Search found 469 matches

by 986racer
Mon Mar 25, 2024 4:02 pm
Forum: Personal Finance (Not Investing)
Topic: Income Limits For IRA Contributions
Replies: 12
Views: 716

Re: Income Limits For IRA Contributions

This post is being inspired by another current post of mine regarding backdoor Roth IRAs. So if the same "tax people" see this, thanks for bearing with me, as this is a related but separate question. I'm coming to realize, I think, that income limits for IRA contributions are really income limits for being able to deduct IRA contributions. Right? Can my retired sibling, who has a very high investment income and a spouse who still works, and contributes the max to a small business 401(K), still contribute $7500 for 2023 ($8000 for 2024) to a non-deductible Traditional IRA, then "back door" covert to Roth? I was under the impression that the income limits meant you can't do it but I'm looking for confirmation that you can...
by 986racer
Mon Mar 25, 2024 3:58 pm
Forum: Personal Finance (Not Investing)
Topic: The best game-changing financial advice you ever received (or "discovered")
Replies: 219
Views: 25586

Re: The best game-changing financial advice you ever received (or "discovered")

marielake wrote: Sun Mar 24, 2024 10:25 pm Before I retired, advice was to pay off credit cards and start living as tho I was on a fixed budget. I bought a budget package (YNAB) and it has made all the difference.
I'm a big fan of YNAB's motto of "get one month ahead"

I taught my daughter about compound interest when I made a gift to her Roth IRA based on her summer savings. I showed how, with just a "normal" 6% growth rate, it would double approximately every 12 years and would end up being worth almost $100k when she retires
by 986racer
Mon Mar 25, 2024 3:41 pm
Forum: Personal Finance (Not Investing)
Topic: Retirement Accounts or 529 or Saving for New Home?
Replies: 31
Views: 1761

Re: Retirement Accounts or 529 or Saving for New Home?

joelly wrote: Mon Mar 25, 2024 3:28 pm
er999 wrote: Sat Mar 23, 2024 2:22 pm If you are making $315k you should be able to max his/her 401k each year for the tax savings unless you have very high spending.
For any tax-advantaged, doesn't it phased out for 401k contribution because of their high income? I'm curious.
AFAIK, there is no phase-out for 401k contributions.
by 986racer
Mon Mar 25, 2024 3:41 pm
Forum: Personal Finance (Not Investing)
Topic: Retirement Accounts or 529 or Saving for New Home?
Replies: 31
Views: 1761

Re: Retirement Accounts or 529 or Saving for New Home?

At 25% savings (let's call it $80K), I'd do this 23K each in 401k 7k each in back-door Roth 10k each in mega back-door Roth, if available If 3 is not available, then 10k in taxable, and for the remaining 10k, then it's a question if you want to be locked into a 529 or would rather put more money into taxable that is earmarked for a down payment. Since you don't live in a state with income tax, saving in a 529 won't provide any immediate tax benefits. The main benefit you'll get is not paying a 15% capital gains tax when you sell the securities to pay for college. (You'll also save a bit of tax drag from dividends). Using the back door AOTC will provide much of that same benefit while also providing flexibility if you decide the right thing ...
by 986racer
Mon Mar 25, 2024 3:19 pm
Forum: Personal Finance (Not Investing)
Topic: Retirement Accounts or 529 or Saving for New Home?
Replies: 31
Views: 1761

Re: Retirement Accounts or 529 or Saving for New Home?

My order would go like this... Fully fund 401k (assuming good investment options at 401k) Fund 529 up to max of any state tax deduction (i.e., if your state gives you a deduction on the first 3000, fund just 3000 in this step) Back-door roth IRA Mega back-door 401k (if available and assuming good options at 401k) Fund about $5k-10k per year in earmarked taxable account for college savings. The exact amount depends on the age of the kids, but the goal is to take advantage of Back Door AOTC . This step is going to provide a lot of flexibility if your child gets scholarships or your 529 has unexpectedly high returns. Fund whatever you think is appropriate for 529. Depending on how much you have, this could mean superfunding or the $36K per ye...
by 986racer
Mon Mar 25, 2024 1:20 pm
Forum: Personal Finance (Not Investing)
Topic: Retirement Accounts or 529 or Saving for New Home?
Replies: 31
Views: 1761

Re: Retirement Accounts or 529 or Saving for New Home?

