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That makes no difference on the tax rate on your earning up to the beginning of the next tax bracket. You'll pay higher taxes ONLY on the amount that EXCEEDS that level of taxable income. It's not going to increase your tax rate one cent on the amount BELOW the next tax bracket.
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Oh thanks. We were confused about that. If only the $6,000 is taxed, that's not so bad.
I seem to recall hearing about employees who got a raise only to then push them into a higher tax bracket, so eliminating any real gains. I was worried this might be the same thing....
We do look at the account once or twice a year. I should not have said "never", lol.
Thanks you-all. C-D is more helpful than a couple hours on Google!
Oh thanks. We were confused about that. If only the $6,000 is taxed, that's not so bad.
I seem to recall hearing about employees who got a raise only to then push them into a higher tax bracket, so eliminating any real gains. I was worried this might be the same thing....
We do look at the account once or twice a year. I should not have said "never", lol.
Thanks you-all. C-D is more helpful than a couple hours on Google!
most people of no clue about anything financial so the misinformation and myth that perpetuates is not surprising
Oh thanks. We were confused about that. If only the $6,000 is taxed, that's not so bad.
I seem to recall hearing about employees who got a raise only to then push them into a higher tax bracket, so eliminating any real gains. I was worried this might be the same thing....
We do look at the account once or twice a year. I should not have said "never", lol.
Thanks you-all. C-D is more helpful than a couple hours on Google!
This is made up numbers but the idea is correct.
Lets say you earn 10,000 and your tax rate is 10%. Your tax is 1,000
Lets say you earn 20,000 and the tax rate is 10%. Your tax is 2,000.
But lets say that if you earn more than 15,000 your tax rate goes to 20%
You do not pay 20% on the 20000 or 4000 in taxes,
Thus on the 20,000 you would pay 1500 on the first 15,000. 10%
Then you would pay 20% on the next 5,000 or 1,000.
Total tax is 2500. Not 4,000.
most people of no clue about anything financial so the misinformation and myth that perpetuates is not surprising
Yep. That's us. It doesn't help that my family considered money to be sacred and would not speak about it. My dad refused to discuss money and though affluent, never was in the stock market. We don't even know anyone in the stock market now.
Schools don't teach it until college, if you choose those courses.
Anyway, are you saying that the idea of someone being bumped into a higher tax bracket by a raise, is a myth?
This is made up numbers but the idea is correct.
Lets say you earn 10,000 and your tax rate is 10%. Your tax is 1,000
Lets say you earn 20,000 and the tax rate is 10%. Your tax is 2,000.
But lets say that if you earn more than 15,000 your tax rate goes to 20%
You do not pay 20% on the 20000 or 4000 in taxes,
Thus on the 20,000 you would pay 1500 on the first 15,000. 10%
Then you would pay 20% on the next 5,000 or 1,000.
Total tax is 2500. Not 4,000.
Yep. That's us. It doesn't help that my family considered money to be sacred and would not speak about it. My dad refused to discuss money and though affluent, never was in the stock market. We don't even know anyone in the stock market now.
Schools don't teach it until college, if you choose those courses.
Anyway, are you saying that the idea of someone being bumped into a higher tax bracket by a raise, is a myth?
The myth is that it’s a huge problem.
As others have already addressed, the higher bracket tax rate only applies to the earnings within that bracket. The lower bracket rate(s) apply to the income in the lower brackets.
Yes, DH brought that up, since right now we teeter on the knife-edge of another tax bracket.
(Edit...just saw this first paragraph has been addressed) It's a misconception that you can be pushed into a higher tax bracket and suddenly have a higher rate apply to all of your income. The higher rate only applies to the amount above that tax bracket cutoff.
You should pay off the card as it's almost certainly at a higher rate than your investments are bringing. And, really, your investments would need to be a good amount higher since you pay taxes on investment income, meaning your alternative investment scenario needs to be even better.
We've never withdrawn above our 4% in the several years we've had the account. That is automatic, we don't even look at the account.
But today I did, and saw it was about $6,000 over the original principal. We have a one-time CC debt of that much (we usually pay it all off every month). Would there be any reason not to take that 6 grand out since we won't be touching the principal? I'd rather not pay interest on this one-time debt.
I read several articles about withdrawing, but they all referred to liquidating an account, not a small one-time withdrawal. This is a managed Fidelity-type account. 60% bonds, if that makes any difference.
The only concern would be if you have to pay tax on the $6k. If it doesn't push you into next bracket would be fine.
Second concern is if you are forced to do any withholding on the $6k. If you take 10% could be $600. So you end up depositing $5,400. Some may do this for estimated taxes. Could be a problem if you need $6k to cover the debt.
Big concern over why you need to withdraw to make CC payment. Maybe this could have been planned better? If this was emergency maybe you need fund large enough to cover the debt. Depending on the card with $35-$40 in late fees + 20% to 40% interest yes pay the CC ASAP.
The OP mentioned they've had the account "several years". Most likely they are selling holdings that were purchased more than one year ago. If so, they would pay long-term capital gains taxes on the growth. The long-term capital gains tax rate is no greater than 15% for most people. Lets say that the shares doubled in value in 3 years. The cost-basis for the $6000 was $3000. This means they would pay 15% on $3000 which is only $450. I doubt their taxes would be more than that.
Oh thanks. We were confused about that. If only the $6,000 is taxed, that's not so bad.
I seem to recall hearing about employees who got a raise only to then push them into a higher tax bracket, so eliminating any real gains. I was worried this might be the same thing....
We do look at the account once or twice a year. I should not have said "never", lol.
Thanks you-all. C-D is more helpful than a couple hours on Google!
People that say that are not truthful.
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