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|Subject: Re: social security||Date: 3/21/2000 9:31 AM|
|Author: jensor||Number: 3047 of 19599|
Recently, I ran an anaylsis of the effect of taxation on a retire's SS income. And was that enlightening, especially when looking at the effect on one's marginal taxation rate.
For those who don't know what marginal rate is, it is the rate of taxation on the next dollar of income.
For retirees of relatively moderate incomes the marginal rate goes to a high of 52%! This means you only get to keep 48 cents out of the next dollar of income!
My analysis was based on 1998 tax rates, for a married retired couple age 63 and 66, with a SS income of $20K and the assumption that all income was classed as ordinary (that from an IRA or dividends, etc.).
For Ira income up to $22.5K, the marginal rate is 15%.
However at that point you begin to get hit with ss taxation and the marginal rate goes to 22.5%.
At about $33K of IRA income your total income is such that your marginal rate goes to about 28%.
When your IRA income reaches $43K puts you at an astounding 52% marginal rate. However when your IRA income goes above $48K you drop back to a marginal rate of 28% because at that point all 85% of your SS income has been taxed and they don't hit the ss income any harder than that.
Of course as your IRA income goes above that point you will get to the next tax bracket and there you go to 31% and as you go higher you progress through the published bracket rates.
If your income is LT capital gain instead of IRA, the marginal rate drops by 10%.
My point is that many people don't realize, how high the marginal rate can get, though temporarily, before dropping back to the bracket rate.
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