Originally Posted by
tennisguru
Also, as you mentioned the 12% tax bracket only goes up to a little over 75K of income (100k with deductions) and someone used to earning 400k+ a year and with 5-7 million in retirement income it's probably not going to live on that small of an income stream,-so realistically they will be at least in the 20% bracket if not higher, as some people have already mentioned. A lot of retirement advisers recommend planning on a 4% withdrawal rate. 4% of 5 million is 200k/yr.
Fair enough. I chose the 12% rate rather arbitrarily.
Let's assume a married pilot makes $339,000 per year. His top marginal tax rate is 24%. ($315,000 + $24,000 = $339,000)
It is important to note that the first dollar contributed to a traditional 401k gets him the full 24% income tax deduction, and the first $24,000 taken out of a traditional 401k in retirement is taxed at 0%. The next $19,050 ($24,000 + $19,050 = $43,050) is taxed at 10%. The next $58,350 ($43,050 + $58,350 = $101,400) is taxed at 12%. The next $87,600 ($101,400 + $87,600 = $189,000) is taxed at 22%.
$189,000 / 0.04 = $4,725,000
That pilot's tax burden in retirement from traditional 401k distributions is $24,000 * 0 + $19,050 * 0.10 + $58,350 * 0.12 + $87,500 * 0.22 = $28,157.
$28,157 / $189,000 = 14.9%