How to factor in pre-retirement taxes
Income Lab offers tax calculations for and before retirement. However, there are a few extra steps needed in order to properly calculate pre-retirement taxes. In pre-retirement, you'll want to make sure that you list the pre-tax contributions as deducted from another income source (for example, from wages); otherwise, you won't see a difference in ...
What Determines which Strategy is Starred in the Tax Lab?
The Green Star (☆) tag on the Strategies list in the Tax Lab is placed next to the strategy that is estimated to have, over the life of the plan, the... Highest total net income Highest net legacy Lowest total taxes Lowest average effective tax rate The ranking is run in the order above. For example, #1 is equal across all strategies, so we move on ...
How do I include annuity Roth conversions in a plan?
Video: How to include an annuity Roth conversion in a plan Tutorial Transcript 0:00 Here's an example of how to include the Roth conversion of an annuity in a plan. In this case, I've made a really simple plan. 0:09 Typically plans will be more complex with some other income sources, but we just have a Roth IRA, and then we have an IRA annuity, in t...
Why are first year taxes so strange?
There are two things an advisor or client might want from tax estimates in the first year of their retirement plan: An accurate set of tax calculations, based on the actual timing of income and expenses A general feel for the net-of-tax income available in the plan, smoothing out the effects of one-time or lumpy spending and income Both of these are...
Why do I see mixed results in tax lab?
Tax Lab provides four ways to evaluate a withdrawal strategy. Average effective tax rate Total taxes paid Total net income Total net legacy While #1 and #2 will move together (if one is better or worse, the other will be too), #4 can sometimes move in an opposite direction, especially when running a "How can I spend $X, net of tax?" plan. You may se...
How Should I Read the Income Graph in Tax Lab 'Explore'?
In the Tax Lab's Explore section, the Income tab shows the estimated amount of income of each type for each year in the plan.\ This tab includes a 'Tax Brackets' graph, which shows how those types of income 'stack up' in the Federal ordinary and long-term capital gains tax brackets. In the US tax system, the tax bracket and amount of tax paid on...
How to Generate a Report Snapshot in the Tax Lab
Use this guide to help you find how to generate a report snapshot in the Tax Lab. Navigate to your Tax Lab and select the Settings box in the upper-right side of the screen, then click on Generate Report. Use the drop-down menus to select what you would like to include in the report. Once you have the selections, select Download Report t...
How to Set an Annual Cap on Roth Conversions
Watch the video below for a tutorial on how to set an annual cap on Roth conversions using Income Lab. Video: How to Set an Annual Cap on Roth Conversions - Income Lab Tutorial Video Transcript 0:00welcome this video will walk you through0:02how to put an annual cap on Rob0:04conversion this is useful in situations0:06where you're running Rob co...
Why are the Taxes in My Plan So Low?
Sometimes, a plan has some years where, despite a fairly high total income, the estimated taxes for that year are quite low. This can be surprising if you're just looking at the bottom-line numbers and not seeing the makeup of the income in that year and the complexities of the tax system. Here are a few reasons you may see lower-than-expected taxes...
Tax Lab - Tax Filing Status and Standard Deduction
Income Lab’s Tax Lab models tax results using the standard deduction based on household members: Single (1 household member) Standard deduction: $14,600 If age 65 or older: an additional deduction of $1,950 Married Filing Jointly (2 household members) Standard deduction: $29,200 If age 65 or older (per spouse): an additional deduction of $1,550 Impo...
Putting a 'floor' on tax deferred balances for Roth conversions
This article will walk through how to put a "floor" on tax-deferred balances when modeling Roth conversions or "tax-ordered" withdrawals. Video: Putting a 'floor' on tax-deferred balances for Roth conversions Video Transcript hello everyone just wanted to go over a 0:02 new feature we have um it's in advanced 0:06 settings in the taxes tab you can...
What sorts of taxes are analyzed in Income Lab?
As with everything on the Income Lab platform, we seek maximum accuracy and realism in our tax calculations and analysis. That means that all Federal and state income taxes are calculated as they currently apply. Income Lab uses the most recent set of complete tax documents to guide our calculations. This usually means taxes are calculated according...
What Columns are Included in the Tax Lab Income Details Table?
In the Explore section of the Tax Lab, the Income Details table provides an annual breakdown of total income, categorized by income source and its taxability. Below is a comprehensive list of the columns, along with a brief explanation of what the software calculates in each column. Non-Taxable Social Security - Social Security income that is not su...
What is Total Net Legacy?
Total Net Legacy is the ending portfolio balance, less the taxes due upon the lump sum distribution of each account, to a 50-year-old couple. Therefore, taxable accounts receive a step-up in basis, Roth accounts are not taxed, and tax-deferred accounts are taxed as ordinary income. The ending portfolio balance reflects the average expected portfolio...
