Let's look first at a couple where both people are over age 65. Their standard deduction is $32,700. If you add the 10 percent bracket of $23,200 to the standard deduction of $32,700, the total the standard deduction is $55,900. If you add the 12 percent bracket of $68,550 to the standard deduction of $55,900, that couple can make $124,450 of taxable income and be in the 12 percent marginal tax bracket. Why? The first $29,700 has no income tax on it. The next $23,200 has only a 10 percent tax rate on it. The next $68,550 has only a 12 percent tax rate on it. The effective tax rate on the $124,450 is only 4.22 percent. Why? The first $32,700 has no income tax liability. Here are some examples of how this rule would apply to half of America or more. According to Wage Statistics provided by Social Security every October, 50 percent of Americans make less than $34,000. 87 percent of Americans make less than $53,000. First Example: Many Americans live on their Social Security alone. The average Social Security for a married couple is $32,000. This couple could withdraw $17,000 of fully taxable income from their IRA 401(k), 403(b), 457 Plan, savings, from annuities, capital gains, etc. and first, not cause their Social Security to become taxable and second, eliminate the income tax liability on that $17,000 forever. The $17,000 could be reallocated to an annual premium life insurance or a single premium life insurance, an annuity if the customer is not insurable. If they did that for 5 years, they could eliminate taxation forever on $85,000. If they did this for 10 years, they could eliminate taxation forever on $170,000. Isn’t it true that if the husband and wife wait until they die, and the children and grandchildren inherit in a lump sum they could lose 30% of the $85,000 or $170,000? Doesn’t that save the family $25,000 to $50,000 in income tax? How do I know the children or grandchildren will take the money in a lump sum? Statistically, this information is true. Think about it. Even lottery winners take the money in a lump sum, even with excessive taxes.
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