1 / 5

The simple math can sink your 401K

How much do you need to withdraw to net $100,000 if you are in a 30% tax bracket? Most people answer $130,000 70% of $130,000 is $91,000 or $9,000 short The formula is $100,000 / (1-tax rate)……… $100,00/(1-.3) $100,000/.7 = $142,857 or $12,857 more than most think So to Net $100,000 you need to withdraw $142,857 And it gets worse

bryandaly
Download Presentation

The simple math can sink your 401K

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The simple math can sink your 401K The Math Not Taught in School How the math not taught in school could cause you to run out of money

  2. The Math that will Sink 401k • How much do you need to withdraw to net $100,000 if you are in a 30% tax bracket? • Most people answer $130,000 • 70% of $130,000 is $91,000 or $9,000 short • The formula is • $100,000 / (1-tax rate)……… $100,00/(1-.3) • $100,000/.7 = $142,857 or $12,857 more than most think • So to Net $100,000 you need to withdraw $142,857 The Math that will Sink 401k • How much do you need to withdraw to net $100,000 if you are in a 30% tax bracket? • Most people answer $130,000 • 70% of $130,000 is $91,000 or $9,000 short • The formula is • $100,000 / (1-tax rate)……… $100,00/(1-.3) • $100,000/.7 = $142,857 or $12,857 more than most think • So to Net $100,000 you need to withdraw $142,857

  3. Tax Torpedo • Income from Qualified Plans that exceeds certain modest levels triggers a “tax torpedo” that subjects up to 85% of Social Security benefits to taxation. • The “tax torpedo” refers to the hump — that is, the steep increase and then decrease — in the marginal tax rate as the rate rises to 50% and then tops out at 85%, even as income continues to increase. Tax Torpedo • Income from Qualified Plans that exceeds certain modest levels triggers a “tax torpedo” that subjects up to 85% of Social Security benefits to taxation. • The “tax torpedo” refers to the hump — that is, the steep increase and then decrease — in the marginal tax rate as the rate rises to 50% and then tops out at 85%, even as income continues to increase.

  4. Tax Torpedo Taxation of Tom and Mary’s Social Security • ½ Social Security Benefits $30,000 $15,000 • Annual QP distribution $40,000 • % of Social Security tax 85% • 85% x $30,000 $25,500 • Extra Tax (25% rate) $6,375 • To net $6,375 and extra $9,107 must withdrawn each year from the QP just to pay the extra taxes QP = Qualified Plan: 401k, IRA, SEP, Keogh, 457 etc. Tax Torpedo Taxation of Tom and Mary’s Social Security • ½ Social Security Benefits $30,000 $15,000 • Annual QP distribution $40,000 • % of Social Security tax 85% • 85% x $30,000 $25,500 • Extra Tax (25% rate) $6,375 • To net $6,375 and extra $9,107 must withdrawn each year from the QP just to pay the extra taxes QP = Qualified Plan: 401k, IRA, SEP, Keogh, 457 etc.

  5. It gets worse • So to net the $100,000 • Tax $142,000 + $9,107 for the tax torpedo • $151,107 to net $100,000 in a 30% tax • If tax was rate goes to 60% you need to withdraw more than • $250,000 to net $100,000 It gets worse • So to net the $100,000 • Tax $142,000 + $9,107 for the tax torpedo • $151,107 to net $100,000 in a 30% tax • If tax was rate goes to 60% you need to withdraw more than • $250,000 to net $100,000

More Related