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Re: Simple tax question--If 401(k), no tax deduction for tIR

Even if you have a (solo?) 401k, your non-working spouse can make deductible TIRA contributions, provided your MAGI is under $181,000 -- that would typically mean gross income under $200,000. You can make deductible contributions yourself provided your MAGI is under $96,000 -- which would typically ...
by Bob's not my name
Mon Dec 22, 2014 1:05 pm
 
Forum: Personal Finance (Not Investing)
Topic: Simple tax question--If 401(k), no tax deduction for tIRA?
Replies: 4
Views: 130

Re: Lifetime Learning Credit for two tax years

That's understandable. Debt is bad, but borrowing briefly to avoid temporary 50% taxation may make sense. Looking at it another way, a $5,000 IRA contribution does not require $5,000, only $2,500.
by Bob's not my name
Sat Dec 20, 2014 12:43 pm
 
Forum: Personal Finance (Not Investing)
Topic: Lifetime Learning Credit for two tax years
Replies: 9
Views: 587

Re: Federal Taxes - Sticker Shock (And how to reduce)

1) How to reduce taxable income for this year? 2) How to plan for next year? I think these are two entirely separate things. I think we're agreeing on most things, but not on this. My point was that these two things are not separate at all, in fact they're pretty much the same thing. The 2014 spous...
by Bob's not my name
Sat Dec 20, 2014 12:09 pm
 
Forum: Personal Finance (Not Investing)
Topic: Federal Taxes - Sticker Shock (And how to reduce)
Replies: 58
Views: 4960

Re: Lifetime Learning Credit for two tax years

Can you give an example of when a $4,000 deduction would be worth more than a $2,000 credit for a taxpayer with income low enough to qualify for both? Edit: Came up with one myself. If you had only $4,000 of eligible expenses the LLC would be $800 while the $4,000 deduction might be worth $1,000, d...
by Bob's not my name
Sat Dec 20, 2014 11:54 am
 
Forum: Personal Finance (Not Investing)
Topic: Lifetime Learning Credit for two tax years
Replies: 9
Views: 587

Re: Lifetime Learning Credit for two tax years

Can you give an example of when a $4,000 deduction would be worth more than a $2,000 credit for a taxpayer with income low enough to qualify for both? Edit: Came up with one myself. If you had only $4,000 of eligible expenses the LLC would be $800 while the $4,000 deduction might be worth $1,000, de...
by Bob's not my name
Sat Dec 20, 2014 8:37 am
 
Forum: Personal Finance (Not Investing)
Topic: Lifetime Learning Credit for two tax years
Replies: 9
Views: 587

Re: Lifetime Learning Credit for two tax years

You have it right. You should split your tuition payments between this calendar year and next so as to maximize your LLC. Prepaying enough now to get the full credit for 2014, while leaving enough due and paying that remainder in 2015 will get you $4,000 in credits instead of $2,000. Note the AGI li...
by Bob's not my name
Sat Dec 20, 2014 5:41 am
 
Forum: Personal Finance (Not Investing)
Topic: Lifetime Learning Credit for two tax years
Replies: 9
Views: 587

Re: Federal Taxes - Sticker Shock (And how to reduce)

25% nominal bracket + 5% due to child tax credit phaseout for AGI $110,000 - $150,000 + 2.1% due to student loan interest deduction phaseout for AGI $130,000 - $160,000 --------------- 32.1% marginal rate Your AGI is probably about $130,000. If your gross income were to increase by about $30,000 you...
by Bob's not my name
Sat Dec 20, 2014 4:56 am
 
Forum: Personal Finance (Not Investing)
Topic: Federal Taxes - Sticker Shock (And how to reduce)
Replies: 58
Views: 4960

Re: Federal Taxes - Sticker Shock (And how to reduce)

Federal marginal rate = federal only, income tax only

32.1% actually
by Bob's not my name
Fri Dec 19, 2014 8:22 pm
 
Forum: Personal Finance (Not Investing)
Topic: Federal Taxes - Sticker Shock (And how to reduce)
Replies: 58
Views: 4960

Re: Federal Taxes - Sticker Shock (And how to reduce)

OP's non-working spouse is definitely eligible for a deductible IRA contribution. They're tens of thousands of dollars under the phaseout. OP's federal marginal rate is high: 32.5% Homework assignment: why is the OP's federal marginal rate 32.5%? Hint: the OP can reduce his marginal rate by making m...
by Bob's not my name
Fri Dec 19, 2014 7:02 pm
 
Forum: Personal Finance (Not Investing)
Topic: Federal Taxes - Sticker Shock (And how to reduce)
Replies: 58
Views: 4960

Re: Close to Roth IRA limit should I do Roth or Back door?

