Tax estimate

[piano88]

Hi,
I want to estimate my taxes once I begin drawing income from retirement funds. Here are the particulars:
· I will be withdrawing approx. $80,000 per year for expenses
· $60,000 from tax deferred sources (IRAs and 403b accounts)
· $20,000 from non-qualified investments (4% SWR on $500,000 pool of stocks, mutual funds)
State Tax: I live in NY State. The 2006 tax rate for $80,000 income is 6.85%. I don’t know how NYS treats tax deferred income and if our State law differentiates by source of investment funds. Total: $5480
Federal: My estimate of federal tax liability is $8245 (tax deferred income) plus $3000 (15% capital gains, dividends on $20,000 non-qualified investments) for a total of $11,245.
So, my estimate of federal and state tax liability on $80,000 draw is about $16,725, or about 21% of the $80,000.
No social security for another 10 years. Small pension of $6000 not factored into above.
That seems like a huge amount of federal and state taxes. Is my methodology flawed?
Thanks,
Piano

 

[teejayevans]

Hi,
That seems like a huge amount of federal and state taxes. Is my methodology flawed?
Thanks,
Piano

No, your expectations are.
BTW, don't forget you will have fed std deductions (8-16K) and then the
next chunk (~8-15k) is at 10%, don't know if NY is the same.
Get yourself a tax program and run the numbers for more exact
figure.
TJ

 

[Martha]

One problem is that you don't pay tax on the amount of money you use from your non-tax defered income, but on how much taxable income they generate through dividends, interest, and capital gains. So your $20,000 of withdrawals from your stock and mutual fund may very well differ from the actual amount of income generated.

For federal tax rough estimates, the Dinkytown calculator is pretty easy to use. 1040 Tax Calculator - Financial Calculators from Dinkytown.net

 

[LOL!]

Do you do your own taxes now? Get out your copy of TurboTax and plug in your numbers in retirement. You did not write whether you were married, filing jointly and had 5 kids still living at home or not.

Without running the software, I do not think you can "estimate" your taxes so well. If you don't have the software, get it and use it. It will help you plan and save you a bundle.

 

[Nords]

Do you do your own taxes now? Get out your copy of TurboTax and plug in your numbers in retirement.

TurboTax's website estimator also does a good job without having to plug through all the excrutiating details of the computer-based interviews & forms. It's relatively easy (and very fast) to change a couple parameters and immediately view the results.

 

[piano88]

thanks

Thanks for the helpful feedback and links.

Piano

 

[megacorp-firee]

Great pointer to estimator site Nords... thanks