Retirement Income Calculator FAQ

How does the retirement income calculator determine tax liabilities from the IRA, 401(k), 403(b) and 457 plans?

This retirement income calculator uses a tax model that includes U.S. income taxes.   So, it taxes IRA withdrawals by taking a larger pre-tax withdrawal, so that the retiree receives the necessary after-tax retirement income from these accounts/plans.

How does the retirement income calculator determine tax liabilities from the Roth IRA, Roth 401(k) and Roth 403(b) plans?

There are no taxes on the these account withdrawals. 

How does the retirement income calculator determine tax liabilities from the brokerage account?

The brokerage account incurs income taxes from non-qualified dividends, pension and social security.  Then, the calculator reduces the sum of these three income sources values by any income tax they create.  Additionally, this account incurs taxes on qualified dividends from the stock-portion of the brokerage account. Thus, the calculator reduces the qualified dividends by any tax they incur. Lastly, sale of stock and bond holdings incur long-term capital gains taxes.    

The image below shows how these sources of income are modeled in our retirement calculator.

What are all of the retirement income sources? How does the retirement calculator tax these income sources?

Each year, there can be as many as five different groups of after-tax income.  They are:

  1. Bond dividends, pension and 85% of social security income: Taxed as ordinary income. 
  2. IRA, 401(k), 403(b) and 457 plan withdrawals, including any required minimum distributions (RMDs): Taxed as ordinary income.
  3. Qualified stock dividends: Taxed at the preferred capital gains rate. 
  4. Brokerage account withdrawals: Taxed as long-term capital gains based on their cost basis.  
  5. Roth IRA, Roth 401(k) and Roth 403(b) accounts and 15% of social security: Tax-free.

Does this model determine estate taxes?

At this time, our optimal retirement income calculator does not include the effect of estate taxes. As of 2020, only estates larger than $11.58 million might owe estate.

Does this model include state income taxes,?

At this time, our model does not include any estimate of state income taxes. All results are estimates of U.S. federal income taxes only. We use the input for the retiree and spouse’s state of residence to determine if a full or partial step up in costs basis for the taxable account applies for the surviving spouse.

What about the possible 3.8% tax on certain net investment income?

At this time, we did not include the potential for additional Net Investment Income Tax (NIIT) in this calculator. However, please contact us if you wish to see this feature in future model upgrades.

What about the income-related monthly adjusted amounts (IRMAA) to Medicare premiums?

Although not a tax, Medicare premiums are adjusted based on Adjusted Gross Income (MAGI). This calculator does not estimate what these additional premiums may be (if any).

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ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.