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by Bob's not my name
Wed Dec 28, 2016 8:06 am
Forum: Personal Investments
Topic: Dilemma: Fund 401K or Roth in my new income scenario?
Replies: 16
Views: 1363

Re: Dilemma: Fund 401K or Roth in my new income scenario?

iagonosi wrote:3. determine what deduction you can use to lower your AGI (mortgage, tuition, etc)

5.if there are no financial aid to consider
OP doesn't have a mortgage, and itemized and tuition deductions don't reduce AGI in any case.

Financial aid, if available at all, typically takes gross income into account, not AGI. That is, 401k contributions don't increase your aid.
by Bob's not my name
Wed Dec 28, 2016 5:29 am
Forum: Personal Investments
Topic: Dilemma: Fund 401K or Roth in my new income scenario?
Replies: 16
Views: 1363

Re: Dilemma: Fund 401K or Roth in my new income scenario?

And if you're going to attend school in multiple calendar years, be sure to pay tuition in multiple calendar years. For example, if Spring 2018 is your last semester, DO NOT pay your last tuition bill before 1/1/2018. Pay it on 1/1/2018 so you get a second Lifetime Learning Credit in 2018.

If your school inexplicably has the payment due 12/31/2017, game the late payment fine and LLC by paying some before the due date to reduce the fine but enough after the due date to get the full LLC.
by Bob's not my name
Wed Dec 28, 2016 5:24 am
Forum: Personal Investments
Topic: Dilemma: Fund 401K or Roth in my new income scenario?
Replies: 16
Views: 1363

Re: Dilemma: Fund 401K or Roth in my new income scenario?

1. Husband going back to school, so no meaningful income in 2017 and maybe longer. 2. Wife maxing out her 401K contributions (putting her taxable income at under $10,000/year) 4. Taxable accounts have index funds currently yielding about $20,000 in dividends per year, mostly qualified dividends. now looking at the possibility of only being in the 10% bracket while I don’t work I suspect you're in the 0% bracket, not the 10% bracket. I assume you mean by statement 1 that your wife's Line 1 income is under $10,000, not "her taxable income". Her $10,000 plus the $20,000 of dividends would total $30,000 AGI. After $20,800 of personal exemptions and the standard deduction, your taxable income would be about $9,000. This is all qualifi...
by Bob's not my name
Sun Nov 27, 2016 7:06 pm
Forum: Personal Investments
Topic: Nearing Roth Contribution Limit - Check My Math?
Replies: 6
Views: 1231

Re: Nearing Roth Contribution Limit - Check My Math?

LateStarter1975 wrote:Roth contributions begins to phase out after $183,000 for those MFJ.
$184,000
by Bob's not my name
Tue Nov 08, 2016 5:31 am
Forum: Personal Investments
Topic: Confused about 401k vs Roth 401k vs Roth IRA
Replies: 13
Views: 1808

Re: Confused about 401k vs Roth 401k vs Roth IRA

ObliviousInvestor wrote:The deadline for opening an individual 401(k) is December 31 of the first year for which you wish to make contributions. For a sole proprietor, contributions can be made up until the due date (including extensions) of your tax return for the year (i.e., April 15 of the following year, or October 15 if you filed for an extension).
by Bob's not my name
Tue Nov 08, 2016 5:05 am
Forum: Personal Investments
Topic: Confused about 401k vs Roth 401k vs Roth IRA
Replies: 13
Views: 1808

Re: Confused about 401k vs Roth 401k vs Roth IRA

pieinthesky wrote:Spouse:
- Rollover IRA from previous company
If we don't qualify, is it worth it to do backdoor?
Your spouse's rollover IRA will be subject to the pro rata rule if he does a backdoor Roth IRA contribution. If you max both traditional 401k's, you should qualify for direct contributions to Roth IRAs unless your gross income is over about $225,000. The 2016 phaseout starts at MAGI $184,000 + $36,000 traditional 401k contributions + any pre-tax health, dental, and disability insurance premiums withheld from pay + any FSA contributions = about $225,000. The phaseout is inflation adjusted every year.
by Bob's not my name
Tue Nov 08, 2016 3:14 am
Forum: Personal Investments
Topic: To Roth or not to Roth that is the question
Replies: 18
Views: 4225

Re: To Roth or not to Roth that is the question

In the 25% bracket, contributing $18,000 to a Roth 403b consumes $24,000 of gross income and throws $6,000 away to taxes. You could instead contribute $18,000 of gross income to a traditional 403b (none of which goes to taxes), with $6,000 of gross income left over. That $6,000 could be used for a $4,500 Roth IRA contribution (after $1,500 of taxes), as others have suggested, or a $6,000 457 contribution.

