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I have DEFINED BENEFIT SUPPLEMENT ACCOUNT in the amount of 32,171. I am single and will retire at the end of May. How much tax can I expect to be taken out of this amount?
Asked by someone from Modesto, CA on 2/4/2017
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The defined benefit account is most likely to withhold a mandatory 20% for federal taxes, or $6,434. However, sometimes you can tell them what amount of federal and state taxes to withhold - and the amount that is withheld is not necessarily the amount you will owe!
The amount of taxes you will depends on all the items on our tax return - both income and deductions. If you had no other income for the year, then the $32,171 would be your gross income, you would get a standard deduction of $6,350 and a personal exemption of $4,050, resulting in taxable income of $21,771. The first $9,325 would be taxed at 10% ($932 of tax) and the next $12,446 would be taxed at 15% - ($1,866 of tax). The total tax owed would then be $2,798,
However, if you have other sources of income, your tax rate may be much higher! If you itemize deductions, you may have more deductions than in my example above.
Most retirement plans require mandatory tax withholding at 20% - as they don't know your tax rate. Then when you file your tax return, you either get a refund or owe more. It depends on how that income, combined with all your other income and deductions, works out on your return for that calendar year.
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