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Understanding the Tax Payments in My Plan
Understanding the Tax Payments in My Plan

This article describes the tax modeling in the NewRetirement software

Nancy Gates avatar
Written by Nancy Gates
Updated over a week ago

Understanding the tax payments in My Plan

NewRetirement utilizes proprietary methods to reasonably estimate taxes and therefore tax estimates should only be considered directional. As needed, consult a tax professional for more precise tax estimate, payment, and filing requirements if you want more precise values.

PlannerPlus is currently a forward-looking projection engine. The calculations and projections move forward each month. For this reason, we recommend using tax software or working with a tax professional for current year tax planning.

This Planner is intended to help you create a long term financial plan, understand the interdependencies among plan elements, and make sound decisions. Each plan is founded on multiple assumptions such as asset growth rates, inflation, and income tax legislation. As a result, the estimated account values, withdrawals, and tax liability will fluctuate.

Insights > Tax > Estimated Taxes > portrays the taxes calculated for the current year. This is included in the subsequent year’s Estimated Income Tax Payments.

Insights > Income and Expenses > Estimated Income Tax Payments portrays the tax payments funded from income and savings withdrawals in the current year to cover the prior year’s Estimated Taxes.

In most years you should be able to match the tax liability from one year's Estimated Tax Chart liability projection with the tax liability of next year's Estimated Expenses Chart.

There is a reconciliation each January which determines whether the estimated payments for the prior year were accurate. If not, an adjustment is made for the prior year. Any underpayment is added to the tax expense and any overpayment is refunded to the account chosen for Excess Income. Things smooth out once significant changes are past.

For this reason, in years where income drops or increases significantly within a year, you will see more variability in the tax projections. For example, the tax expense often appears higher in the year after retirement because it is the tax expense of the prior (higher income) year.

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