Question for accountants

amother

Thu, Feb 01 2024, 7:34 pm

I am currently in a very high tax bracket but assume once I’m retired and withdraw money from my 401k I will be in a much lower tax bracket. Does that make sense? If I’m retired and not earning anything from my job, only from investments, will the money I withdraw from my 401k at that point be taxed at a much lower rate?

Is there any way to calculate now what that rate will be then?

amother

Cinnamon

Thu, Feb 01 2024, 7:35 pm

Yes that makes sense

Unless you have a lot of investments etc

The goal is to create even higher income during retirement but not everyone can or does

amother

Valerian

Thu, Feb 01 2024, 7:42 pm

High tax bracket doesn’t mean all your money is taxed at the higher rate, it goes in tiers. It’s almost always worth making more money so I’m not sure what your question it.
You can see what I mean by the tiers here.
https://www.hrblock.com/tax-ce...../amp/

amother

Thu, Feb 01 2024, 7:47 pm

amother Valerian wrote:

I understand what marginal vs average tax rates are.

My question was, if I’m taxed at about 40% now because I’m currently in a very high tax rate, will I be taxed at a lower (say, 20%) tax rate when I withdraw my money from my 401k when I retire because once I’m retired and not earning a huge income (aside from the minimal amount I earn from invested money)
I will fall into a significantly lower tax bracket. I’m assuming that (I’ll pay the lower tax rate when I withdraw the money) but want to confirm that.

amother

Cinnamon

Thu, Feb 01 2024, 7:49 pm

Yes of course
Taxes are based on the income that year

Roth IRA not taxed upon distribution

Regular IRA is taxed as income not long term capital gains

stillnewlywed

Thu, Feb 01 2024, 7:55 pm

amother OP wrote:

I understand what marginal tax rates.

My question was, if I’m taxed at about 40% now because I’m currently in a very high tax rate, will I be taxed at a lower (say, 20%) tax rate when I withdraw my money from my 401k when I retire because once I’m retired and not earning a huge income (aside from the minimal amount I earn from invested money)
I will fall into a significantly lower tax bracket. I’m assuming that (I’ll pay the lower tax rate when I withdraw the money) but want to confirm that.

Yes you are correct

amother

Electricblue

Thu, Feb 01 2024, 8:16 pm

amother OP wrote:

Correct. That's the point of 401k

amother

Oldlace

Thu, Feb 01 2024, 9:01 pm

I wish they taught us all the tricks of bringing down the tax bracket using different loopholes. The very rich do that. You need a top notch accountant out there that I haven’t found yet.
Because your goal now should also be to try that in addition to 401k

amother

Yolk

Thu, Feb 01 2024, 10:06 pm

amother Oldlace wrote:

Tax brackets only affect the amount of money in that bracket. So if you’re making over 243k then your bracket would be 35% only for the money made over that amount. Anything under $243k is still taxed at 32/24 percent… bringing down your tax bracket doesn’t do much. You want to bring down your taxable income

amother

Jetblack

Sat, Feb 03 2024, 7:48 pm

amother Oldlace wrote:

You can do a backdoor roth.