My order would go like this... Fully fund 401k (assuming good investment options at 401k) Fund 529 up to max of any state tax deduction (i.e., if your state gives you a deduction on the first 3000, fund just 3000 in this step) Back-door roth IRA Mega back-door 401k (if available and assuming good options at 401k) Fund about $5k-10k per year in earmarked taxable account for college savings. The exact amount depends on the age of the kids, but the goal is to take advantage of Back Door AOTC . This step is going to provide a lot of flexibility if your child gets scholarships or your 529 has unexpectedly high returns. Fund whatever you think is appropriate for 529. Depending on how much you have, this could mean superfunding or the $36K per yea...
by 986racer
Thu Mar 21, 2024 5:07 pm
Forum: Personal Finance (Not Investing)
Topic: In-laws 529 for grandkids, bite my lip or say something?
Replies: 58
Views: 5895

Re: In-laws 529 for grandkids, bite my lip or say something?

Good luck... I have a friend who is putting money into a 529 through an advisor. The fees for doing that basically negates the state tax deduction that they could otherwise get.

I tried pointing out that they could put their money into the exact same 529 fund directly, bypass the advisor, and they'd immediately be ahead as they would reap the benefit of the state tax deduction. They have no interest in switching

I think it's worth pointing out but don't surprised if nothing changes
by 986racer
Mon Mar 18, 2024 2:22 pm
Forum: Personal Investments
Topic: Traditional IRA versus 529 versus 401k - order of priority advice
Replies: 23
Views: 1137

Re: Traditional IRA versus 529 versus 401k - order of priority advice

I would consider putting some money in an earmarked taxable account for college savings and utilizing Back Door AOTC if the income is above normal AOTC limits

This provides similar tax advantages to 529s without the worry of overfunding an account. Note that there is a limit to the tax advantage on this strategy, so if the goal is to send the child to a pricey college, then also funding a 529 would still be useful
by 986racer
Sat Mar 16, 2024 12:04 pm
Forum: Personal Finance (Not Investing)
Topic: Back Door AOTC [American Opportunity Tax Credit]
Replies: 37
Views: 6209

Re: Back Door AOTC [American Opportunity Tax Credit]

OP, I am in the process of planning this in TurboTax 1. Because of how the 8615 calculates the tax due to each child, it does this by adding the unearned income of all kids over deduction to the parents taxable income. Then it calculates the difference in taxes, with that children income added and without. So, looks to me if the parent is subject to NIIT, the children will also be hit with the NIIT. 2. Secondary, if the parent was just under the 20% cap gains boundary without the children income, then by adding the children income will push the calculated impacted on children at 20% LTCG bracket, not 15%. I just double checked on point 1... The children definitely are not hit with NIIT through this strategy as the calculations are all done...
by 986racer
Wed Mar 13, 2024 1:09 pm
Forum: Personal Investments
Topic: Underfund vs overfund decision for 529
Replies: 12
Views: 1118

Re: Underfund vs overfund decision for 529

I went with the strategy of funding what an in-state college costs and then use Back Door AOTC to fill the gap. This would work especially well for you so you said that you already have money in taxable accounts.
by 986racer
Wed Mar 13, 2024 1:06 pm
Forum: Personal Consumer Issues
Topic: Freetaxusa vs Turbotax
Replies: 121
Views: 17182

Re: Freetaxusa vs Turbotax

Last year I tried out freetaxusa and used it as a check against Turbotax. The nice thing was that it caught times when I wasn't entering in info in Turbotax correctly and therefore not getting the full credit. E.g, I didn't properly enter in the backdoor Roth info into turbotax and I found the discrepancy using freetaxusa

One things freetaxusa doesn't do is properly handle this: Back Door AOTC. As a result, I have to keep using TT until the kids are done with college.
by 986racer
Wed Mar 13, 2024 12:59 pm
Forum: Personal Finance (Not Investing)
Topic: Kitces: Deferred comp when moving states
Replies: 3
Views: 587

Re: Kitces: Deferred comp when moving states

I've encountered it, and I can tell you that it's a big PITA just trying to figure out the correct tax forms to use to report it properly. Based on discussions with co-workers, it seems that most accountants aren't aware of this either
by 986racer
Sun Feb 25, 2024 7:54 am
Forum: Personal Investments
Topic: Financial advisor recommendation--beyond the usual suspects?
Replies: 58
Views: 5341

Re: Financial advisor recommendation--beyond the usual suspects?

