AssetBuilder Inc. Registered Investment Advisor - Simple Investing. Smart Future.

The villain in this is not the IRS, it is the Congress of the United States. The IRS is just a collecting agent for the tax laws they pass.
 
How much anyone is affected depends on their marital status and retirement income beyond Social Security. If it is expensive, they will pay taxes on up to 85 percent of their SS benefits. Younger people will be affected even if they have less retirement income from savings because their Social Security benefits will be nominally higher in dollars but not higher in real purchasing power.

I read your column in my On Demand from Sprint but I think you ignored the appreciation on the employer's matching contributions.  Since this is free money to the employee, you have not offset the future tax paid by the free after tax appreciation.  Shouldn't that be part of the equation?

posted from email 

 Both the employee and the employer contributions will appreciate
(assuming the employer isn't Enron). That affects the final dollar figure
but it doesn't affect the apportionment of dollars in and dollar out.

I enjoyed your article very much, but can you define the four levels you refer to, in other words what defines level 1 etc.

 

Thank you for your help

 

Jim

 

posted from email 

  Each level is related to a combination of (1) portion of SS benefits that become taxable per dollar of additional income from other sources and (2) the income tax rate that will be applied. Whether benefits are taxable is determined by the formula for Modified Adjusted Gross Income.  If you reverse it, you get this for the threshold:  SS benefits become taxable at= $32,000 less ½ SS benefits (joint return). 

 

Level	SS Benefits Taxed	Tax on income	effective marginal tax rate
1	zero	15%	15%
2	50 Cents	15%	22.5%
3	85 Cents	15%	27.75%
4	85 Cent	25%	46.25%

 I have shared your article regarding the IRS and 401(k) with my husband and he has asked me to ask you a question.  In the article you mentioned "Four Levels."  Do you know at this time and/or future what the dollar criteria are for each of the four levels.  I presume this is how you determine your placement and I presume this is done using your "gross" income including our retirement income and adding social security when we are of age.  Thank you for your time.  We are considering a lifestyle change and are not sure if now is a good time financially to switch gears or keep doing what we are doing.
 
Regards,
Reta

 

posted from email 

Reta,

                The four levels are a moving target because our tax brackets are indexed to inflation. What we can generalize is that young workers will pay at higher rates because their Social Security benefits will be subject to taxation earlier than current retirees.

Scott