Author Topic: Tax Treatment of Projected Retirement Cash Flow  (Read 1631 times)

The Mobile Mustachian

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Tax Treatment of Projected Retirement Cash Flow
« on: March 01, 2014, 10:35:57 PM »
Hello everyone,

This is my first post on the site. I've gleaned a lot of very helpful information and would appreciate your thoughts on my question. I'm currently 28 and these figures would be applicable when I am 38 years old. I am also married. I've put together a projected analysis of my retirement cash flow at 38. Is my tax treatment of these items accurate? I would love it if there was a way to minimize the tax on the items I'm thinking are going to be taxable.

Traditional 401K $25,867 Long-Term Capital Gains and Dividends (0% Taxable)
Traditional IRA $7,221 Long-Term Capital Gains and Dividends (0% Taxable)
Lending Club $17,766 Taxable as Ordinary Income (15%)
Taxable Brokerage $3,200 Long-Term Capital Gains and Dividends (0% Taxable)
Rental Income $19,200 Taxable as Ordinary Income (15%)
Part-Time Work $5,000 Taxable as Ordinary Income (15%)
Total Pre-Tax Income: $78,495
Total Taxes: 17,766 x .15 + 19,200 x .15 + 5,000 x .15 = 6,294.90
Total Post-Tax Income: $72,200.10

Associated Calculations
AGI = 78,495 - 12,200 - 7,800 = $58,495

Thank you very much for your feedback.

MDM

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Re: Tax Treatment of Projected Retirement Cash Flow
« Reply #1 on: March 01, 2014, 11:04:33 PM »
Ummm...you may need to rethink a few things about your 401K and IRA.  E.g. see http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/401(k)-Resource-Guide---Plan-Participants---General-Distribution-Rules and http://www.marketwatch.com/story/understanding-taxes-on-ira-withdrawals-2014-02-04

Offhand the rest look ok - you have your tax brack (15%) correct - at least according to current law.

The Mobile Mustachian

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Re: Tax Treatment of Projected Retirement Cash Flow
« Reply #2 on: March 01, 2014, 11:39:18 PM »
MDM,

Sorry, I forgot to mention something important: I will be doing a laddered Traditional 401K and Traditional IRA to Roth conversion as I get closer to 38 so I can withdraw the funds earlier.

Thanks

Cheddar Stacker

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Re: Tax Treatment of Projected Retirement Cash Flow
« Reply #3 on: March 02, 2014, 09:27:34 AM »
I believe what MDM is trying to tell you (and if he's not, I am) is that while the income your 401K and TIRA generate via cap gains and dividends is not taxable, your conversion of those funds to Roth IRA's is taxable at ordinary rates.

So the earnings in those accounts are irrelevant to taxes (and therefore don't count towards your AGI), but the conversions are taxable at your ordinary tax rate which will likely be 15% based on the data you provided. Make sure your conversions are low enough that they don't push you into the 25% tax bracket.

Disclaimer - All of this is based on current law which will no doubt change somewhat in the next 10 years.