No. of Recommendations: 0

You effective retirement tax bracket could be higher than you are expecting.

Thanks for the link! I've never fully understood how SS income is taxed.

Looking at the table for married couples, I thought I would calculate a total effective tax rate with $34k of SS income and the worst case marginal tax income of $54,919.

At $34k of SS income, you would pay no taxes. HR Block tells me that you would pay a total of $8,575 on the total income of $88,900 that the table shows. If I understand correctly, I'd pay an effective tax rate of 8575/54919 = 15.6% on the $55k of income beyond SS. Above that income amount, the marginal tax rate shown in the table is 25%.

This reinforces my opinion that a traditional 401k/IRA is likely to be better tax wise than a Roth if your current marginal tax rate is 25% or higher, particularly if you expect to have little income outside of SS and investments.

OTOH, tax rates are not set in stone and it's beneficial to have a mix of Roth and traditional funds to draw from.

Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.