You are $16,500 below the 28% bracket, so there's no risk of hitting that, especially considering your COLA-level raises, since tax brackets, the standard deduction, and the personal exemption are also inflation-adjusted.
by Bob's not my name
Fri Oct 07, 2016 7:26 am
Forum: Personal Investments
Topic: Is my employer's stock purchase plan worth it?
Replies: 27
Views: 9400

Re: Is my employer's stock purchase plan worth it?

It is earning interest. It's a weird vehicle, but your ESPP is like a 6-week CD. Every quarter you sell immediately for a 5.26% gain minus $15. Your money is invested for an average 1/8 year, so your annualized return is (1.0526^8) - 1 = 51% The $15 is significant because it's charged on every plan period, so $60/year. For example, if your salary is $100,000 and you contribute 10%, that's only $2,500 per plan period, which yields only $131.50, so the $15 fee is more than 10% of your return. The "bonus" a $100,000 employee earns is only about $460/year, so it's a good deal but the contribution limit makes it less attractive to do the administration. A decade ago many ESPP's provided a 15% discount and a lookback provision, so they ...
by Bob's not my name
Fri Oct 07, 2016 3:34 am
Forum: Personal Investments
Topic: Is my employer's stock purchase plan worth it?
Replies: 27
Views: 9400

Re: Is my employer's stock purchase plan worth it?

Is the plan period one year? Is the discount 5% off the market price at the end of the plan period? Is there a lookback provision? (Some plans offer 5% off the lesser of the market prices at the beginning and end of the plan period.) Can you sell immediately after purchase? If you can, you have a guaranteed 5.26% return on an investment held for an average plan period/2 (6 months if the plan period is 1 year, so your annualized return would be 10.8%). You should always sell immediately. I have to enroll every year but can keep the shares as long as I want (even after leaving the company). I am not aware of any lookback provision. My understanding is that the company collects a certain percentage of salary, after tax, every paycheck, and th...
by Bob's not my name
Thu Oct 06, 2016 6:35 am
Forum: Personal Investments
Topic: Is my employer's stock purchase plan worth it?
Replies: 27
Views: 9400

Re: Is my employer's stock purchase plan worth it?

5/95 = 5.26%

(1.0526^2) - 1 = 10.8% annualized return

IF that's the deal, contribute the max and sell immediately.
by Bob's not my name
Thu Oct 06, 2016 5:27 am
Forum: Personal Investments
Topic: Is my employer's stock purchase plan worth it?
Replies: 27
Views: 9400

Re: Is my employer's stock purchase plan worth it?

Is the plan period one year?

Is the discount 5% off the market price at the end of the plan period?

Is there a lookback provision? (Some plans offer 5% off the lesser of the market prices at the beginning and end of the plan period.)

Can you sell immediately after purchase? If you can, you have a guaranteed 5.26% return on an investment held for an average plan period/2 (6 months if the plan period is 1 year, so your annualized return would be 10.8%). You should always sell immediately.
by Bob's not my name
Mon Aug 15, 2016 1:34 pm
Forum: Personal Finance (Not Investing)
Topic: Parents over 80: End of life tax strategies?
Replies: 16
Views: 3517

Re: Parents over 80: End of life tax stragegies?

bnes wrote:Good point that the tax headroom will drop when a joint filing becomes a single filing.
Survivor gets full pension?
Also, tax headroom may increase when one or both or the survivor are in assisted living, as celia has pointed out.
bnes wrote:1) Removing as much IRA money as possible at 15%, passing on cash.
Converting is better than withdrawing, as noted several times above.