You mentioned kids going to college. I'l throw this out there as something to consider: viewtopic.php?p=7443955
by 986racer
Sun Feb 25, 2024 7:26 am
Forum: Personal Investments
Topic: Questions about Whole Life
Replies: 133
Views: 10305

Re: Questions about Whole Life

Stinky wrote: Sun Feb 25, 2024 7:18 am
986racer wrote: Sun Feb 25, 2024 6:54 am BTW, technically the money does NOT go to your heirs tax free. The money goes to the owner of the policy tax free.
Just to be a little more precise, the insurance company pays a death benefit to the beneficiary(ies) named in the policy, not to the policy owner.

And death benefit proceeds are not taxable income to the beneficiary.

(I realize that this is far afield from OP’s question about whole life insurance.)
My mistake on that. You are correct that it goes to the beneficiaries tax free. However... I thought it is still considered part of the estate and so there may be estate taxes due.
by 986racer
Sun Feb 25, 2024 6:54 am
Forum: Personal Investments
Topic: Questions about Whole Life
Replies: 133
Views: 10305

Re: Questions about Whole Life

BTW, technically the money does NOT go to your heirs tax free. The money goes to the owner of the policy tax free. Almost always with WL insurance, the owner is the person named on the policy (i.e., you). So, it goes into your estate tax free, and then if your estate is too large, there will be taxes on that. The way to get around this is to open up an irrevocable trust and put the policy in there and then gift to the trust to pay the premiums. Of course, if you do that, you lose all of the other "benefits" of the policy, such as being able to borrow against it. It's FAR simpler to just buy term and invest the difference in stocks. When you die, the stocks will get a step up in basis, and so your estate will get tax free growth on...
by 986racer
Sun Feb 25, 2024 6:44 am
Forum: Personal Consumer Issues
Topic: Dental crowns
Replies: 59
Views: 8009

Re: Dental crowns

1185 for me (after insurance) in Miami. Was about a month ago
by 986racer
Sun Feb 25, 2024 6:38 am
Forum: Personal Finance (Not Investing)
Topic: Planning for college costs?
Replies: 13
Views: 1351

Re: Planning for college costs?

Here's something to think about if you plan to continue working while your children are in college: viewtopic.php?p=7443955

That will give you a way to capture the AOTC even though your income will be too high to qualify

If you will be retired when they go to school, there isn't much benefit for that strategy nor for adding more money to a 529. All the 529 gives you is tax free growth, but you will be able to avoid paying taxes on the first 94K of gains anyhow if you don't have other income
by 986racer
Wed Jan 17, 2024 12:52 pm
Forum: Personal Consumer Issues
Topic: Experience with Frontier Airlines
Replies: 42
Views: 4440

Re: Experience with Frontier Airlines

I pretty much fly the discount airlines (Spirit, Frontier, Allegiant, etc) exclusively now unless I'm travelling for business. While there can be flight issues with them, I've actually had worse experiences with cancellations from the major airlines. My feeling is that Spirt has the least padding (I think I've been on softer benches in our local park) and Frontier feels good by comparison. A few hacks... 1. Buy a "personal item" bag that is advertised to always fit in their holder/sizer thing. Do a few google searches and then Facebook will start targeting the ads to you 2. Take the "one personal item" seriously. Yes, there will be times that they don't check and you could bring virtually anything on board. And yes, ther...
by 986racer
Fri Oct 27, 2023 3:52 pm
Forum: Personal Investments
Topic: Tax loss harvesting Mega Backdoor
Replies: 21
Views: 2678

Re: Tax loss harvesting Mega Backdoor

Last year I did 2 after-tax conversions and one had a slight gain and one had a slight loss. I was told that I couldn't apply the slight loss against the slight gain.

I don't recall though if Turbo Tax agreed with that assessment. If so, I doubt that you can carry the slight loss across years
by 986racer
Fri Oct 27, 2023 3:38 pm
Forum: Personal Finance (Not Investing)
Topic: Tax planning strategy? Federal college education credits
Replies: 9
Views: 1251

Re: Tax planning strategy? Federal college education credits

Take a look at back door AOTC

It's going to be less useful if you are already fully funded in a 529. However, you could use the money to get your child a great jumpstart on life
by 986racer
Fri Oct 27, 2023 3:32 pm
Forum: Personal Finance (Not Investing)
Topic: Funding College
Replies: 9
Views: 1469

Re: Funding College

What worked really well for me is having a mixture of 529 and taxable accounts. Use the back door AOTC to get tax-free access to the taxable account money

I aimed for having the equivalent of a public education in the 529 and using the back door AOTC for the gap between public and private.
by 986racer
Wed Oct 18, 2023 2:17 pm
Forum: Personal Finance (Not Investing)
Topic: Forgot 1099-INT Worth amending tax forms over?
Replies: 67
Views: 6517

Re: Forgot 1099-INT Worth amending tax forms over?

