Want no interest, dividends or distributions in 2019

[newcollegeman]

What investment options are there for not getting any interest, dividends or distributions in 2019?

Not interested in commodities, currency, or cash under the mattress. Hate to just leave the money sitting in a non-interest bearing account. My concern is tax driven.

I must be overlooking the obvious.

Many thanks,

newcollegeman

[tj]

Brk b

[Makefile]

52-week treasury bill, savings bond, or as above, non-dividend paying stocks

[H-Town]

Private Equity funds.

[MathIsMyWayr]

52-week treasury bill, savings bond, or as above, non-dividend paying stocks

Can anyone verify when tax is due on a 52-week treasury bill? If I buy one now, is the 2019 tax due on the interest earned in 2019? Or, is tax due only when it matures in 2020?

[Makefile]

Can anyone verify when tax is due on a 52-week treasury bill? If I buy one now, is the 2019 tax due on the interest earned in 2019? Or, is tax due only when it matures in 2020?

You report the interest at time of maturity; for full details, https://www.irs.gov/publications/p550#e ... nk10009952

[Thesaints]

TSLA comes to mind...

[RCL]

Tax Exempt municipal bond funds from your state?

[HomeStretch]

I Bonds ($20k max)

[AllieTB1323]

Tax Exempt municipal bond funds from your state?

Or live in a state with no income tax and buy a national municipal bond fund. Vanguard's VTEB comes to mind.

[MathIsMyWayr]

Can anyone verify when tax is due on a 52-week treasury bill? If I buy one now, is the 2019 tax due on the interest earned in 2019? Or, is tax due only when it matures in 2020?

You report the interest at time of maturity; for full details, https://www.irs.gov/publications/p550#e ... nk10009952

Thank you for the official link: you must report the full amount of the interest income on each of your Treasury bills at the time it reaches maturity.
I notice that tax is due each year for a CD.

[whodidntante]

Tax Exempt municipal bond funds from your state?

Or live in a state with no income tax and buy a national municipal bond fund. Vanguard's VTEB comes to mind.

The OP may be attempting to qualify for ACA subsidies. If so, tax exempt interest is added back in for ACA MAGI and the OP will have a bad time.

[The Wizard]

Sell everything and go to cash in 2018?

[Tanelorn]

TSLA comes to mind...

Plus the capital losses count against your income for the first $3k...

[TravelforFun]

18-month CDs?

TravelforFun

[123]

Buy real estate. Keep out some cash for insurance, taxes, etc. Real estate has comparatively high acquisition and disposition costs so if you go that route a holding period of more than just 2019 is probably better.

[aristotelian]

Good list here: https://www.dividend.com/investor-resou ... dividends/

[aspiringboglehead]

Thank you for the official link: you must report the full amount of the interest income on each of your Treasury bills at the time it reaches maturity.
I notice that tax is due each year for a CD.

Tax is due each year for Treasury obligations as well; it's just that Treasury bills have a maximum maturity of a year.

As a general matter, it's usually much easier to postpone recognizing income for a single year under the tax code than it is for multiple years. A bank could structure a 12-month CD so that all the income was payable after a year, in which case it would all be recognized at the end (i.e., next year). But they couldn't structure a 24-month CD so that you recognized all the interest two years from now; taxpayers would have to recognize the interest at least yearly. More or less the same pattern applies to Treasury obligations.

[mhadden1]

Vanguard Total Stock Market just throws off the 2% or so in dividends.

[tj]

Vanguard Total Stock Market just throws off the 2% or so in dividends.

He wants none. Berkshire Hathaway is the only answer.

[newcollegeman]

Dear Bogleheads,

Thank you for your helpful input & ideas!

I will proceed with caution!!

Can't tell you how much our family owes to your wisdom & insight, inspired by our mentor Jack Bogle,

newcollegeman

[MathIsMyWayr]

Thank you for the official link: you must report the full amount of the interest income on each of your Treasury bills at the time it reaches maturity.
I notice that tax is due each year for a CD.

... A bank could structure a 12-month CD so that all the income was payable after a year, in which case it would all be recognized at the end (i.e., next year) - Are banks flexible with 12-month CDs? ... taxpayers would have to recognize the interest at least yearly. More or less the same pattern applies to Treasury obligations.

[aspiringboglehead]

Are banks flexible with 12-month CDs?

The tax code permits them to be. Perhaps surprisingly, I don't recall having seen any CDs recently that would take advantage of that flexibility. I have a vague memory that I have seen these in the past (though perhaps that was just in examples in regulatory or pedagogical documents).

[newcollegeman]

Ally Bank's 12 month CDs post only on maturity....

newcollegeman

[knpstr]

Brk b

+1

This is one of the reasons Buffett doesn't want to pay a dividend. Those that want to hold can have complete tax-free growth. Those that want some income can sell a given amount of shares.

