Katsmeow
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Jul 11, 2009
- Messages
- 5,308
I thought I saw a previous post on this topic but I can't find it now. I am wondering if there is an easier way to do something other than trial and error. I seem to recall someone posting a formula.
Here is the situation for this year:
I am in the 22% tax bracket. Our income is enough this year that 85% of SS is already being taxed. So, as I withdraw from the IRA the only amount our taxes go up is by the 22%.
Let's say I want to withdraw $1000 from an IRA and want $250 to go taxes and then for the other $750 to be distributed to me. Let's also say that if I do that the $250 will cover my tax liability for the year that existed before I withdrew the $1000. I wouldn't be getting a refund and wouldn't be paying anything. (These are made up number for illustration purposes).
But as soon as I withdraw the $1000, I have an additional $220 in tax liability and so the $250 I was putting to tax withholding is no longer enough. I need to withdraw another $220 to cover the taxes on $1000.
So instead I withdraw $1220 and put $470 to taxes. Fine. But -- now I need to consider the taxes on the extra $220 which is $48.
So instead I withdraw $1268 and I put $518 to taxes. And I now I have to withdraw $48 to pay the taxes on the $48.
Now eventually I get to a point where this balances. I am withdrawing enough to put $750 in my checking account and the rest of the money goes to taxes and I am in balance.
The way I have been doing this is trial and error. But this is tedious? Is there a formula for this? I would like to withdraw enough to cover the taxes on what I am withdrawing but I don't want to over withhold either.
Here is the situation for this year:
I am in the 22% tax bracket. Our income is enough this year that 85% of SS is already being taxed. So, as I withdraw from the IRA the only amount our taxes go up is by the 22%.
Let's say I want to withdraw $1000 from an IRA and want $250 to go taxes and then for the other $750 to be distributed to me. Let's also say that if I do that the $250 will cover my tax liability for the year that existed before I withdrew the $1000. I wouldn't be getting a refund and wouldn't be paying anything. (These are made up number for illustration purposes).
But as soon as I withdraw the $1000, I have an additional $220 in tax liability and so the $250 I was putting to tax withholding is no longer enough. I need to withdraw another $220 to cover the taxes on $1000.
So instead I withdraw $1220 and put $470 to taxes. Fine. But -- now I need to consider the taxes on the extra $220 which is $48.
So instead I withdraw $1268 and I put $518 to taxes. And I now I have to withdraw $48 to pay the taxes on the $48.
Now eventually I get to a point where this balances. I am withdrawing enough to put $750 in my checking account and the rest of the money goes to taxes and I am in balance.
The way I have been doing this is trial and error. But this is tedious? Is there a formula for this? I would like to withdraw enough to cover the taxes on what I am withdrawing but I don't want to over withhold either.