Retirement Calculator Tax Treatment
Purpose
The Retirement Calculator can estimate simplified federal income tax so a scenario can be modeled on a more realistic after-tax cash-flow basis. The feature is designed to make tax assumptions visible, not to replace tax software, accounting advice, or professional tax strategy.
Tax treatment can be enabled or disabled in the calculator Profile tab. When disabled, the calculator preserves the pre-tax calculation behavior.
What Is Modeled
- Filing status: Single and Married Filing Jointly.
- 2026 federal ordinary income brackets and standard deduction.
- 2026 federal long-term capital gains and qualified dividend brackets.
- Taxable Social Security benefit rules using provisional income.
- Ordinary-income treatment for wages, pensions, traditional 401k withdrawals, traditional IRA withdrawals, and interest-like income.
- Qualified, ordinary, or federally tax-exempt dividend/yield classification by asset type, with a user override available on investment accounts.
- Simplified taxable brokerage capital gains using the user-entered unrealized gain percentage.
- Tax paid as a cash-flow item in April of the following projected year.
What Is Not Modeled
The current version intentionally excludes state taxes, payroll taxes, itemized deductions, credits, AMT, NIIT, IRMAA, Roth conversion optimization, RMDs, tax-loss harvesting, age 65+ additional deductions, temporary senior bonus deductions, and lot-level taxable-account cost basis.
Filing Status And Standard Deduction
| Filing Status | 2026 Standard Deduction |
|---|---|
| Single | $16,100 |
| Married Filing Jointly | $32,200 |
Income Stream Treatment
| Calculator Stream | Federal Treatment |
|---|---|
| Recurring monthly income | User selectable: ordinary income or tax-free. |
| One-time income | User selectable: ordinary income or tax-free. |
| Pension income | Ordinary income. |
| Social Security | Partially taxable ordinary income using provisional-income rules. |
| Traditional 401k and IRA withdrawals | Ordinary income. |
| Roth IRA withdrawals | Non-taxable. The model assumes qualified Roth distributions. |
| Taxable brokerage dividends | Qualified, ordinary, or federally tax-exempt based on asset classification. |
| Taxable brokerage sales | Long-term capital gains using the account's unrealized gain percentage. |
| Cash withdrawals | Non-taxable return of cash. Cash-account interest is not modeled separately. |
Social Security Taxation
Social Security benefits are taxed based on provisional income:
provisional income = AGI excluding Social Security
+ tax-exempt interest
+ 50% of Social Security benefitsThe calculator uses worksheet-style phase-in logic so taxable Social Security never exceeds 85% of annual benefits.
| Filing Status | 0% Taxable | Up To 50% Taxable | Up To 85% Taxable |
|---|---|---|---|
| Single | $0 to $25,000 | $25,001 to $34,000 | Over $34,000 |
| Married Filing Jointly | $0 to $32,000 | $32,001 to $44,000 | Over $44,000 |
Capital Gains And Dividends
Qualified dividends and long-term capital gains use preferential federal brackets. The calculator stacks preferential income above ordinary taxable income, meaning ordinary income fills lower taxable income space first.
| Filing Status | 0% Bracket | 15% Bracket | 20% Bracket |
|---|---|---|---|
| Single | $0 to $49,450 | $49,451 to $545,500 | Over $545,500 |
| Married Filing Jointly | $0 to $98,900 | $98,901 to $613,700 | Over $613,700 |
Taxable brokerage sales are simplified by applying the account's estimated unrealized gain ratio to each sale. For example, if a taxable brokerage account is 50% unrealized gain, a $10,000 sale is modeled as $5,000 long-term capital gain and $5,000 return of basis.
Dividend Classification
- Broad equity asset class income is treated as qualified dividends by default.
- Cash, money market, taxable bond, and treasury-like asset class income is treated as ordinary income for federal tax.
- Municipal bond asset class income is treated as federally tax-exempt interest and still counts toward Social Security provisional income.
- Unknown classifications default to qualified dividends unless overridden.
Cash-Flow Tax Mode
When tax treatment is enabled, taxes are not just informational. The calculator treats estimated federal tax as a future cash-flow need, pays it using the same withdrawal ordering rules, and reflects that impact in ending balances.
Because withdrawals can create more taxable income, the calculator estimates tax iteratively for each year and stops when the estimate stabilizes within a small tolerance or reaches the maximum pass limit.
Outputs
Annual projections may include Federal Tax, Tax Paid, Effective Tax Rate, Taxable Social Security, MAGI-style income, taxable brokerage stock sales, dividend income, and ending net worth after the modeled tax impact.
Important Note
Tax estimates are simplified educational projections. Tax laws change, and actual tax outcomes can vary materially based on deductions, credits, account details, cost basis, filing situation, state rules, and individual circumstances. Review the Investment Disclaimer and consult a qualified tax professional before making financial or tax decisions.