[FelixTheCat]

Brk b

+1

[emlowe]

I Bonds ($20k max)

Technically you can buy more, but you would need to create separate Trusts to hold them all. As far as I can tell, there is no limit to the number of trusts you can create, and each one can purchase 10k bonds.

At the very least, it is very typical for a person and partner to buy 30k, 10k for each person, and 10k for their joint trust.

[gmehta]

Private Equity funds.

How does one invest in PE funds?

[HomeStretch]

I Bonds ($20k max)

Technically you can buy more, but you would need to create separate Trusts to hold them all. As far as I can tell, there is no limit to the number of trusts you can create, and each one can purchase 10k bonds.

At the very least, it is very typical for a person and partner to buy 30k, 10k for each person, and 10k for their joint trust.

Good point! Can also buy $5k paper bond with federal tax refund.

[jimishooch]

https://investor.vanguard.com/annuity/deferred

[majiaknight]

I live in CA and have also thought about tax planning especially for the fixed income. Last year I decided to max annual contribution to EE Savings and I Bond which are ($10K+$10K)*2 per year per a couple and you may also buy additional ($10K+$10K) per year for your kid using the minor's account.
https://www.treasurydirect.gov/indiv/he ... bMinor.htm

EE Savings: IMO this a guaranteed return 3.5% for 20 years w/ deferred tax; I use it as part of my retirement bond portfolio.

Excellent article by Mel Lindauer
https://www.forbes.com/sites/theboglehe ... 9ce9957ba3

I Bond: IMO this beats inflation and could delay tax up to 30 years; I mainly use it as emergency fund.

For the extra money I may have for the non-retirement account, I may consider to invest in Vanguard California Intermediate-Term Tax-Exempt Fund Admiral Shares (VCADX).

[EHEngineer]

What investment options are there for not getting any interest, dividends or distributions in 2019?
Not interested in commodities, currency, or cash under the mattress. Hate to just leave the money sitting in a non-interest bearing account. My concern is tax driven.

Your premise seems suspect. What tax concern is driving this? Everyone should be seeking the best "after tax returns." why is your situation special?

[Spirit Rider]

What investment options are there for not getting any interest, dividends or distributions in 2019?
Not interested in commodities, currency, or cash under the mattress. Hate to just leave the money sitting in a non-interest bearing account. My concern is tax driven.

Your premise seems suspect. What tax concern is driving this? Everyone should be seeking the best "after tax returns." why is your situation special?

I save almost $20K in ACA health insurance premiums and OOP medical expenses by keeping my ACA MAGI between 138% and 150% of the FPL.

After 65, I can get significant state and local tax breaks if I can keep my AGI below about 500% of the FPL.

Some may want to manage their AGI/MAGI for high marginal tax rates caused by Security Security taxation, higher Medicare Parts B/D IRMA premiums, etc...

Others may want to want preserve lower marginal tax brackets for Roth conversions. It might make sense for their circumstances to convert up to the top of the 24% bracket, but not take the jump to 32%.

There are many, many reasons to want to try to minimize your investment income. It is not always about best after-tax return of just investments, but about your total net taxes and variable expenses due to income.

[bgf]

Vanguard Total Stock Market just throws off the 2% or so in dividends.

He wants none. Berkshire Hathaway is the only answer.

yea no need to look further than berkshire but he could add markel (MKL) in as well.

[EHEngineer]

What investment options are there for not getting any interest, dividends or distributions in 2019?
Not interested in commodities, currency, or cash under the mattress. Hate to just leave the money sitting in a non-interest bearing account. My concern is tax driven.

Your premise seems suspect. What tax concern is driving this? Everyone should be seeking the best "after tax returns." why is your situation special?

I save almost $20K in ACA health insurance premiums and OOP medical expenses by keeping my ACA MAGI between 138% and 150% of the FPL.

After 65, I can get significant state and local tax breaks if I can keep my AGI below about 500% of the FPL.

Some may want to manage their AGI/MAGI for high marginal tax rates caused by Security Security taxation, higher Medicare Parts B/D IRMA premiums, etc...

Others may want to want preserve lower marginal tax brackets for Roth conversions. It might make sense for their circumstances to convert up to the top of the 24% bracket, but not take the jump to 32%.

There are many, many reasons to want to try to minimize your investment income. It is not always about best after-tax return of just investments, but about your total net taxes and variable expenses due to income.

I know phase-outs exist, but I would like to know which one OP is managing. Even big numbers like your $20k ACA savings deserve to be considered with respect to the cost. If you have to forgo $25k in dividends, a $20k savings doesn't compensate. OP's phrasing made me think they may not be carefully considering both costs & benefits. Tax tail wagging the dog, so to speak.