I look at it as only a matter of time (this year, next year, following year) when you will be ineligible for Roth contributions. Not necessarily. The income limit goes up a couple thousand every year, the 401k limits go up about $1,000/year for a couple over 50, and pre-tax insurance premiums go up...
by Bob's not my name
Wed Dec 17, 2014 7:08 pm
 
Forum: Investing - Help with Personal Investments
Topic: Close to Roth IRA limit should I do Roth or Back door?
Replies: 12
Views: 1210

Re: Could it be worth using Roth even in a high tax bracket?

it's tax rate that matters, not tax bracket For the record though, there really aren't many people who can or should do everything pre-tax. If your income allows you to deduct a Traditional IRA contribution (under $60K for a single or under $96K for a married couple), your tax rate is probably low ...
by Bob's not my name
Wed Dec 17, 2014 12:37 pm
 
Forum: Investing - Theory, News & General
Topic: Could it be worth using Roth even in a high tax bracket?
Replies: 37
Views: 2363

Re: Could it be worth using Roth even in a high tax bracket?

a Roth 401k makes sense for 2 types of people: 1. Young people in lower tax brackets working in states with no or low income taxes. To be in the 15% bracket, a single earner has to have gross income under $50,000. In the 15% federal bracket and with no state income tax, post-tax (Roth) saving is at...
by Bob's not my name
Wed Dec 17, 2014 10:08 am
 
Forum: Investing - Theory, News & General
Topic: Could it be worth using Roth even in a high tax bracket?
Replies: 37
Views: 2363

Re: Could it be worth using Roth even in a high tax bracket?

As has been discussed by others above, uncertainty is a constant. Roth is a different risk choice, not a reduction of uncertainty. I agree with the others above that it's nice to have both Roth and traditional. But having and getting are two different things, and the cost of getting Roth must be con...
by Bob's not my name
Wed Dec 17, 2014 9:15 am
 
Forum: Investing - Theory, News & General
Topic: Could it be worth using Roth even in a high tax bracket?
Replies: 37
Views: 2363

Re: Could it be worth using Roth even in a high tax bracket?

No I'm not. You may be neglecting all the phaseouts that apply in the working years and can produce very high marginal rates. The OP's question is whether voluntarily paying taxes at a high tax rate reduces risk. It doesn't. It increases risk.
by Bob's not my name
Wed Dec 17, 2014 7:28 am
 
Forum: Investing - Theory, News & General
Topic: Could it be worth using Roth even in a high tax bracket?
Replies: 37
Views: 2363

Re: Could it be worth using Roth even in a high tax bracket?

I max my 401k pre-tax and then max my Roth IRA. My income just gets into the 28% bracket I think. You have no difficult choice to make on which type of IRA, because you're not eligible for a deductible traditional IRA contribution. 28% bracket starts at $90,750 taxable income = >$101,050 AGI Deduct...
by Bob's not my name
Wed Dec 17, 2014 5:43 am
 
Forum: Investing - Theory, News & General
Topic: Could it be worth using Roth even in a high tax bracket?
Replies: 37
Views: 2363

Re: Could it be worth using Roth even in a high tax bracket?

I can barely afford to put the 36k max into my pretax retirement accounts but I would fall short of the Roth versions. With Roth 401ks I believe there are RMDs, only Roth IRAs have no RMDs, but inherited Roth IRAs do have RMDs. In your situation you can "convert" your inherited Roth IRA t...
by Bob's not my name
Wed Dec 17, 2014 5:36 am
 
Forum: Investing - Theory, News & General
Topic: Could it be worth using Roth even in a high tax bracket?
Replies: 37
Views: 2363

Re: Could it be worth using Roth even in a high tax bracket?