You seem to be rushing into a decision to withdraw.
by Bob's not my name
Fri Aug 12, 2016 3:21 am
Forum: Personal Finance (Not Investing)
Topic: Parents over 80: End of life tax strategies?
Replies: 16
Views: 3517

Re: Parents over 80: End of life tax strategies?

bnes wrote:I'm thinking definitely don't touch the appreciated stocks, because of the "opposite of death tax" that basis step up provides.
I'm not convinced this is a definite. If the stocks represent an inappropriate risk, that risk could be mitigated by selling, IF there is opportunity to sell at the 0% LTCG rate in the 15% bracket -- but your high state tax is an important consideration. IRA conversions are likely a better use of the 15% bracket headroom. Risk could also be mitigated by putting the stocks in the name of the terminally ill spouse (or that spouse's revocable trust), if that is not already the case. This would presumably allow post-death selling at an earlier date.
by Bob's not my name
Fri Aug 12, 2016 3:14 am
Forum: Personal Finance (Not Investing)
Topic: Parents over 80: End of life tax strategies?
Replies: 16
Views: 3517

Re: Parents over 80: End of life tax stragegies?

bnes wrote:A little bit (few hundred) could I think even be put back into a Roth, as there is taxable rental income that could be offset.
Only earned income qualifies for IRA contributions. In addition, Roth contributions do not "offset" taxable income.

If your goal is to increase the Roth IRA(s), the solution obviously is conversions, as celia has already recommended.
by Bob's not my name
Thu Aug 11, 2016 5:32 am
Forum: Personal Finance (Not Investing)
Topic: Parents over 80: End of life tax strategies?
Replies: 16
Views: 3517

Re: Parents over 80: End of life tax stragegies?

celia wrote:7.5% of their AGI
10% starting 2017 -- the 7.5% threshold was changed by the ACA but extended to 2016 for 65-and-older taxpayers.
by Bob's not my name
Sun Aug 07, 2016 3:49 am
Forum: Investing - Theory, News & General
Topic: Dave Ramsey over simplifying Roth vs. Traditional IRA?
Replies: 103
Views: 18981

Re: Dave Ramsey over simplifying Roth vs. Traditional IRA?

MikeT, you had the math right from the beginning. It is a common error to do the math upside down and thus understate the tax cost of choosing Roth over Traditional. This common error is often denied by jumping into a "saturated case" argument in which all tax-advantaged space is filled. It's best to first understand the basic math before adding complexity. Q: We can afford to save $5,000 of net income. Our marginal tax rate is 25% federal, and we have no state tax. Shall I save $6,667 in traditional accounts or $5,000 in Roth accounts? or Q: I'm contributing $10,000/year to a Roth 401k. Should I switch to traditional? Our federal bracket is 25% but we're also in the child tax credit phaseout, which adds 5%, and I have an 8% state...
by Bob's not my name
Thu Aug 04, 2016 6:25 pm
Forum: Personal Investments
Topic: 403(b) to IRA - any issues to consider?
Replies: 11
Views: 1512

Re: 403(b) to IRA - any issues to consider?

The most compelling case for staying in 403(b) seems to be A non spouse beneficiary of a 403b has the option to do a direct rollover to an inherited Roth as well as an inherited TIRA. A non spouse beneficiary of an IRA cannot currently convert to an inherited Roth IRA. Only in the "saturated" case, in which the beneficiary and spouse are maxing all tax-advantaged space every year. If they are not, then they can "convert" an inherited TIRA to Roth IRAs by withdrawing from the former to fund the latter each year. For example, a couple with a 33% marginal tax rate (federal + state) can withdraw $18,000 from the inherited TIRA, pay $6,000 in tax, and make two $6,000 contributions to Roth IRAs. (I chose $6,000 to make the ma...
by Bob's not my name
Thu Aug 04, 2016 5:55 am
Forum: Personal Finance (Not Investing)
Topic: 401k or Roth 401k?
Replies: 14
Views: 1196

Re: 401k or Roth 401k?

If you are contributing only the 8%, that's $6,000 into a traditional 401k and $5,500 into a Roth IRA. The $5,500 contribution to the Roth consumes $7,333 of gross income, of which $1,833 is thrown away to taxes (25% federal, no state tax).

So you are contributing $7,333 of gross income to Roth and $6,000 of gross income to the traditional 401k.

If you were contributing $6,000 to a Roth 401k, the equivalent traditional 401k contribution is $8,000. Same net amount of spending money, so you won't feel any difference.

Tell your co-worker you have switched to traditional contributions because you learned the commutative property of multiplication in elementary school.
by Bob's not my name
Thu Aug 04, 2016 3:29 am
Forum: Personal Investments
Topic: 403(b) to IRA - any issues to consider?
Replies: 11
Views: 1512

Re: 403(b) to IRA - any issues to consider?

