this topic...now there are a couple more calculators thru which I can run my numbers.

R
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