Re: how to compare living standards

On Tue, 18 Apr 2006 13:36:47 -0400, "tonyp" <tonyp@xxxxxxxxxxxxx>
wrote:

"William F Hummel" <wfhummel@xxxxxxxxxxx> wrote

Regarding the overall tax rate on IRA distributions,
the figure of 80% you were quoted is quite unrealistic.
That would obtain if you pay the maximum income tax
rate of 35% on your IRA distributions and your heirs
pay the maximum estate tax rate of 47%, totaling 82%.
To be in that tax bracket your taxable income
would have to be over $88,000 (filing jointly),
and your estate on the death of the second spouse
would have to exceed the exemption limit (currently $2 million)
by $2 million. That is, your estate would have to be worth
more than $4 million.


William, where does your $88K come from? According to the tables in my 2005
IRS booklet, the 35% rate does not kick in until $319K of income.

You are right, Tony. In the tax rate schedule on pg 82, I carelessly
mis-read the tax itself for the taxable income. My 2005 1040 booklet
shows the 35% marginal tax rate starting at a taxable income of
$326,450. If the tax tables show the break to be at $319K, I'll use
the tax rate schedule for my income tax report, due yesterday :-)

Also, minor nit: a tax of 47% after a tax of 35% does not "add up" to 82%.
It results in about 65% of the original money being taken in tax.

Yes, again you are right. That makes the letter from TIAA/CREF that
Jim referred to even more unrealistic. How can his IRA distribution
ever suffer a marginal tax rate (including estate tax) as high as 80%?
I suspect that the writer used the same simplified arithmetic that I
did.
.

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