Some states tax 403b and IRA distributions differently. For example, grabiner has pointed out that Maryland (which has a very high tax rate) exempts some employer plan distributions but not IRA distributions, so a Maryland taxpayer shouldn't roll over all of her employer plans into an IRA.

Some 403b plans (mine, for example) offer lower expense ratios than an IRA.
by Bob's not my name
Mon Aug 01, 2016 2:43 pm
Forum: Personal Investments
Topic: Advice for a new investor: modest inheritance
Replies: 8
Views: 1285

Re: Advice for a new investor: modest inheritance

I should have noted that PA taxes 401k contributions but not withdrawals, so your state tax isn't really relevant and I should have left it out.
by Bob's not my name
Mon Aug 01, 2016 9:56 am
Forum: Personal Investments
Topic: Advice for a new investor: modest inheritance
Replies: 8
Views: 1285

Re: Advice for a new investor: modest inheritance

Check your eligibility for education tax credits, particularly the American Opportunity Tax Credit, which is set to expire after 2017 but has been extended a couple of times. Eligibility phases out for MAGI $160,000-180,000, not inflation-adjusted. Your AGI is at the bottom of page 1 of your 1040. IRA distributions (required or not) will increase your AGI. 401k and 403b contributions decrease your AGI. Roth IRA contributions do not decrease your AGI. If the AOTC is extended past 2017 and you are in the phaseout with two kids in school in one calendar year, your marginal tax rate will be 53% (include PA). That's a strong incentive to reduce AGI. Note that education credits are based on calendar years, not tax years. Therefore, a normal Sept-...
by Bob's not my name
Mon Aug 01, 2016 5:05 am
Forum: Personal Investments
Topic: Inactive employer 401k question
Replies: 12
Views: 1544

Re: Inactive employer 401k question

PoemMan wrote:Watty, we have 401k accounts from two past employers and one from a current employer. Should we consolidate these into one three-fund account?
Not necessarily. There may be reasons to keep them separate. For example, if you are using the term "401k" loosely to include, say, a 403b account, and your state taxes 401k's and 403b's differently. Or if one of the old 401k's has a good loan program for which former employees are eligible (I keep an old 401k for this reason). Or if "consolidate" means moving all three into an IRA and your state taxes 401k's and IRA's differently. Or if the three accounts are not in one person's name (which I surmise from "we").
by Bob's not my name
Wed Jul 27, 2016 5:20 pm
Forum: Personal Investments
Topic: No 401k for 5 months
Replies: 13
Views: 2019

Re: No 401k for 5 months

$1,000 credit phased out over $20,000 of income: 1,000/20,000 = 5%

5% + nominal 25% = 30%

If you think it's nuts that the 30% bracket is below the 28% bracket, consider the effect of the AOTC phaseout on a family in the 25% bracket with two kids in college in one calendar year. Their marginal rate is 50% (not including any state tax).
by Bob's not my name
Wed Jul 27, 2016 2:00 pm
Forum: Personal Investments
Topic: No 401k for 5 months
Replies: 13
Views: 2019

Re: No 401k for 5 months

You have a good grip on your numbers. I'll just say again that it may not make any difference whether your deductible 401k/TIRA contributions are for 2016 or 2017 if you aren't maxing out all that space -- you will likely be avoiding a 30% marginal rate in either case. So the increment of tax you pay for 2016 may be entirely offset by an increment of tax you avoid next year by holding this year's phantom 401k contributions for after January 1.
by Bob's not my name
Wed Jul 27, 2016 3:42 am
Forum: Personal Investments
Topic: No 401k for 5 months
Replies: 13
Views: 2019

Re: No 401k for 5 months

You're in the phantom 30% tax bracket due to the child tax credit phaseout, which is based on AGI. You are not eligible for deductible TIRA contributions but your non-working spouse is -- you're way, way under the phaseout for spousal TIRA deductions. So you could switch her from Roth to TIRA, and max her TIRA in future years to avoid the 30% marginal rate and have access to low cost funds. With a 30% federal rate and no state tax, $11,000 of Roth IRA contributions consume $15,714 of gross income, of which $4,714 is thrown away to taxes. If you skipped Roth IRA contributions in 2017 you could instead make $15,714 of additional contributions to her spousal TIRA and your 401k. If your prior practice was to contribute about $4,000 to your SIMP...
by Bob's not my name
Wed Jul 20, 2016 3:11 am
Forum: Personal Investments
Topic: Portfolio review/ help funding 401k with taxable acct
Replies: 22
Views: 4448

Re: Portfolio review/ help funding 401k with taxable acct

Exactly. If your gains are under 3% then the gain on a $10,000 sale would be under $300, on which you would pay under $50 in tax (federal + state).

