Taxes
Taxes
Income taxes Tax basics
Effective and marginal tax rates
What is taxable? Pensions and annuities Other income Home sale gains
Paying taxes in retirement Withholding Estimated taxes
State taxes
Effective tax rate = Tax
Taxable income
Marginal tax rate = Rate applied to your last taxable dollar
Useful for figuring after-tax return
Basic concepts
See IRS Publication 575 - Pension and Annuity Income
What is taxable?
Your City pension
Deferred Compensation Plan distributions
Social Security
Home sale gains
Your City pension
Partially tax-free as return of your after-tax contributions
After recovery of after-tax contributions, pension is fully taxable
Deferred Compensation Plan
All distributions fully taxable in year received
No early-withdrawal penalties
Can be rolled over into an IRA
Three-year catch-up provision available within three years of retirement eligibility
Age-based catch-up available to employees 50 years of age
Rules on IRAs
10% federal penalty on withdrawals before age 59-1/2
2.5% California penalty
Must start withdrawing from an IRA by April 1 of year following age 70-1/2 according to formula
50% penalty on underwithdrawals in year following age 70-1/2 or later
Social Security Up to 85% may be taxable if income exceeds
certain level
Home sale gains
Exclusion available for capital gain Conditions
Owned home two of last five yearso Lived in home two of last five years o Have not used the exclusion in two-year period
ending on sale date
Amount Single: $250,000 Married: $500,000 (if both meet the “lived-in-it” and
“have-not-used” requirements; otherwise $250,000)
Paying your tax
Timely payment required
Penalty for late payment
Withholding
* Other percentages may apply to certain high-income taxpayers
Paying your tax
Estimated tax payments
No penalty if: Less than $1,000 owed at filing time 100% of previous year's tax amount paid* 90% of current year's tax paid
State taxes State income tax treatment
of retirement income varies Consult a local state tax
expert California income taxes
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LAFP4 FINPLN2006 2006 0818.ppt