I'm not sure if you really believe the poppycock you are posting or whether you're just trying to pull our leg. I suspect it is the latter because you seem like a pretty smart guy.
Many people are exempt from withholding because their income is insufficient to result in a tax liability so in those cases there is no amount that belonged to the IRS from the beginning as you claim and 15-25% does not belong to them as you claim.
Yup. Something like 42% of the people, so I hear. And approximately ZERO of them are reading about Financially Independent and Retiring Early. And they aren't mulling over Withdrawal Ratios, they are more likely to be asking how does a ratio apply to $0.
Similarly, the IRS does not have a claim on tax-deferred funds as you suggest. When you withdraw those funds in a way that is a taxable event then they expect it to be included in your tax return and pay any taxes that are due. In many cases, you income might be low enough that you own no tax on that income so any suggestion that they have a claim is just plain silly.
If you do know better, please desist your rhetoric as you will simply confuse people who don't know the difference.
I assume the audience here knows that there are may tax rates and cutoff thresholds, and they know that the rates & thresholds change all the time. After all this
is the "Early Retirement & Financial Independence Community". It would be very boring and WallOfWord'ing to continually spell out "15% of your taxable income, minus deductions, on the amount between $18,150 and $73,800 if you are married and between $9,075 and $36,900 if you are single, plus 25% of the amount between $73,800 and $148,850 if you are married or between $36,900 and $89,350 if you are single, plus 28% ...." and then to describe the difference between average tax rate and marginal tax rate.
By the time the reader got to the point of the post, they'd have fallen asleep.
The common tax rates are 15% and 25% -- and people who follow financial sites know this, and they know what their rate is. There is no need to spell out all the intricate details to people who are knowledgable on the subject, to discuss a concept.
Whew!
Okay, so....I'll restate my point. The IRS has a complex formula they use to decide how much of your income belongs to them. Said formula is effectively beyond mortal ken. Nonetheless, they decide what portion of the money you get is theirs. They also decide the timing at which you'd better fork it over. Doesn't matter what you think of their opinion. They have the guns, so their opinion prevails.
One can rail at this all ones wants. But it doesn't have any practical effect. In practical terms, a portion of what you think of as "your" money is deemed by the IRS to be "their" money, which you just happen to be holding for them.
IMHO, it is psychologically easier to accept this as a fact of life which you can do nothing about, and deal with it that way.
My original post was in response to someone bemoaning his IRA being held "tax hostage". But it isn't. Some of that IRA is money that he should have paid to the IRS years ago, but they magnanimously said, "Nah, you don't have to pay up now, you can hang onto it for us in an IRA and pay us later on when you withdraw money from the IRA."
A portion of the money in your IRA is not yours, it's the governments. In fact, approximately [...insert long details about marginal tax rates, deductions, taxable income, etc. here...] 15% or 25% of it belongs to them. Just because you held on to it for a few decades, and you came to think of it as all yours doesn't change this. It was always theirs; it was never yours.
It's as if you paid the entire income tax you owed and the IRS then deposited some of it in an account of your choosing, with the proviso that you had to give it back later.
I never would have guessed that. You could use overly aggressive return and variability assumptions for a stochastic model too.