You won't hit the one-year mark this calendar year?
by Bob's not my name
Tue Jul 19, 2016 7:03 pm
Forum: Personal Investments
Topic: Portfolio review/ help funding 401k with taxable acct
Replies: 22
Views: 4448

Re: Portfolio review/ help funding 401k with taxable acct

Did you inherit the assets or buy them with inherited cash? If the former, did you receive them from a trust that has held them for some years, or did you inherit direct from the deceased? These factors will determine whether you have any significant gains and whether they are long or short.

Also, your Vanguard account will tell you what your gains are ... except this isn't necessarily accurate.

If you bought the assets yourself less than a year ago, it seems unlikely the gains are significant. Remember, the sales amount isn't taxed, just the portion that is gains. For example, you could sell $10,000 of stock with no gains and pay no tax.
by Bob's not my name
Fri Jul 15, 2016 3:09 am
Forum: Personal Investments
Topic: Portfolio review/ help funding 401k with taxable acct
Replies: 22
Views: 4448

Re: Portfolio review/ Can I be more tax advantageous?

Since, I depend on my monthly income besides the 5k im currently contributing to my 401k would it be easiest to sell 13K at the beginning of each year and deposit in our savings and just pull each month as we need it? (hopefully if I get a raise or something changes and we can save more a month I can decrease this) Then once I get some cash built up from my taxable account I can use that too? This is a fine approach but "easiest" is a matter of personal preference. In your case, with most of your assets liquid (hence available in an emergency), I would just draw from my emergency fund for a while and then sell in blocs as necessary, but that's me. Also, as above, be sure to realize only long term gains, and bear in mind that Indi...
by Bob's not my name
Fri Jul 15, 2016 3:04 am
Forum: Personal Investments
Topic: Portfolio review/ help funding 401k with taxable acct
Replies: 22
Views: 4448

Re: Portfolio review/ Can I be more tax advantageous?

2. For the 401k, I'm an hourly employee, my income can vary but usually just slightly at the end of the year. So do I just calculate the percentage that gets me closest to maxing out my 401k and change it to that and then towards the end of the year keep a close watch to be sure it doesn't go over the 18K? This depends on how your employer manages 401k contributions. For example, my employer allows me to enter MAXIMUM on the form and they do all the math and tracking for me, contributing $18,000/26 from each biweekly paycheck (actually it's $24,000/26 for me because I'm over 50). Or they allow me to specify the dollar amount rather than a percentage. In any case, my employer will not allow any employee to contribute more than the maximum b...
by Bob's not my name
Fri Jul 15, 2016 2:55 am
Forum: Personal Investments
Topic: Portfolio review/ help funding 401k with taxable acct
Replies: 22
Views: 4448

Re: Portfolio review/ Can I be more tax advantageous?

1. I haven't made our 2016 Roth contributions yet or taken the RMD from the inherited IRA. So, should I go ahead and take the RMD and then sell 11,000 minus the RMD from the taxable account and fund the Roths for this year? Yes, that's a fine approach. I'm not sure whether you should sweat the tax withholding on either transaction, but for completeness: (A) Your RMD is taxed as ordinary income by both federal and state, so you may want to make an estimated tax payment to each to make sure you are not underwithheld for the year. You don't have to get the exact amount right, but it's pretty easy to just multiply your RMD by 15% for federal and by 3.3% for state. So if your RMD is $6,000 you pay the IRS $900 and you pay Indiana $200. The stat...
by Bob's not my name
Tue Jul 12, 2016 3:24 am
Forum: Personal Investments
Topic: Portfolio review/ help funding 401k with taxable acct
Replies: 22
Views: 4448

Re: Portfolio review/ Can I be more tax advantageous?