I got a 1099-INT sent to me late and I got it literally hours after I filed electronically. The grand total of the extra tax that I'd owe is $3 I'm still waiting for my return to be processed so that I can file an amended return... There is no legal requirement to file an amended return. If no amended return is filed, and the IRS later discovers 1099 income that was omitted from the tax return, the IRS can send a tax notice for the additional tax (no penalties). That is not likely to happen when the additional tax is only $3. If you feel a moral obligation to pay the additional $3 tax, consider that it will cost the IRS much more than $3 to process your amended return, so your amended return will be costing the government money. In additio...
by 986racer
Tue Oct 17, 2023 4:45 pm
Forum: Personal Finance (Not Investing)
Topic: Forgot 1099-INT Worth amending tax forms over?
Replies: 67
Views: 6517

Re: Forgot 1099-INT Worth amending tax forms over?

I got a 1099-INT sent to me late and I got it literally hours after I filed electronically.

The grand total of the extra tax that I'd owe is $3

I'm still waiting for my return to be processed so that I can file an amended return...
by 986racer
Mon Sep 25, 2023 12:23 pm
Forum: Personal Finance (Not Investing)
Topic: How much to target in 529 for covering full tuition?
Replies: 75
Views: 8590

Re: How much to target in 529 for covering full tuition?

One thing I did for a DD who I had concerns about them applying herself to the best of her ability... We agreed that she was going to take out the maximum federal student loan (5500 first year, 6500 second year, 7500 3rd and 4th year). The expectation was that she would take at least 10 courses per year. In the first year, I would pay back 600 for each A ,and 300 for each B. If she got straight As, I was then giving her the $500 difference and paying off her student loan for that year. Any balance left over was on her dime. At the end of the 4 years, she far surpassed our expectations and had about $6k that was hers to pay. As a graduation gift, we paid that off too That's an interesting idea. I would be concerned that my kid wouldn't chal...
by 986racer
Mon Sep 25, 2023 11:06 am
Forum: Personal Finance (Not Investing)
Topic: How much to target in 529 for covering full tuition?
Replies: 75
Views: 8590

Re: How much to target in 529 for covering full tuition?

Your thoughts might change in 10 years. I am sure you have wonderful kids, but they have not turned into teenagers yet :D . What if one of your kids went to college to just play and spent 2-3 years having a blast on your dime and then dropped out-- would you want to fund $400K for that and then have money left in the 529 somewhat restricted in its use? I would consider funding enough in 529 to cover a solid state university option and then funnel the rest of the dollars (for a private school) to a separate taxable account should they decide to go that route and you decide to fund that decision. It gives you options. Don't forget merit based scholarships, especially for private institutions. One thing I did for a DD who I had concerns about...
by 986racer
Mon Sep 25, 2023 11:02 am
Forum: Personal Finance (Not Investing)
Topic: How much to target in 529 for covering full tuition?
Replies: 75
Views: 8590

Re: How much to target in 529 for covering full tuition?

berg wrote: Mon Sep 25, 2023 9:58 am For those of you who are saying to fund the 529 to a certain point and then take out of taxable, do you keep those funds in your regular investment asset allocation or do you create a separate taxable fund with the intention of use for college if needed? The reason I ask is the asset allocation for our 529s is starting to shift down at a faster pace than our retirement portfolio.
For me, I kept my asset allocation the same in taxable. Using the "back door AOTC" strategy, I identified stocks that I wanted to sell due to the built up LTCG and then transferred those to a separate account. I only used the separate account so that I could bucket those stocks separately on the Fidelity website.
by 986racer
Sun Sep 24, 2023 3:09 pm
Forum: Personal Finance (Not Investing)
Topic: How much to target in 529 for covering full tuition?
Replies: 75
Views: 8590

Re: How much to target in 529 for covering full tuition?