Roth is the highest risk approach because you're voluntarily paying taxes now when you can't be sure you're going to be wealthy later. Traditional is the lowest risk approach because you're deferring paying taxes until your financial security is clear.
by Bob's not my name
Tue Dec 16, 2014 8:28 pm
 
Forum: Investing - Theory, News & General
Topic: Could it be worth using Roth even in a high tax bracket?
Replies: 37
Views: 2363

Re: Roth versus Traditional Debate

A) In order to contribute 600K across 30 years in Roth IRA, it means that a person has to contribute 20K per year in Roth IRA?? The Roth IRA limit is ( 2X 5.5 K) = 11K below 50 years old. And, 2 X 6.5K = 13 K at 50 and above. In either case, 20 K per year contribution to Roth IRA is not possible. R...
by Bob's not my name
Sun Dec 14, 2014 5:18 pm
 
Forum: Investing - Theory, News & General
Topic: Roth versus Traditional Debate
Replies: 50
Views: 3908

Re: Review a 26 year old's portfolio - Update 1

we'd have to make over $150k (assuming filed jointly and at least in the 28% tax bracket) being retired? You're not in the 28% bracket if you're MFJ and retired and your income is only $150,000. The 28% bracket starts at $148,850 taxable income. First, keep in mind that the brackets (and most but n...
by Bob's not my name
Thu Dec 11, 2014 8:27 pm
 
Forum: Investing - Help with Personal Investments
Topic: Review a 26 year old's portfolio - Update 1
Replies: 35
Views: 3854

Re: UGMA/UTMA Strategy

LTCG rate is 0% in the 15% bracket, which tops out at $74,000 MFJ. You say your taxable income (not gross, not AGI) is $40,000, which gives you $34,000 of headroom. Kiddie tax dictates that the kids pay tax at your nominal rate if they file their own returns and if their income exceeds $2,000. "...
by Bob's not my name
Wed Dec 10, 2014 4:46 pm
 
Forum: Personal Finance (Not Investing)
Topic: UGMA/UTMA Strategy
Replies: 15
Views: 1093

Re: Use of UGMA/UTMA accounts

So Spaddlewit, you move your UGMA account each year to a different fund/funds to eliminate the build up of Long Term Capital Gains. Is this correct? I have UGMA accounts for my grand kids in one of the Target funds, so I would just move it each year say 2020 to 2025 and back the next year? You don'...
by Bob's not my name
Wed Dec 10, 2014 2:38 pm
 
Forum: Investing - Theory, News & General
Topic: Use of UGMA/UTMA accounts
Replies: 26
Views: 4262

Re: UGMA/UTMA Strategy

Sounds good but I don't follow your math. $12,000/$36,000 = 33% gains not 50% Maybe you're selecting shares with lowest gains. But why not liquidate more? You have about $34,000 of headroom in the 0% LTCG bracket and the three kids have $2,000 of space each, so you could realize $40,000 of LTCG at 0...
by Bob's not my name
Wed Dec 10, 2014 2:32 pm
 
Forum: Personal Finance (Not Investing)
Topic: UGMA/UTMA Strategy
Replies: 15
Views: 1093

Re: Roth versus Traditional Debate

Sure. 55% = 25% bracket + 20% LLC phaseout + 10% NYC (only 54% if CA, WashDC, etc.) See http://thefinancebuff.com/your-marginal-tax-rate.html Elderly people in assisted living will have a 0% marginal rate as long as their income is below about $140,000. The two examples are not hypotheticals. The fi...
by Bob's not my name
Wed Dec 10, 2014 7:48 am
 
Forum: Investing - Theory, News & General
Topic: Roth versus Traditional Debate
Replies: 50
Views: 3908

Re: Roth versus Traditional Debate

Not brackets, marginal tax rates. Your marginal tax rate is often higher than your bracket due to AGI-based taxes. A new college graduate may have a 55% marginal tax rate while a wealthy elderly person may have a 0% marginal rate.
by Bob's not my name
Wed Dec 10, 2014 7:39 am
 
Forum: Investing - Theory, News & General
Topic: Roth versus Traditional Debate
Replies: 50
Views: 3908

