jIMOh
Thinks s/he gets paid by the post
This idea came from another thread in this forum. Hoping the examples can help suggest how much to estimate in taxes for planning purposes and to make sure my math is accurate for my own planning purposes.
Example 1: Income need is 60k. Taxes married filing jointly. All money is in tax deferred accounts. Portfolio value is $1.5 M.
Taxes owed on 66k would be:
Exemptions $10,900 (standard exemption) plus 2 personal exemptions ($7000) is $17,900.
66k-17.9k=$48.1k Taxes owed on $48.1k is $6412.
5512/66000=8.3% taxes paid
66k/1500k is a 4.4% SWR.
$6412 taxes owed.
Example 2 Income needed is 60k. Portfolio value of 1.5 M. This portfolio is divided among taxable accounts which produce dividends ($750,000 with a 3% yield) and tax deferred account worth $750,000.
Taxes:
$750,000 yields 3% ($22,500). Taxes on this are 5% ($1125)
Tax deferred $750,000 has balance withdrawn (43000 withdrawn, 17900 exemptions, $2962 taxes paid)
Income: $22500+43000=$65500
Taxes paid: $1125+$2962=$4087
4087/65500=6.2% taxes paid
65.5/1500=4.3% SWR
$2962 taxes paid (half the first example).
Example 3: Income needed is 60k. Portfolio value of 1.5 M. This portfolio is mostly in a taxable account ($1.4 M) which produce dividends with a 3% yield, with the balance ($100k) in a tax deferred account.
Yield is 3%* $1.4 M=$42000.
Taxes owed is $2100 on the dividends.
Balance of needed income (20k) is from the tax deferred accounts. The standard exemption and personal exemptions ($17,900) make this effectively tax free. I have $21 taxes owed (10% of $2100).
Income is $42000+$20000=$62000
Taxes owed are $2100+$21=$2121
62/1500=4.1% SWR
2121/62000=3.4% taxes paid
Do I see the trend right-
As the amount from dividends and taxable accounts increase, the taxes owed and withdraw rates actually DECREASE? Or is there something obvious I am missing?
Thx
Example 1: Income need is 60k. Taxes married filing jointly. All money is in tax deferred accounts. Portfolio value is $1.5 M.
Taxes owed on 66k would be:
Exemptions $10,900 (standard exemption) plus 2 personal exemptions ($7000) is $17,900.
66k-17.9k=$48.1k Taxes owed on $48.1k is $6412.
5512/66000=8.3% taxes paid
66k/1500k is a 4.4% SWR.
$6412 taxes owed.
Example 2 Income needed is 60k. Portfolio value of 1.5 M. This portfolio is divided among taxable accounts which produce dividends ($750,000 with a 3% yield) and tax deferred account worth $750,000.
Taxes:
$750,000 yields 3% ($22,500). Taxes on this are 5% ($1125)
Tax deferred $750,000 has balance withdrawn (43000 withdrawn, 17900 exemptions, $2962 taxes paid)
Income: $22500+43000=$65500
Taxes paid: $1125+$2962=$4087
4087/65500=6.2% taxes paid
65.5/1500=4.3% SWR
$2962 taxes paid (half the first example).
Example 3: Income needed is 60k. Portfolio value of 1.5 M. This portfolio is mostly in a taxable account ($1.4 M) which produce dividends with a 3% yield, with the balance ($100k) in a tax deferred account.
Yield is 3%* $1.4 M=$42000.
Taxes owed is $2100 on the dividends.
Balance of needed income (20k) is from the tax deferred accounts. The standard exemption and personal exemptions ($17,900) make this effectively tax free. I have $21 taxes owed (10% of $2100).
Income is $42000+$20000=$62000
Taxes owed are $2100+$21=$2121
62/1500=4.1% SWR
2121/62000=3.4% taxes paid
Do I see the trend right-
As the amount from dividends and taxable accounts increase, the taxes owed and withdraw rates actually DECREASE? Or is there something obvious I am missing?
Thx