According to this podcast and book (the price you pay for college) https://www.bogleheads.org/forum/viewtopic.php?t=386631 The majority of private schools after the top 20 or so give significant discounts off the list price regardless of financial need. They call it merit aid but it’s just discounting to fill their classes. I think you’ll only be full pay for $500k or so in 10 years if your kids go to a place like Harvard or Stanford and you have several million in taxable assets. Otherwise you’ll likely get a discount to make the pricing comparable to in state costs. If Syracuse or a similar school is the goal likely significant discounts labeled merit aid will be there. According to the book schools keep the exact details hidden. It can ...
by 986racer
Sun Sep 24, 2023 12:27 pm
Forum: Personal Finance (Not Investing)
Topic: How much to target in 529 for covering full tuition?
Replies: 75
Views: 8590

Re: How much to target in 529 for covering full tuition?

So to sum up questions: What % would you target if you want to be prepared to 100% cover premium cost 4 year private school Would you frontload that cost out of current investments or stick to monthly contributions? How does the early retirement goal impact things? Thanks for all the replies. In reading through the comments, it seems the consensus still falls within the general feeling I often see posted here: target full coverage state flagship school in 529 and then cover the rest through taxable or cashflow if we choose to (which we are planning to do). At our current balances and saving rate, even at a 4% return the next 10 years, we will have enough to fully cover in-state at Umass Amherst. And yes, those of you inferred correctly tha...
by 986racer
Fri Sep 22, 2023 3:57 pm
Forum: Personal Consumer Issues
Topic: Whole Foods' Palm Scanning Technology: Are you all in?
Replies: 44
Views: 4508

Re: Whole Foods' Palm Scanning Technology: Are you all in?

I use it often at the "Amazon Go" stores and never had an issue. For that type of store, it's far more convenient than dealing with credit cards and apps.

For something like Whole Foods, I think it is less useful. I'd still use it there though.
by 986racer
Tue Sep 19, 2023 5:19 pm
Forum: Personal Investments
Topic: Roth Conversions - To Do or Not?
Replies: 22
Views: 2699

Re: Roth Conversions - To Do or Not?

Basically, if you look at a chart of how the strategies play out, you see the conversion strategy has a lower net worth in the beginning (due to making tax payments now and IRMAA costs) but then makes it up when larger RMDs start hitting the non-conversion strategy, and even more so when a spouse passes. But you have to adjust the current net worth for the amount of taxes you anticipate (guess) you or someone will have to pay eventally, so... isn't it close to a wash, depending of course on your assumptions? At the end, the Roth conversion strategy is clearly better because it has the same net worth but all the money had been taxed already. In the middle, it's very difficult to determine which strategy is really ahead because of the adjust...
by 986racer
Tue Sep 19, 2023 4:48 pm
Forum: Personal Investments
Topic: Roth Conversions - To Do or Not?
Replies: 22
Views: 2699

Re: Roth Conversions - To Do or Not?

I've done a very similar analysis for my parents a few years back and they were in a similar situation as you... Already claiming SS and about to start the RMD process.. The TLDR version is that it is still beneficial to do the Roth conversions The long answer is that there are a lot of assumptions that goes into any of this analysis and so you need to have a spreadsheet and a way to model a bunch of different scenarios. Here is stuff that you should be modelling 1. Death of spouse. The sooner one spouse passes, the sooner you move into the "filing single" brackets. 2. Growth of various accounts 3. Reasons to need money in T-IRA accounts (e.g., get deductions to pay for medical expenses, QCD, etc) 4. Change in tax rates What I fou...
by 986racer
Tue Sep 19, 2023 10:40 am
Forum: Personal Investments
Topic: After Tax 401(k) vs Brokerage Investing
Replies: 25
Views: 2249

Re: After Tax 401(k) vs Brokerage Investing

I don't think you can contribute 66k to the mega-back door Roth. The 66k is a limit for the total of all contributions to your 401k.