Re: Use of UGMA/UTMA accounts

Have you taken year end distributions from the remaining shares into account?
by Bob's not my name
Wed Dec 10, 2014 4:10 am
 
Forum: Investing - Theory, News & General
Topic: Use of UGMA/UTMA accounts
Replies: 26
Views: 4262

Re: Use of UGMA/UTMA accounts

If you realize gains every year within the annual kiddie tax limit you can avoid paying taxes on the ultimate liquidation. The kiddie tax limit is annual. Annual means once per year. If your forego the kiddie tax exemption every year for 20 years you have voluntarily surrendered the exemption of $40...
by Bob's not my name
Tue Dec 09, 2014 6:21 pm
 
Forum: Investing - Theory, News & General
Topic: Use of UGMA/UTMA accounts
Replies: 26
Views: 4262

Re: Use of UGMA/UTMA accounts

riptide wrote:I would just let the investment sit alone and compound/re-invest through the years.
That's not a sound strategy, since you will accumulate gains larger than the annual kiddie tax exemption. It generally makes sense to realize gains annually so that no taxes are ever paid.
by Bob's not my name
Tue Dec 09, 2014 3:39 pm
 
Forum: Investing - Theory, News & General
Topic: Use of UGMA/UTMA accounts
Replies: 26
Views: 4262

Re: Review a 26 year old's portfolio

Tax burdens can rise while marginal rates stay the same. Marginal rates on workers can rise (and have risen) while marginal rates on non-workers (retirees) can fall (and have fallen). The federal tax code and most states' tax codes give numerous and significant tax breaks to retirees, whether they'r...
by Bob's not my name
Sun Dec 07, 2014 11:52 am
 
Forum: Investing - Help with Personal Investments
Topic: Review a 26 year old's portfolio - Update 1
Replies: 35
Views: 3854

Re: Review a 26 year old's portfolio

Your marginal federal rate is 25% and your marginal MD rate is at least 7%. So you are paying at least 32% in taxes on your 12.5k Roth 401k contributions. That's over 4k. Over $6k. You did the math upside down :) . Also, MD is 8% in most counties and OP is contributing $12,000 to Roth 401k and $5,5...
by Bob's not my name
Sat Dec 06, 2014 5:00 am
 
Forum: Investing - Help with Personal Investments
Topic: Review a 26 year old's portfolio - Update 1
Replies: 35
Views: 3854

Re: Review a 26 year old's portfolio

acejacksingh wrote:"Voluntarily throwing away $6000?"
Please elaborate?
acejacksingh wrote:Why so much Roth?
Roth means volunteering to pay avoidable taxes.
by Bob's not my name
Fri Dec 05, 2014 7:06 pm
 
Forum: Investing - Help with Personal Investments
Topic: Review a 26 year old's portfolio - Update 1
Replies: 35
Views: 3854

Re: Child Tax Credit and Roth

So you're asking if a young family should voluntarily pay 33% tax? Yes, provided you're already fabulously wealthy or have a certificate from the Almighty guaranteeing nothing will go wrong for the next half century. Yeah, I recognize that things could change. However I have a very stable job, and ...
by Bob's not my name
Fri Dec 05, 2014 1:50 pm
 
Forum: Personal Finance (Not Investing)
Topic: Child Tax Credit and Roth
Replies: 9
Views: 938

Re: Child Tax Credit and Roth

So you're asking if a young family should voluntarily pay 33% tax? Yes, provided you're already fabulously wealthy or have a certificate from the Almighty guaranteeing nothing will go wrong for the next half century.
by Bob's not my name
Thu Dec 04, 2014 8:29 pm
 
Forum: Personal Finance (Not Investing)
Topic: Child Tax Credit and Roth
Replies: 9
Views: 938

Re: Review a 26 year old's portfolio

Why are you voluntarily throwing away $6,000/year to avoidable taxes?
by Bob's not my name
Thu Dec 04, 2014 7:55 pm
 
Forum: Investing - Help with Personal Investments
Topic: Review a 26 year old's portfolio - Update 1
Replies: 35
Views: 3854

