What a New Jersey Family May Really Pay in Taxes
When individuals think about their tax burden, they often focus on one number: federal income tax.
For many households, however, the amount of income that ultimately goes toward taxes is substantially greater than the federal income tax rate they see on their tax return.
Consider a 55-Year-Old Couple Approaching Retirement in New Jersey
Imagine a married couple, both age 55, earning a combined $270,000 per year.
One spouse earns $180,000 and contributes the 2026 maximum of $24,500 to a traditional 401(k). The other earns $90,000 and contributes $15,000. Together, they are putting $39,500 a year toward retirement.¹
For this illustration, assume they are married filing jointly, take the federal standard deduction, have no children or major additional deductions or credits, and make traditional pre-tax 401(k) contributions.
$270,000 (gross income) − $39,500 (401(k) contributions) − $32,200 (2026 standard deduction) = $198,300 taxable income.²
That produces an estimated federal income-tax liability of approximately $33,050.²
For 2026, employees pay 6.2% Social Security tax on wages up to $184,500 and 1.45% Medicare tax on covered wages, with no wage ceiling for the regular Medicare tax.³
Their estimated New Jersey income tax is approximately $9,600.⁴
Their property taxes consume another $16,000.
The result is striking:
Category | Approximate Amount |
Gross household income | $270,000 |
Federal income tax | ~$33,050 |
Social Security | $16,740 |
Medicare | $3,915 |
New Jersey income tax | ~$9,600 |
Property taxes | $16,000 |
401(k) retirement savings | $39,500 |
Approx. cash remaining | $151,200 |
Roughly 56 cents of every gross dollar is available for current spending after these taxes and retirement savings.
That does not mean the couple is literally paying a 29% tax rate. These numbers combine different types of taxes, so this is best viewed as an illustrative household tax burden, not a formal tax rate.
Even still, this calculation does not include every tax the household may encounter.
The Bigger Picture
Federal income tax number doesn’t tell the entire story.
The couple in our example is paying federal income tax, Social Security, Medicare, New Jersey income tax and property taxes.
Together, those items total nearly $80,000 a year going toward taxes before the taxes that can arise when the remaining money is spent.
The couple is also intentionally putting $39,500 away for retirement.
An important distinction for people planning for retirement: Income is not the same thing as spendable income.
A $270,000 household income sounds very different from the amount that remains available after taxes and retirement savings.
The Taxes We Don’t Think About
Taxes can become almost invisible when they are deducted automatically.
Social Security and Medicare disappear from a paycheck before the employee ever sees the money. New Jersey income tax is also commonly withheld from wages. Property taxes may be paid through a mortgage escrow account, making them feel like part of the mortgage payment rather than a separate tax. Then, there are taxes associated with spending.
None of these necessarily come to mind when someone says: “My federal tax rate is 22%.”
That is why looking only at federal income tax can understate the amount of money a household ultimately sends to the government.
The Retirement Tax Problem
There is another issue that becomes particularly important for the 55-year-old couple.
They are doing exactly what many financial professionals encourage workers to do: putting significant amounts into traditional retirement accounts.
Their $39,500 of traditional 401(k) contributions reduce their current federal taxable income.¹ ²
But the tax bill hasn’t necessarily disappeared. It has been deferred.
Traditional 401(k) distributions are generally included in taxable income when they are taken out, unless an exception applies.⁵
Eventually, required minimum distributions can also become part of the picture. Under current rules, owners of traditional IRAs and many retirement-plan accounts generally must begin taking required minimum distributions at age 73.⁶
So, a more appropriate question than, “How much have we saved?” is, “How much of our retirement savings will we actually get to spend?”
A $2 million traditional IRA and a $2 million Roth IRA are not necessarily economically equivalent because the tax treatment is different. Traditional IRA withdrawals are generally taxable, while qualified Roth IRA distributions are generally tax-free.⁷
That is why tax diversification can be an important part of retirement planning.
The Real Retirement Number Isn’t Your Account Balance
Suppose someone tells you they have $2 million saved for retirement.