Almost your entire portfolio is essentially an emergency fund since it's almost entirely liquid. You have the right idea drawing from the inherited IRA and taxable account to max your tax-advantaged savings (two Roth IRAs and your 401k). I think liquidating taxable account assets to the extent possible at the 0% federal LTCG rate (viz., staying within the 15% bracket) every year makes sense. Can you give me some advice on how to figure out the number on how much to pull from the taxable and to make sure I stay in the 15% bracket. I don't really understand the process and how it will effect taxes. I agree with livesoft that tax software can be very helpful for this. However, I recommend you start by examining your recent 1040's to get some ...
by Bob's not my name
Mon Jul 11, 2016 6:19 pm
Forum: Personal Investments
Topic: Strategy for conversion of $1.8 million IRA
Replies: 80
Views: 16912

Re: Strategy for conversion of $1.8 million IRA

WildBill wrote:if and only if your objective is minimizing taxes in a given year
The objective is to avoid paying 30% federal income tax on IRA conversions or withdrawals at any time.
by Bob's not my name
Mon Jul 11, 2016 5:52 pm
Forum: Personal Investments
Topic: Strategy for conversion of $1.8 million IRA
Replies: 80
Views: 16912

Re: Strategy for conversion of $1.8 million IRA

There are other instances of displacement effects in the tax code, for example the ACA taxes.
by Bob's not my name
Mon Jul 11, 2016 5:43 pm
Forum: Personal Investments
Topic: Strategy for conversion of $1.8 million IRA
Replies: 80
Views: 16912

Re: Strategy for conversion of $1.8 million IRA

celia wrote:
livesoft wrote:^Any earned or conversion income that pushes any 0% LTCG/QDI into the place where those LTCG/QDI will be taxed at 15% is effectively increasing taxes at a 30% marginal rate and not a 15% marginal rate.
livesoft's comment refers to those taking SS.
No, it doesn't. I'm not sure how to explain it better than he does.
by Bob's not my name
Mon Jul 11, 2016 8:56 am
Forum: Personal Investments
Topic: Portfolio review/ help funding 401k with taxable acct
Replies: 22
Views: 4448

Re: Portfolio review/ Can I be more tax advantageous?

Almost your entire portfolio is essentially an emergency fund since it's almost entirely liquid.

You have the right idea drawing from the inherited IRA and taxable account to max your tax-advantaged savings (two Roth IRAs and your 401k). I think liquidating taxable account assets to the extent possible at the 0% federal LTCG rate (viz., staying within the 15% bracket) every year makes sense.
by Bob's not my name
Sun Jul 10, 2016 7:51 pm
Forum: Personal Investments
Topic: Chances of <15% marginal income tax in retirement
Replies: 18
Views: 3441

Re: Chances of <15% marginal income tax in retirement

Georgia is one of two(I think) states where you can deduct IRA contributions while you are working but not pay taxes on IRA withdraws when you are 65. (That is within income limits and it actually partially starts a 62) There are far more than two, actually. I looked at this a few years ago, but my focus was on pre-65 withdrawals, and this may be a little dated, but here's a sampling. Many have low dollar limits, but if you exploit a $6,000 limit for two decades that's $120,000 of state tax-free conversions or withdrawals. The tax rates in parentheses are sampled rates for mid-income ranges. Arkansas (7%, 7.7% in some school districts) Taxpayers over 59.5 can each exclude $6,000 of a TIRA conversion Colorado (4.63%) Exempts $20,000 of IRA ...
by Bob's not my name
Sun Jul 10, 2016 3:45 pm
Forum: Personal Investments
Topic: Aggresively paying student loans vs saving for retirment
Replies: 34
Views: 3712

Re: Aggresively paying student loans vs saving for retirment

Each month I deposit $458 into my Roth IRA and $458 into my wife's. Now I am going to stop these automatic deposits and save the $916 per month until I can reach the account minimums ($2500 for Vanguard) for buying new funds for the Trad IRAs. Does this make sense? I don't think it does. First, your math is incorrect. Assuming you're in the 25% federal bracket (and considering the 8% state tax), $916 of Roth contributions consume $1,367 of gross income, so your alternative is not $916 of TIRA contributions, it's $1,367 of TIRA contributions. The monthliness of contributions is irrelevant. In two months you'd have enough to put $2,734 into a TIRA. It should be a TIRA for the non-covered spouse, since continued eligibility is less an issue. ...
by Bob's not my name
Sun Jul 10, 2016 3:39 pm
Forum: Personal Investments
Topic: Aggresively paying student loans vs saving for retirment
Replies: 34
Views: 3712