Re: UGMA/UTMA Strategy

LongerPrimer wrote:The quicker the UGMA gets to a tax paying position, the better off your pocket will be.
This isn't true. The OP is suggesting a sound strategy for avoiding paying tax.
LongerPrimer wrote:Paying taxes on a successful UGMA is the desired goal.
No, it's not. Paying no taxes on a successful UGMA is the desired goal. The munificent 0% rate on LTCG for most Americans makes this possible.
by Bob's not my name
Tue Dec 02, 2014 6:58 pm
 
Forum: Personal Finance (Not Investing)
Topic: UGMA/UTMA Strategy
Replies: 15
Views: 1093

Re: UGMA/UTMA Strategy

harvest gains up to $1000 and buy back Not $1,000. $2,000 minus any dividends or capital gains distributions -- beware year end distributions. Provided the child files his own return (any 10-month-old should know how to do this), $2,000 of LTCG and QD will incur zero federal tax and probably no sta...
by Bob's not my name
Tue Dec 02, 2014 6:55 pm
 
Forum: Personal Finance (Not Investing)
Topic: UGMA/UTMA Strategy
Replies: 15
Views: 1093

Re: Inheriting IRA at a young age

You can determine your own eligibility for deductible TIRA contributions by manipulating your MAGI. Simplistically, MAGI is your gross income (including inherited IRA withdrawals) minus any pre-tax health, dental, and disability insurance premiums withheld from your pay, minus the student loan inter...
by Bob's not my name
Tue Dec 02, 2014 4:46 am
 
Forum: Investing - Help with Personal Investments
Topic: Inheriting IRA at a young age
Replies: 12
Views: 1060

Re: Inheriting IRA at a young age

If I were to re-invest my distributions in non-Roth vehicles, they'd be taxed as income twice and therefore a waste. If you withdraw $5,000 from the inherited IRA and contribute $5,000 to a traditional IRA, the withdrawal is taxed and the contribution is untaxed. On the other hand, if you withdraw ...
by Bob's not my name
Mon Dec 01, 2014 7:52 pm
 
Forum: Investing - Help with Personal Investments
Topic: Inheriting IRA at a young age
Replies: 12
Views: 1060

Re: Roth versus Traditional Debate

But if you would be maxing out either the traditional or the Roth IRA, then the Roth would still have the advantage, right? Why "still"? Most people can't max all their tax-advantaged space every single year. I can't. In any case you're comparing two different amounts. Your Roth guy is sa...
by Bob's not my name
Wed Nov 26, 2014 6:31 pm
 
Forum: Investing - Theory, News & General
Topic: Roth versus Traditional Debate
Replies: 50
Views: 3908

Re: Roth versus Traditional Debate

Where are we getting this 18% rate from anyway?
by Bob's not my name
Wed Nov 26, 2014 6:28 pm
 
Forum: Investing - Theory, News & General
Topic: Roth versus Traditional Debate
Replies: 50
Views: 3908

Re: Roth versus Traditional Debate

aw82 wrote:30 years of contribution: $150,000
Taxes paid on contributions: $37,500 (assume 25% marginal over the course of career)
$50,000
by Bob's not my name
Wed Nov 26, 2014 6:22 pm
 
Forum: Investing - Theory, News & General
Topic: Roth versus Traditional Debate
Replies: 50
Views: 3908

Re: Roth versus Traditional Debate

You need $200,000 to pay 25% taxes and have $600,000 left over.

Roth doesn't look as bad if you do the math wrong.
by Bob's not my name
Wed Nov 26, 2014 4:50 pm
 
Forum: Investing - Theory, News & General
Topic: Roth versus Traditional Debate
Replies: 50
Views: 3908

Re: Questions About 401k and AGI and Traditional vs Roth IRA

There's a strong possibility my income could increase to 80k give or take a few k within the next 5 years. That would put you still under the phaseout. If in five years the TIRA phaseout starts at $65,000 and the 401k limit is $19,000 and you have $2,000 of pre-tax insurance premiums then the gross...
by Bob's not my name
Fri Nov 21, 2014 11:51 pm
 
Forum: Investing - Help with Personal Investments
Topic: Questions About 401k and AGI and Traditional vs Roth IRAs
Replies: 47
Views: 3176

