Taxes & RMDs

What the tax model does

By default the forecast ignores income tax, which keeps things simple but paints a slightly rosy picture — it pretends money pulled from a 401(k) or IRA arrives tax-free. Turning on the tax model fixes that. When it's on, each year the projection estimates the federal income tax you'd owe and treats it as an expense.

Specifically, it:

• Uses the federal tax brackets and standard deduction as actually published for 2025 and 2026 (including the extra deduction for age 65+), then grows them with inflation for later years — as the IRS does — so the projection doesn't invent bracket creep that real tax law doesn't have.
• Applies the extra $6,000 deduction for each person aged 65 or older that current law allows for tax years 2025–2028, including its phase-out at higher incomes and its expiry after 2028.
• Taxes your Social Security benefits realistically — 0% to 85% taxable depending on other income, per the IRS provisional-income rules. (Those thresholds are not indexed, because in real law they never have been.)
• Taxes capital gains when you sell from a regular brokerage account, at the real 0/15/20% rates — set each brokerage account's cost basis (what you paid) under My Plan → Accounts; only growth above it is taxed, and many retirees genuinely land in the 0% bracket.
• Adds Medicare IRMAA surcharges for people 65+ whose income crosses the IRMAA thresholds — see the glossary.
• Forces Required Minimum Distributions (RMDs) from 401(k) and IRA accounts at age 73 — or 75 if you were born in 1960 or later, as current law provides — using each account's owner's age (set Whose account on the account), so a younger spouse's IRA isn't drawn down on the older spouse's clock.
• Lets you choose a filing status and add an optional flat state tax rate.

Retiring before 65 on marketplace insurance? Also see ACA premium credits — modeled from the same income tally.

See the glossary for RMD, provisional income, and filing status.

How to turn it on

Go to My Plan → Profile & assumptions in the app and tick Model income taxes. Two more fields appear:

• Filing status — Single or Married filing jointly. (If you leave it, the app assumes married when you have a spouse, single otherwise.)
• State tax rate (optional) — a flat percentage applied to your taxable income. Leave it at 0 if you're in a no-income-tax state or want to keep it federal-only. This is a rough stand-in, not your state's real brackets.

Where you'll see it

Once on, open any month in the month detail and you'll find a new expense line, Income taxes (est.), alongside your other spending. That's the model's estimate of the tax you're paying that month.

Behind the scenes the app tallies up each calendar year's taxable income and spreads the resulting bill across the following year — a realistic roughly one-year lag, similar to how withholding and April settle-up work in real life.

It usually moves your run-out date earlier

Adding tax means more money leaving each year, so turning the model on typically pushes your run-out date earlier — sometimes by a few years. That's not the app being pessimistic; it's a more honest picture. Better to see the tax drag now, while you can still adjust the plan, than to be surprised later.

RMDs add to the effect: once you reach your RMD age, the model forces a minimum withdrawal from each 401(k)/IRA every year (the money stays in your savings — it just moves to a taxable account and gets taxed), which can bump you into paying more tax even in years you didn't plan to draw.

Off by default — nothing changes silently

The tax model is off for existing plans, so switching it on is always your choice and never happens behind your back. If your plan already looked good tax-free, turn taxes on to pressure-test it; if the run-out date moves up, that's useful to know.

Simplifications (and why they're fine)

This is a good estimate, not a tax return. On purpose, it:

• Uses a single flat rate for state tax rather than your state's real brackets, and leaves out local income tax entirely.
• Prices Medicare IRMAA off the current year's income. Real IRMAA looks back two years, so the year a surcharge lands may differ from real life even when the amount is right.
• Doesn't model dividends and interest earned inside a brokerage account year by year, the net investment income tax, the alternative minimum tax, or the special rules for inherited retirement accounts.
• Assumes today's law continues. Several provisions above (the senior deduction in particular) are written to expire, and the model expires them on schedule rather than guessing what Congress does next.

Two earlier simplifications are gone: capital-gains tax on brokerage sales is now modelled, and brackets and deductions are no longer held flat. If your projection changed without you touching it, see What's new (September 2026).

Not tax advice

The tax model is an educational estimate to help you plan — not tax advice, and not a substitute for a CPA or tax professional. Real tax law is far more detailed, and everyone's situation differs. Use these numbers to compare choices and spot problems, then confirm anything that matters with a qualified advisor.

What to do next

Set up your accounts so the model knows which withdrawals are taxable, then read the projection.