Ask an Advisor: With $800k in a 401(k) and $5,270 Monthly Income, What's My Tax Burden in Retirement?

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Brandon Renfro, CFP®

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Financial advisor and columnist Brandon Renfro

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My monthly Social Security is $3,178, my pension volition beryllium $2,090 per period and my 401(k) has $800,000. If I usage the 4% rule, wherever bash I basal tax-wise?

– Reggie

This is simply a large question. I anticipation it goes without saying, but without having each of your accusation and completing a afloat taxation instrumentality I can’t springiness you an nonstop number. What we sermon present volition screen the large items to assistance you estimation a unsmooth ballpark fig of your taxation liability. I inactive promote you to bash your probe and modify the estimation to acceptable your unsocial circumstances oregon enactment with a taxation professional.

Do you request assistance calculating your taxation liability successful retirement? Speak with a fiscal advisor today.

Start by adding up the components of your income that are taxed arsenic mean income. In your case, that would beryllium your pension and 401(k) withdrawals.

Since you person $800,000 successful your 401(k) and program to retreat 4% successful your archetypal year, you’ll person $32,000 successful income from your 401(k). Your pension volition wage you $2,090 per period oregon $25,080 for the year. These 2 items unneurotic adhd up to $57,080. (And if you request much assistance managing your taxes successful retirement, see speaking with a fiscal advisor.)

You whitethorn person to see a information of your Social Security successful your taxable income. Unfortunately, calculating however overmuch isn’t arsenic straightforward arsenic adding up your different types of income. But there’s bully news: you’ll ne'er person to wage taxes connected 100% of your benefits.

You’ll request to cipher what the Social Security Administration (SSA) calls your “combined income.” To bash this, you’ll adhd your adjusted gross income (AGI), immoderate tax-exempt involvement that you’ve collected and one-half of your Social Security benefits together.

For you, I’m assuming you person nary above-the-line deductions oregon adjustments to income (though you may) truthful your AGI is $57,080 (reference signifier 1040). You didn’t notation immoderate tax-exempt involvement and fractional of your Social Security payment is $19,068. So, your combined income is $76,148 nether these assumptions. (Planning for Social Security is critically important and a fiscal advisor tin help.)

A antheral who's approaching status looks implicit his finances to estimation however overmuch his taxes volition be.

Admittedly this adjacent portion is complicated, truthful buckle up. Assuming you’re azygous since you didn’t notation immoderate spousal benefits, the pursuing income thresholds volition find however overmuch of your Social Security benefits are taxable:

If your combined income is betwixt $25,000 and $34,000, up to 50% of your benefits whitethorn beryllium taxable.
If your combined income is much than $34,000, up to 85% of your benefits whitethorn beryllium taxable.