Re: Questions About 401k and AGI and Traditional vs Roth IRA

I don't see any issues with deductible TIRA eligibility. $70,000 of gross income probably puts your MAGI below $50,000, so you have lots of headroom. In 2015 you're fully eligible if your MAGI is below $61,000. That probably equates to about $82,000 gross income. The 401k contribution limit and the...
by Bob's not my name
Fri Nov 21, 2014 6:24 pm
 
Forum: Investing - Help with Personal Investments
Topic: Questions About 401k and AGI and Traditional vs Roth IRAs
Replies: 47
Views: 3176

Re: Questions About 401k and AGI and Traditional vs Roth IRA

I'll need to continue reading and researching to understand the other point you're trying to make regarding $2,961 not being sheltered. Maybe it's not important since you say it's really not relevant to my "saturated" situation. Right. Most people can't fill all their tax-advantaged space...
by Bob's not my name
Fri Nov 21, 2014 12:40 pm
 
Forum: Investing - Help with Personal Investments
Topic: Questions About 401k and AGI and Traditional vs Roth IRAs
Replies: 47
Views: 3176

Re: Questions About 401k and AGI and Traditional vs Roth IRA

You're doing the math upside down. If your marginal rate is 35% then you need $8,461 of gross income to yield $5,500 of net income, because $2,961 is lost to taxes. As I also explained, that doesn't mean, in your saturated case (maxing the 401k), that you could alternatively shelter $8,461 in a tra...
by Bob's not my name
Fri Nov 21, 2014 10:00 am
 
Forum: Investing - Help with Personal Investments
Topic: Questions About 401k and AGI and Traditional vs Roth IRAs
Replies: 47
Views: 3176

Re: Questions About 401k and AGI and Traditional vs Roth IRA

ShimmyShuffle wrote:I'm going to need to read up on the pro rata rule and back door Roth, but would this also cause complications for a Roth conversion pipeline? Are the back door and the pipeline the same thing, similar or completely different?
I don't know what a Roth conversion pipeline is.
by Bob's not my name
Fri Nov 21, 2014 4:15 am
 
Forum: Investing - Help with Personal Investments
Topic: Questions About 401k and AGI and Traditional vs Roth IRAs
Replies: 47
Views: 3176

Re: Questions About 401k and AGI and Traditional vs Roth IRA

Yes. Assuming you're not in NYC, your state tax is, what, 6.85%? (I didn't bother to look it up.) If you don't itemize, then your marginal rate is about 32%. $5,500/0.68 = $8,088. That's how much gross income you consume to make a $5,500 Roth contribution; $2,588 is lost to income taxes. However, a...
by Bob's not my name
Fri Nov 21, 2014 4:12 am
 
Forum: Investing - Help with Personal Investments
Topic: Questions About 401k and AGI and Traditional vs Roth IRAs
Replies: 47
Views: 3176

Re: Limits on Brokered CD Death Put

Not disputing MooreBonds' experience, but I never encountered any of those issues. I have seen a "percentage of total outstanding issue" limit only on corporate bonds with death puts. Did you ever run into the percentage limit on corporate bonds, or did you only do CDs? Only bought one co...
by Bob's not my name
Wed Nov 12, 2014 8:53 pm
 
Forum: Investing - Help with Personal Investments
Topic: Limits on Brokered CD Death Put
Replies: 13
Views: 1063

Re: Limits on Brokered CD Death Put

The real bonanza was in 2007/2008/2009 And you always want to get a quote before automatically redeeming them, as there is a chance the current bid could be higher than the par value. Yes, the CDs I bought in 2008 I sold at substantial profit. I was still selling at premium in 2011. CDs I bought at...
by Bob's not my name
Wed Nov 12, 2014 6:52 pm
 
Forum: Investing - Help with Personal Investments
Topic: Limits on Brokered CD Death Put
Replies: 13
Views: 1063

Re: FSA gains $500 rollover feature

I guess you could pursue a couple of concrete facts: Does our chosen provider offer to support a grace period? If so, what is the incremental cost? If not, what's the cost of changing providers?
by Bob's not my name
Tue Nov 11, 2014 12:21 pm
 
Forum: Personal Finance (Not Investing)
Topic: FSA gains $500 rollover feature
Replies: 42
Views: 3744
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