How much of that $2 million can actually be converted into spendable income after taxes?
The answer depends on the type of account, the individual’s tax bracket, Social Security benefits, other income, withdrawal strategy, required minimum distributions and future tax laws.
For a 55-year-old, there may still be years available to evaluate strategies such as Roth conversions, tax diversification and coordinated retirement-income planning.
The goal isn’t necessarily to avoid taxes but rather to avoid being surprised by them.
The Bottom Line
During retirement, income is no longer simply being earned— you are spending the assets you’ve accumulated.
Every dollar paid in taxes is a dollar that cannot be used for travel, healthcare, helping children or grandchildren, charitable giving, or simply enjoying the retirement you’ve spent decades working toward.
That is why retirement planning shouldn’t stop at investment returns.
It should consider taxes before retirement, taxes during retirement, taxes on money that remains after retirement, etc.
The question moves from, “How much did you make?” to, “How much did you keep— and how much will you get to use in retirement?”
Whether you already have a financial advisor or are looking for guidance, a second opinion can be valuable. Consult a Millstone Advisor about how you can be more mindful of what you are truly paying and how you can distribute your tax burden more evenly amongst the years ahead by visiting www.millstonefinancial.net/contact-us/.
Sources and Footnotes:
- ¹ Internal Revenue Service — “401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500.” IRS — 2026 retirement contribution limits
- ² Internal Revenue Service — “IRS releases tax inflation adjustments for tax year 2026.” IRS — 2026 tax brackets and standard deduction
- ³ Social Security Administration — “Contribution and Benefit Base.”. Social Security Administration — 2026 contribution and benefit base
- ⁴ New Jersey Division of Taxation — “NJ Income Tax Rates” and “Gross Income Tax Overview.” New Jersey Division of Taxation — Income Tax Rates; New Jersey Division of Taxation — Gross Income Tax Overview
- ⁵ Internal Revenue Service — “401(k) plans” and “Tax on normal distributions.” IRS — 401(k) plans; IRS — Tax on normal retirement-plan distributions
- ⁶ Internal Revenue Service — “Retirement Topics — Required Minimum Distributions (RMDs).” IRS — Required Minimum Distributions
- ⁷ Internal Revenue Service — “Traditional and Roth IRAs.” IRS — Traditional and Roth IRAs
Disclosure:
Advisory services are offered through Millstone Financial Group Limited Liability Company, a Securities and Exchange Commission Registered Investment Advisor located in the State of New Jersey. Insurance products and services are offered through Millstone Financial Group Limited Liability Company. Millstone Financial Group is not affiliated with or endorsed by the Social Security Administration or any other government agency.
All material discussed is for informational purposes only. Opinions expressed are solely those of Millstone Financial Group Limited Liability Company and staff. All topics covered are believed to be from reliable sources; however, Millstone Financial Group Limited Liability Company makes no representations as to its accuracy or completeness. Investing involves risk including the loss of principal.
This information shall in no way be construed as a solicitation to sell securities or investment advisory services to residents of any state other than New Jersey, or where otherwise permitted. All information and ideas should be discussed in detail with your individual adviser prior to implementation.
Millstone Financial Group Limited Liability Company dba Millstone Financial Group does not offer tax planning or legal services but may provide references to tax services or legal providers. This material is intended to provide general financial education and is not written or intended as tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel. Millstone Financial Group may also work with your attorney or independent tax or legal counsel. Please consult a qualified professional for assistance with these matters. You should always consult with a qualified professional before making any tax or legal decisions.
These are hypothetical illustrations, not individualized tax calculations or tax advice. The calculations use simplified assumptions and may differ from an actual tax return. They exclude factors such as health-insurance deductions, HSA contributions, charitable deductions, mortgage interest, investment income, capital gains, tax credits and other individual circumstances. Property taxes are also a hypothetical assumption and are not intended to represent the actual property-tax bill for a particular household. Tax laws can change, and readers should consult their tax professional regarding their individual situation.