Customizing Years for Roth Conversions
Video: Customizing Roth Conversions Tutorial Video Transcript welcome this video will walk through how 0:03 to customize the years in which Roth 0:05 conversions are allowed in your income 0:07 lab plan 0:08 from the main plan dashboard of the plan 0:10 you're working on find the advanced 0:12 settings by clicking the three dot icon 0:14 Serum at th...
How Bracket Management Roth Conversion Strategies Work
How do Bracket Management Distribution Strategies work for Tax Planning? Income Lab plans can have portfolio distribution plans set to: Pro-Rata Order by Tax Treatment (e.g., "Taxable, Tax-Deferred, Tax Free") Bracket Management (i.e., include Roth conversions when possible up to the specified bracket) For more information on how to select or change...
How do Roth conversions work in preretirement?
By default, an Income Lab plan with Roth conversions (bracket management) will only allow Roth conversions once the income plan has begun. Pre-retirement years won't contain Roth conversions unless you explicitly allow them by going to the plan's Advanced Settings > Taxes section and clicking Specify years when Roth conversions are allowed . Nex...
How does Income Lab calculate where taxes will be paid from for Roth Conversions?
Taxes are assumed to be paid first from non-portfolio sources, if there are any (earnings, rental income, Social Security income, etc.), then from taxable accounts, then from tax-deferred accounts. In the final case, either withdrawals are grossed up to cover taxes or the amount actually converted to a Roth is less than it might otherwise have been ...
How does Medicare IRMAA bracket management work?
Video: Introduction to IRMAA Bracket Management in Tax Lab Video Transcript we're really pleased to announce the 0:02 addition of Irma bracket management to 0:05 tax lab in income lab Irma is an 0:08 additional amount paid for Medicare 0:11 Parts B and D premiums based on the 0:16 amount of uh modified adjustable gross 0:19 income somebody has so ...
Local Taxes
In some scenarios, you'll need to factor in additional local or municipal taxes your client has based on where they live. Follow the steps below to add local taxes to a plan. This is not intended for state taxes. The software will automatically calculate state taxes based on the state of residence you select on the plan info page. From the plan da...
What tax deductions can be included in a plan?
When producing tax estimates, the Income Lab app includes the following types of deductions, which reduce the amount of income subject to Federal ordinary and/or long-term capital gains tax. Standard deductions, including age 65+ additional standard deductions Itemized deductions, including 5-year carry-forward deductions Deductions from earned inco...
Why are real and nominal total effective tax rates different?
In the Tax Lab, the 'Effective Total Tax Rate' for a plan either in a given year or for all years of the plan is calculated as: Effective Total Tax Rate = Total Tax / Total Gross Income Total tax is taxes from all sources, including excess Medicare premiums due to IRMAA (but not base Medicare premiums that are not income-level related). Total Gross ...
Tax Lab Video Tutorial
Video: New Tax Lab Tutorial Video Transcript welcome this video will walk you through 0:03 the new income lab tax lab the the new 0:06 updates in the income lab tax lab are 0:08 meant to streamline your tax planning 0:11 and make it easier than ever to compare 0:13 and analyze the impact of different Tax 0:15 Strategies in your plans to find the t...
Modeling Net-of-Tax Spending Capacity in Income Lab with Roth Conversions
Understanding the difference between gross and net-of-tax income is one of the trickiest parts of retirement planning. Fortunately, Income Lab makes it easier to answer the real-life question: “What can I actually spend?” Unlike other tools that score your spending goals, Income Lab helps you build a plan that directly targets net-of-tax spending. W...
How are tax calculations adjusted for inflation when projected into the future?
Each year, certain income tax amounts and thresholds are adjusted for inflation by the US Federal government (and certain states, if the state has personal income tax). Since future inflation adjustments are not known ahead of time, Income Lab software projects these future tax values in a plan using the plan's assumed inflation rate(s). However, n...
What tax filing status options does Income Lab cover?
Any Income Lab plan with only one person in it will automatically be modeled as subject to ‘Single’ tax brackets, and any plan with two people in it (a joint plan) will be modeled as subject to ‘Married Filing Jointly’ tax brackets. If one person in a joint plan has a specified date of death before the end of the plan, then the modeled tax brackets ...
How does Income Lab model state income tax?
Personal income tax at the state level can be a very important part of some retirees' expenses. Income Lab strives to model all state personal income tax structures that are likely to affect retirees and workers. This includes correctly modeling tax rates, thresholds, deductions, and exemptions, especially as they relate to retirement income. While ...