to their right pocket. At the end of 10 years, wouldn’t they have approximately $20,000 of cash value? And the death benefit reimburses the family for the income taxes paid when the money is inherited wouldn’t that mean that the parents or grandparents discovered a way to transfer ALL their money rather than only after-tax money? Finally, this is double under many more circumstances. If one person is over age 65 and one is under age 65, the rule becomes the rule of 48-10. If both are under 65, the rule becomes the rule of 46-10. Think about this; what if a couple over age 65 with an income of $43,000 could take $5,000 of fully taxable money out of an IRA or 401(k) or gains on an annuity and only pay an effective tax rate of 4.2 percent or $252 per year or additional tax. Because they are younger, could they create more death benefits? Would that be better than creating more fully taxable income in a 401(k) or IRA? Most people truly do not understand tax deferral. Based on everything that is happening in our economy, aren’t people who are tax deferring creating an income tax time bomb for themselves in the future? Now, let’s discuss the rule of 112-12 for a married couple filing a joint income tax return where both are over the age of 65. How do we arrive at this rule. The Standard Deduction $28,700 The Entire 10 percent Income Tax Bracket $20,550 The Entire 12 Percent Income Tax $63,000 Total $112,250 The marginal tax bracket is 12 percent. The effective tax bracket is 8.57 percent. We arrive at that by dividing the income tax of $9,615 on $112,250, and we arrive at an effective tax of 8.57 percent. According to Wage Statistics provided by Social Security, 91 percent of Americans make less than $112,000 annually. So, with both people over age 65, the rule is 112-12. For one person over age 65 and one under age 65, the rule becomes 111- 12 because there is only one person over age 65. If both are under the age of 65, the rule becomes 109-12. Why? Because they lose $1,400 of the standard deduction for each person, both over 65.
54
Made with FlippingBook. PDF to flipbook with ease