So, assuming that you are doing 23k to either regular 401k or Roth 401k, this leaves another 43k that could go to the mega backdoor Roth

Personally, I'd put the first 23k into a regular 401k. You are on the cusp federally but if you have state tax that would likely swing the decision. Then again... federal tax rates are scheduled to go up in a few years, so maybe it would be better to lock in that rate now
by 986racer
Mon Sep 18, 2023 10:02 pm
Forum: Personal Finance (Not Investing)
Topic: Back Door AOTC [American Opportunity Tax Credit]
Replies: 37
Views: 6209

Re: Back Door AOTC [American Opportunity Tax Credit]

OP, thanks for working through the math. Since the student is filing 8615, they’d need to do their own 1040 to be able to claim aotc but they are taxed at the parents marginal capital gains rate (15% or 20%) but not parents NIIT additional rate if parents have hit the threshold because the student wouldn’t hit the threshold in your examples above? If true, seems like a loophole for parents to avoid niit by gifting to kids then selling; also the bogleheads wiki on kiddie tax should be updated or perhaps clarified because it does include niit. Agreed. Many years ago when I first started this, I too thought that the child would pay NIIT as well. When I asked questions on the forum, somebody corrected that line of thinking. I then plugged samp...
by 986racer
Mon Sep 18, 2023 5:04 pm
Forum: Personal Finance (Not Investing)
Topic: Insurance for College Student
Replies: 7
Views: 622

Re: Insurance for College Student

1) IANAL 2) Anybody can sue you at any time for anything (more or less). Could you be sued, versus, could you be sued SUCCESSFULLY. 3) Most likely serious injury ($$$ liability) involving a moped would be to the moped driver. Yeah, a person on a moped could injure a pedestrian, but... 4) Are you really sure you shouldn't be claiming him as a dependent? This is not really a choice, he either IS or IS NOT a dependent, based on the fact pattern. It's not clear to me that he is not a dependent. 5) What decision would you (potentially) make differently, if you thought you, the parents, had non-trivial liability, related to the moped or otherwise? 1. ? Misspelling? 2. dah 3. He could swerve and create pileup from other drivers actions as he is d...
by 986racer
Mon Sep 18, 2023 9:58 am
Forum: Personal Finance (Not Investing)
Topic: Back Door AOTC [American Opportunity Tax Credit]
Replies: 37
Views: 6209

Re: Back Door AOTC [American Opportunity Tax Credit]

Sure seems like fraud to me. I agree that it feels like a loophole, but fraud is a strong word. Fraud would be the case if the student was claiming AOTC without actually being in school. Your family is above the limit for the intended tax benefit. You are finding a way to pretend your child has income. The reality is that it is your income that you are funneling through a child's tax return. You are taking money from the IRS that was not intended for you. You may never be charged with a crime, but it is misrepresentation in order to derive personal gain. That is the very definition of fraud. . There certainly is no issue with gifting stocks to the children to have them sell it. As I said, that’s the very reason that the kiddie tax laws exi...
by 986racer
Mon Sep 18, 2023 1:23 am
Forum: Personal Finance (Not Investing)
Topic: Back Door AOTC [American Opportunity Tax Credit]
Replies: 37
Views: 6209

Re: Back Door AOTC [American Opportunity Tax Credit]

Sure seems like fraud to me. I agree that it feels like a loophole, but fraud is a strong word. Fraud would be the case if the student was claiming AOTC without actually being in school. The kiddie tax law was introduced in 1986 precisely to address parents giving appreciated stock to minors and college aged children to ensure that the tax on those investments are still recognized. The fact that a law exists detailing exactly how these calculations should be done means that it is legal to gift stock to the children. As far as I can tell, there is no minimum holding period once the stock is gifted. The AOTC laws make it perfectly clear that a student that is not declared as a dependent is eligible for AOTC. The IRS website basically details...
by 986racer
Mon Sep 18, 2023 1:06 am
Forum: Personal Finance (Not Investing)
Topic: Back Door AOTC [American Opportunity Tax Credit]
Replies: 37
Views: 6209

Re: Back Door AOTC [American Opportunity Tax Credit]

Can someone explain how OP came up with $19167 for 15% ltcg bracket and $15000 for 20% ltcg. Since 40% is refundable, I imagine one just needs to come come up with enough ltcg to cover the rest and if so no need to file form 8615 since unearned income is less than $2300? Also the above doesn’t take into account NIIT. Finally would parents prior tax loss harvesting with a $3000 carry over and mess up the calculation? 0% of the 2500 is refundable unless the student is providing over half of the support via earned income. Tax loss harvesting doesn't come into play with kiddie tax unless the student has his/her own tax losses. Kiddie tax is handled via form 8615 and it doesn't have a place to list carry over tax losses from the parents. Simila...
by 986racer
Sat Sep 16, 2023 12:53 pm
Forum: Personal Finance (Not Investing)
Topic: Back Door AOTC [American Opportunity Tax Credit]
Replies: 37
Views: 6209

