Retirement Tax Graph

This tax graph helps you see the impact of taking income in retirement. As you add ordinary income, such as withdrawals from a pre-tax IRA, your taxes may change in surprising ways. This tool can be one way (among others) to evaluate the impact of spending from your IRA or converting pre-tax money to Roth.

Note: The tool might not load on some systems. You may have better luck with a different device or browser. Feel free to provide feedback here.

See important warnings below. You must verify the output before making any decisions or taking action!

Note: The Tax Graph tool is no longer available on this site after 2024. 

*Known Issues:

  • Social Security benefits of $1 to $9,000 can be problematic ($0 Social Security should be fine).

What You See

The tool is designed to show the impact of additional ordinary income—with emphasis on the word additional.

You likely have several sources of income in retirement. As you add ordinary income, other forms of income might be subject to additional taxation.

For example, as your income rises:

  • More of your Social Security might be included in your taxable income, sometimes known as the Tax Torpedo.
  • Long-term capital gains and qualified dividends might be taxed at higher rates, sometimes known as the Bump Zone.

Both of those effects can lead to higher “effective marginal” tax rates. You can read more about that concept from Pfau and Elasser.

Instructions

Scroll to the bottom of this page to watch a video demonstration with background information.

  1. Enter your filing status and be sure to note if you qualify for the higher standard deduction over age 65.
  2. Enter the total amount of Social Security benefit your household gets for the year.
  3. Enter any preferential income you expect (up to $25,000), such as qualified dividends or long-term capital gains.
  4. Consider how much ordinary income you’ll have, including withdrawals from pre-tax accounts, interest earnings in taxable accounts, and more. Note that number along the bottom axis. This is your baseline.
  5. Look to the right of that number, and decide if it’s worth taking additional income at the rates you see. Note any major inflection points.
  6. Double-check, and then triple-check the results by calculating your taxes.

There are several ways to verify the results, and it’s critical that you do so, as the output could be wrong or misunderstood. Several ways to do that include (among other options):

  • Discuss with your tax preparer or another tax professional.
  • Enter the proposed income amounts into your DIY tax preparation software.
  • Run some numbers with the Dinkytown 1040 calculator.

Important Information

This is not a tax calculation tool. It is for experimentation as you explore the impact of additional income. It has not been validated through extensive testing.

  • Healthcare costs may rise with higher incomes (IRMAA, ACA, etc.), and those levels are not accounted for.
  • State and other taxes may exist, and are not accounted for.
  • Other forms of income, deductions, penalties, credits, etc. may exist and cause increased or different taxation. As just a few examples, you might have interest from bank accounts or bonds in taxable brokerage accounts. It might not account for NIIT on some forms of income.
  • It won’t be entirely accurate at inflection points. Those changes can tell you where to pay attention and triple check, but don’t take them literally. It’s not necessarily the case that at this point every dollar cost you extra in taxes and if this next point every dollar cost you why in taxes. Instead, it puts some flagging out for you to maybe pay attention to these areas, giving you a hint that maybe this is an area to look into more closely
  • The tax graph (and any tools you use to double-check results) may be inaccurate, incomplete, malfunctioning, or horribly wrong. Use at your own risk, and triple-check with resources that you know with certainty are reliable.
  • The tax graph has not been through extensive testing/validation, so it is for experimentation and learning purposes only.

Use at your own risk. This cannot be the sole basis for making important financial decisions. It’s just an oversimplified calculator. You may miss out on opportunities or take actions that you later regret—with severe financial consequences—if you simply follow what the tool shows. Additional analysis is required.

See a demonstration of this tool and learn more about the topics via this YouTube video.