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Forum
-> Household Management
-> Finances
amother
OP
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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?
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amother
Cinnamon
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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
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amother
Valerian
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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/
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amother
OP
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Thu, Feb 01 2024, 7:47 pm
amother Valerian wrote: | 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/ |
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.
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amother
Cinnamon
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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
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stillnewlywed
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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
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amother
Electricblue
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Thu, Feb 01 2024, 8:16 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. |
Correct. That's the point of 401k
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amother
Oldlace
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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
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amother
Yolk
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Thu, Feb 01 2024, 10:06 pm
amother Oldlace wrote: | 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 |
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
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amother
Jetblack
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Sat, Feb 03 2024, 7:48 pm
amother Oldlace wrote: | 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 |
You can do a backdoor roth.
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