Re: Back Door AOTC

This whole idea of gifting the shares to your adult child and then selling it on their behalf sounds sketchy to me. You would need their permission to do so, correct? This forum has the "step transaction doctrine" on speed dial, but for some reason never brings it up in this case. There was even a thread comparing gifting appreciated shares to the grandparents to sell at 0% LTCG and then paying the tuition (no! violates step transaction), vs the current case of gifting same shares to student (sure, fine). Since there's never been any supporting links to actual IRS notices or anything, it's all just internet conjecture. Most likely would never be an issue anyway, until you get audited for any other reason and they question everyth...
by 986racer
Sat Sep 16, 2023 12:47 pm
Forum: Personal Finance (Not Investing)
Topic: Back Door AOTC [American Opportunity Tax Credit]
Replies: 37
Views: 6209

Re: Back Door AOTC

The TCJA got rid of the automatic credit for having a dependent. So, if you are over the AOTC phaseout amount, I don’t think there is a tax benefit anymore for declaring your student as a dependent on the federal return. There may be some exceptions if you are paying substantial medical bills for them. You'd have to forego the $500 other dependent credit that your student dependent may qualify for. Still worth it if your kid can get the whole AOTC The TCJA got rid of the personal exemption which starting phasing out at an even lower AGI than the CTC (which is 400k for mfj), but replaced it with a doubled CTC (which is usually worth more) and the other dependent credit (which could be worth less). My mistake…. I forgot about that one becaus...
by 986racer
Sat Sep 16, 2023 11:20 am
Forum: Personal Finance (Not Investing)
Topic: Back Door AOTC [American Opportunity Tax Credit]
Replies: 37
Views: 6209

Re: Back Door AOTC

Hmm... I thought anytime you claimed someone as a dependent, you always received a benefit, tax wise... The child tax credit only applies to children under 17, so you wouldn’t use it anyhow for a college aged student. Similarly, the child care and dependent care credit is for those dependents under 13 years old. The earned income tax credit has fairly low AGI cutoffs The TCJA got rid of the automatic credit for having a dependent. So, if you are over the AOTC phaseout amount, I don’t think there is a tax benefit anymore for declaring your student as a dependent on the federal return. There may be some exceptions if you are paying substantial medical bills for them. On the other hand, you may still want to declare the student as a dependent...
by 986racer
Sat Sep 16, 2023 9:36 am
Forum: Personal Investments
Topic: Saving for College advice
Replies: 18
Views: 2385

Re: Saving for College advice

If you already have money in a taxable account with some appreciated stocks, you may want to consider using a back door AOTC
by 986racer
Sat Sep 16, 2023 9:13 am
Forum: Personal Finance (Not Investing)
Topic: Back Door AOTC [American Opportunity Tax Credit]
Replies: 37
Views: 6209

Re: Back Door AOTC

This strategy is good to know, although if you had put that money in a 529 originally the gains would be tax free already. It isn’t a huge benefit but if you have undersaved in a 529 but have a large taxable account worthwhile to know. That was the situation I was in. However, I had a concern about saving even more in a 529 due to concerns about overfunding it. This ended up providing a lot of flexibility as any extra funds in the taxable just stayed with me. EDIT: to be clear, I’m not suggesting that this strategy would completely replace a 529 but would be used in addition to it. With current annual gifting limits, the max this strategy will cover is 170k over the 5 years. Private colleges can cost more than that, so a 529 is still useful
by 986racer
Sat Sep 16, 2023 9:03 am
Forum: Personal Finance (Not Investing)
Topic: Back Door AOTC [American Opportunity Tax Credit]
Replies: 37
Views: 6209

Re: Back Door AOTC

Anil wrote: Sat Sep 16, 2023 8:33 am So, at the end of this exercise, the 2500$ tax credit wipes out the 2500$ tax incurred by the child due to selling gifted stock. Which means the parent basically sold their appreciated stock and paid no tax on it.
The only "loss" here is the excess tax paid by the parent due to not claiming the student as a dependent.

Does this sound about right?

Thanks.
That’s basically it. If you are needing to use this strategy it’s quite likely that you weren’t going to get a benefit from claiming the student as a dependent anyhow
by 986racer
Sat Sep 16, 2023 8:59 am
Forum: Personal Finance (Not Investing)
Topic: College Tax Credits - is this correct??
Replies: 25
Views: 2632

Re: College Tax Credits - is this correct??

teen persuasion wrote: Sat Sep 16, 2023 7:14 am Yes, it is limited to no more than 4 undergrad years, but no restrictions on which 4.