Re: Aggresively paying student loans vs saving for retirment

Are you aware that contributions to the traditional IRA are probably not tax deductible if you have a 401k at work? If you are making non-deductible contributions, you should be making them to a Roth ITA not a tIRA. If you are over the income limit for the Roth, then do a backdoor Roth. There is no scenario I can think of in which making contributions to a non-deductible tIRA makes sense. You'd be better off investing in taxable where you can treat any gains as capital gains. They're below the phaseout. TIRA contributions are deductible for a couple, even if both are covered by retirement plans, with $98,000 MAGI. That equates to around $138,000 gross income for a couple maxing both 401k's. When only one spouse is covered, the other can ma...
by Bob's not my name
Sun Jul 10, 2016 3:14 pm
Forum: Personal Investments
Topic: Aggresively paying student loans vs saving for retirment
Replies: 34
Views: 3712

Re: Aggresively paying student loans vs saving for retirment

DayOfChange wrote:our new Trad IRAs
Wait, this is a new wrinkle. You are aware that the combined contribution limit for Roth and Traditional IRAs is $5,500, right?
by Bob's not my name
Sun Jul 10, 2016 11:09 am
Forum: Personal Investments
Topic: When to sell ESPP?
Replies: 8
Views: 1581

Re: When to sell ESPP?

you were not in the market since you just held the company share and that too for 1 day before you initiated the sell. I agree. Your regret isn't rational. Neither is hanging onto the stock for the mythical tax advantage. Whether the 5% discount is worth the hassle is something you'll have to calculate for yourself. A 5% discount and a quarterly plan period make it all rather puny. The return is theoretically good: your profit is 5.26% for an average investment period of 1.5 months, so it's a 50% annualized yield on a pretty low risk thing. But the high fee takes a bite out of that. If you are investing 10% of gross salary and your salary is $100,000, then that's only $2,500 per quarter, so the 5.26% profit before fee is only $131/quarter....
by Bob's not my name
Sun Jul 10, 2016 9:38 am
Forum: Personal Investments
Topic: Strategy for conversion of $1.8 million IRA
Replies: 80
Views: 16912

Re: Strategy for conversion of $1.8 million IRA

bsteiner wrote:Most clients in your situation would leave the IRA to the spouse so she could roll it over into her own IRA and have the opportunity to complete the Roth conversion.
I agree with everything bsteiner posted. Just wanted to note that this is exactly what I did and it worked out well.
by Bob's not my name
Sun Jul 10, 2016 9:35 am
Forum: Personal Investments
Topic: Aggresively paying student loans vs saving for retirment
Replies: 34
Views: 3712

Re: Aggresively paying student loans vs saving for retirment

Her Salary ~ $60000 His Salary ~ $40000 25% Tax bracket 7.95% State Tax $100,000 gross income yields taxable income under $75,301 (the 25% bracket threshold), considering pre-tax health, dental, and disability insurance premiums, minimum 401k contributions to get the company match, student loan interest deduction, standard deduction, and personal exemptions. So the OP is in the 15% federal bracket but has an 8% state tax, yielding a 23% marginal rate. If his state doesn't adjust taxable income for the federal student loan interest deduction (that is, if effectively he also gets a state deduction), the $2,500 deduction is worth $575 to him. He may be right at the 25% bracket threshold however, so the student loan interest deduction might ac...
by Bob's not my name
Sun Jul 10, 2016 8:18 am
Forum: Personal Investments
Topic: Aggresively paying student loans vs saving for retirment
Replies: 34
Views: 3712

Re: Aggresively paying student loans vs saving for retirment

Assuming that you are in 25% marginal tax rate and you have not maxed your Trad. 401K. You are 25% tax aka $3,000 on the additional $12,000 that you put into student loan. Is it worth paying 25% tax to pay a 6% loan early? You did the math upside down. To apply $12,000 to the student loan you need to consume $16,000 of gross income, throwing away $4,000 to taxes (assuming a 25% federal rate, no state tax, and no phaseouts such as the student loan interest deduction phaseout). It turns out the OP is not in the 25% bracket: Her Salary ~ $60000 His Salary ~ $40000 25% Tax bracket 7.95% State Tax $100,000 gross income yields taxable income under $75,301 (the 25% bracket threshold), considering pre-tax health, dental, and disability insurance p...
by Bob's not my name
Sun Jul 10, 2016 8:15 am
Forum: Personal Investments
Topic: Aggresively paying student loans vs saving for retirment
Replies: 34
Views: 3712

