This is the chapter where we show you the insane consequence of IRA distributions and how it can lead to a doubling, tripling even quadrupling of your taxes.
We use Judy as the example. She is in the 22% tax bracket. But pays 32% MORE in taxes on an IRA distribution. How could this be?
Well, welcome to the insanity of the tax code, my friends. For middle and lower income taxpayers the tax code is absolutely stacked against you when it comes to IRAs.
Here’s why. For every $1 extra dollar you take out in IRAs you are not only adding that $1 extra dollar to your taxable income, you are also adding an extra 85 cents of income because of your Social Security benefits.
In real numbers, an extra $1 actually increases your taxable income by $1.85. And that is how someone in the 22% bracket pays 32%, or more, in taxes on IRA distributions.
Crazy isn’t it??? This is why I focus so heavily on provisional income. Because once you go over a certain provision, not only will your actual income be taxed but your Social Security will be as well. Again, $1 IRA distribution means you have $1 more as income plus 85cents of your Social Security will now be subject to taxes too.
Oh, it even gets worse. That extra $1 of IRA distribution could also increase your Medicare premiums AND make you pay tax on your dividends and capital gains, whereas before they were tax free.
$1 in extra income can hit you in 4 different places for increase taxes and premiums!
But hey, Congress will fix it, right? This can’t be allowed. Yeah, keep thinking that. Congress will do the least amount of work to raise the most revenue for the government as they can.
As long as people don’t gripe about the insanity of the tax code, Congress won’t act.
WHy don’t people gripe, you may be wondering? Because they don’t know what is going on. I didn’t know what was going on, myself, until some insurance agent told me back in 2011.
Frankly, I thought he was full of it but he insisted. So, I did some research and couldn’t’ believe it. He was right! But very few people were talking about this, even the professional tax people I follow.
Hardly anyone understood the ramifications. And thus the taxpayer didn’t either.
This is why I wanted to write this book to begin with, to be a Paul Revere of sorts about how the tax man is coming and he doesn’t play fair. He relies on your ignorance to take more of your money.
The fact you are here, reading and watching this though means you can no longer claim ignorance. Now you need to do something. and that is tell others.
Avoid the quadruple tax!