What improvement is created by shifting from 5th to 4th year LLC claiming?
Let’s say that your qualified payments comes to exactly $10k per year. That would then be $5k per half year. If you wait until the last year to claim LLC, then you’d only get a $1k tax credit as LLC is limited to 20% of your payments (with a cap of $2k). If you claim LLC in the 4th year, you can get the full 2k credit. Then, on the last year, you can also get the full AOTC credit as you need only $4k in payments to get the full amount.
by 986racer
Fri Sep 15, 2023 12:56 pm
Forum: Personal Finance (Not Investing)
Topic: College Tax Credits - is this correct??
Replies: 25
Views: 2632

Re: College Tax Credits - is this correct??

Some schools bill in such a way that there's no fifth year to claim. My DD1's college billed fall semester in early August, and spring semester in early December. That is, the bills were due Dec 8. So the full first year was paid before Dec 31. It was convenient, because then each year you claimed AOTC you were using both semesters' payments, not a half year on either end of college. My other kids' schools didn't issue spring bills until January, so no way to have a full year of bills freshman / senior years. Good points, but for the colleges where Spring semester is due in January, then one can claim the LLC for that 5th year, right? So a possible total of $12k in credit per kid (AOTC x 4 + LLC x 1)? Yes, you can claim LLC that last year....
by 986racer
Fri Sep 15, 2023 8:13 am
Forum: Personal Finance (Not Investing)
Topic: College Tax Credits - is this correct??
Replies: 25
Views: 2632

Re: College Tax Credits - is this correct??

Some schools bill in such a way that there's no fifth year to claim. My DD1's college billed fall semester in early August, and spring semester in early December. That is, the bills were due Dec 8. So the full first year was paid before Dec 31. It was convenient, because then each year you claimed AOTC you were using both semesters' payments, not a half year on either end of college. My other kids' schools didn't issue spring bills until January, so no way to have a full year of bills freshman / senior years. 2 of my kids' schools billed that way and I found if I used the school's "payment plan" to spread the payments over a few months, I was able to make payments in the "correct" year. The payment plan has a nominal fe...
by 986racer
Thu Sep 14, 2023 6:11 pm
Forum: Personal Finance (Not Investing)
Topic: Back Door AOTC [American Opportunity Tax Credit]
Replies: 37
Views: 6209

Re: Back Door AOTC

This whole idea of gifting the shares to your adult child and then selling it on their behalf sounds sketchy to me. You would need their permission to do so, correct? It depends... For my state, the age of majority on UTMA accounts is 21, so I could put the money in there and do all of the work. I think it would be difficult to argue that paying for their college is not for their benefit. When they turned 22, I explained exactly how this was going to work and they gave my authority on their accounts. However, yes, it is legally their right to take the money and blow it on something else. I wouldn’t choose doing this strategy if you don’t trust your child. Then again, I probably wouldn’t pay for their college in the first place if I thought...
by 986racer
Thu Sep 14, 2023 6:05 pm
Forum: Personal Finance (Not Investing)
Topic: Back Door AOTC [American Opportunity Tax Credit]
Replies: 37
Views: 6209

Re: Back Door AOTC

worthit wrote: Thu Sep 14, 2023 5:46 pm OP thanks for posting details of the Back Door AOTC.

Can this be applied to private grade school education or is this is allowed only for college education?
As others pointed out, AOTC is only for undergraduate. However, LLC can work for any level of college and this includes dual-enrollment courses taken while in high school

That credit caps out at 2k per year
by 986racer
Thu Sep 14, 2023 3:37 pm
Forum: Personal Finance (Not Investing)
Topic: College Tax Credits - is this correct??
Replies: 25
Views: 2632

Re: College Tax Credits - is this correct??

Interestingly, neither the 1098-T nor the 1099-Q (if you use a 529) is filed with your tax return. They get provided to the IRS by the school and your 529 provider.

For your purposes, they are simply used to help guide you for making sure you are taking the appropriate deductions. For the IRS's copies, they are used to verify that you were entitled to the deductions that you took.
by 986racer
Thu Sep 14, 2023 3:11 pm
Forum: Personal Finance (Not Investing)
Topic: College Tax Credits - is this correct??
Replies: 25
Views: 2632

Re: College Tax Credits - is this correct??

Yes

Also, even if you are over the limits, the back door AOTC is a way around that.