Re: Aggresively paying student loans vs saving for retirment

DayOfChange wrote:
you don't get a tax deduction for student loan debt
This isn't true at all, unless I'm misunderstanding what you're saying. I can deduct up to $2500 a year from student loans interest.
It's not deductible at the margin. $100,000 of debt at 6% is $6,000 of interest. So the bulk of the interest is not deductible and you're paying the high rate until you get the total debt below $42,000 ($37,000 if the rate is actually the common 6.8%).

Furthermore, the AGI limit on the deduction limits eligibility to taxpayers in the 15% and a portion of the 25% bracket.
by Bob's not my name
Sun Jul 10, 2016 5:38 am
Forum: Personal Investments
Topic: Backdoor IRA for non-working spouse
Replies: 7
Views: 1341

Re: Backdoor IRA for non-working spouse

It may be useful to know that OP is about 42, lives in CA, and may be in the AMT with a total marginal rate exceeding 40%. Also, there is a $740k mortgage and a 529 plan.

So: There may be a few decades until retirement, which I think argues for converting the spousal TIRA, but the tax rate is very high, which argues against, and there are the alternatives of contributing to the 529 and paying down the mortgage.

There is also the good news that in seven or eight years the OP will be eligible for catch-up contributions to both 401k and backdoor Roth.
by Bob's not my name
Sun Jul 10, 2016 4:06 am
Forum: Personal Investments
Topic: Strategy for conversion of $1.8 million IRA
Replies: 80
Views: 16912

Re: Strategy for conversion of $1.8 million IRA

Regarding taxation of TIRA withdrawals and conversions, I managed the finances of an elderly couple with wealth similar to yours. Because medically necessary assisted living costs are deductible, I was able to convert several hundred thousand dollars of TIRA to Roth at very low tax rates (some at 0%) so that RMDs were arrested for the remainder of the principal's life and the heirs inherited Roth IRAs rather than TIRAs. Similar to the graduating student scenario, here the government has created notable tax opportunities for those least able to take advantage of them, since both graduating students and dying elderly persons are not focused on nor well equipped for artful tax avoidance. So help your kids out in the first scenario, and then th...
by Bob's not my name
Sun Jul 10, 2016 3:59 am
Forum: Personal Investments
Topic: Strategy for conversion of $1.8 million IRA
Replies: 80
Views: 16912

Re: Strategy for conversion of $1.8 million IRA

-We will have two kids in college for the next 3 years, and one In year four. This is important , I think, because it makes us eligible for the [AOTC] of $2500 for each kid as long as our AGI is below $160,000. You have it right that the American Opportunity Tax Credit is based on AGI, not gross income or taxable income. Note that when you have two kids in college the $5,000 combined credit phases out over $20,000 of AGI, which means it's an effective 25% marginal tax rate on top of the nominal 25% marginal rate, so your marginal tax rate is 50% in the phaseout. 50% is a high marginal rate so bear in mind that you can modulate your AGI with deductible retirement plan contributions (this could mean deductible TIRAs since neither of you woul...
by Bob's not my name
Sat Jul 09, 2016 11:40 am
Forum: Personal Investments
Topic: Roth IRA - Bonds or Stocks?
Replies: 7
Views: 1345

Re: Roth IRA - Bonds or Stocks?

You're blending two separable things together:
1. Is Roth or traditional better?
2. If I have money in both Roth and traditional, does it make any difference what assets I hold where?

The first question is complicated. The second isn't (although there are second order issues, e.g., I have an old 401k with a good loan program and just over $100,000 in it, so I keep it invested conservatively to ensure the maximum loan is available to me at any time).
by Bob's not my name
Sat Jul 09, 2016 11:19 am
Forum: Personal Investments
Topic: Chances of <15% marginal income tax in retirement
Replies: 18
Views: 3441

Re: Chances of <15% marginal income tax in retirement

"Entirely" isn't the right criterion.

Also, a person currently in the federal 15% bracket may have a state tax that is a substantial portion of his total tax burden, since most state taxes are flattish. Therefore, state tax treatment should be taken into account. Many states exempt some retirement income.