[Spirit Rider]

I know phase-outs exist, but I would like to know which one OP is managing. Even big numbers like your $20k ACA savings deserve to be considered with respect to the cost. If you have to forgo $25k in dividends, a $20k savings doesn't compensate. OP's phrasing made me think they may not be carefully considering both costs & benefits. Tax tail wagging the dog, so to speak.

I agree that forgoing returns does not make sense, but there are ample opportunities to minimize investment income without forgoing returns. However, most involve prior planning or in my case dumb luck.

[newcollegeman]

Thank you to all who have given input to my question.

My personal situation is related to ACA Obamacare lower & upper cliffs, due to a child in college who has landed a 6 month engineering co-op position for summer & fall. That child’s income counts towards Household Income, even though I provide over half of the child’s support, if the child also has $340 or more unearned income.

A simple solution is to put the child’s salary into Ally 12 month CDs each month, so that the child’s work experience does not reflexively produce unearned income in 2019 that surpass the $340 limit on unearned income & push her earned income over into Household Income total, damaging her modestly earning parents’ health insurance arrangements.

Does that seem like a workable solution? In 2020, she will not be working & the earned interest will not damage the rest of the family’s coverage.

I do not like the system, but I have no choice but to work within it.

Newcollegeman

[HereToLearn]

Thank you to all who have given input to my question.

My personal situation is related to ACA Obamacare lower & upper cliffs, due to a child in college who has landed a 6 month engineering co-op position for summer & fall. That child’s income counts towards Household Income, even though I provide over half of the child’s support, if the child also has $340 or more unearned income.

A simple solution is to put the child’s salary into Ally 12 month CDs each month, so that the child’s work experience does not reflexively produce unearned income in 2019 that surpass the $340 limit on unearned income & push her earned income over into Household Income total, damaging her modestly earning parents’ health insurance arrangements.

Does that seem like a workable solution? In 2020, she will not be working & the earned interest will not damage the rest of the family’s coverage.

I do not like the system, but I have no choice but to work within it.

Newcollegeman

I should probably wait for someone more knowledgeable to weigh in here, but AFAIK, your daughter's earned income will be added to your income for 2019 when determining your ACA subsidy. I have never heard of this $340 unearned income threshold you mentioned.

I know that unearned income is taxed at the estate rate and that the first $350 of unearned income is exempt from taxes, but I thought that any dependent income, W-2, 1099 or unearned will all be added to your MAGI for subsidy calculation purposes.

[Spirit Rider]

@newcollegeman you are missing the point that by putting the money in 1 year CD's (or T-Bills), the unearned income will not be taxable until 2020.

[spectec]

BRK-B still seems like the slam-dunk answer.

[newcollegeman]

Thanks for the helpful responses: the Bogleheads have caught an error in what my accountant told me!

I was told that if my daughter's unearned income was less than $340 in 2019, then her salary would not count towards my ACA Household income.

Your responses have prompted me to go read the instructions on Form 1040 & Form 8962 more carefully for myself. The $340 unearned income threshold only applies if the dependent's earned income is less than $11650. This 6 month co-op will exceed that amount, so her full income will count towards our ACA Household Income, if she is our dependent.

However, the income is also so large that it swamps out what we are paying for her schooling, so we will not be providing half of her overall support in 2019. I guess that means we lose her as our dependent, even though she will be registered as a full-time student all year, albeit off on work assignment for the last 6 months.

Therefore, losing her as a dependent takes her off our tax form & out of our ACA Household Income, I think.

This aspect of tax law is so complicated as to be frustrating!

Do I need a new accountant, or is this wrinkle so esoteric as to justify an overlook?

newcollegeman

[Epsilon Delta]

Not mentioned is the student using a deductible IRA contribution. Deducting the IRA in 2019 and possibly doing a Roth conversion in 2020 would shift income between years, if you still need to.

The student might reasonably not want to tie up their earned money in an IRA at this point in their life, in which case the parents could consider gifting the IRA funds.

[HereToLearn]

Thanks for the helpful responses: the Bogleheads have caught an error in what my accountant told me!

I was told that if my daughter's unearned income was less than $340 in 2019, then her salary would not count towards my ACA Household income.

Your responses have prompted me to go read the instructions on Form 1040 & Form 8962 more carefully for myself. The $340 unearned income threshold only applies if the dependent's earned income is less than $11650. This 6 month co-op will exceed that amount, so her full income will count towards our ACA Household Income, if she is our dependent.

However, the income is also so large that it swamps out what we are paying for her schooling, so we will not be providing half of her overall support in 2019. I guess that means we lose her as our dependent, even though she will be registered as a full-time student all year, albeit off on work assignment for the last 6 months.

Therefore, losing her as a dependent takes her off our tax form & out of our ACA Household Income, I think.

This aspect of tax law is so complicated as to be frustrating!

Do I need a new accountant, or is this wrinkle so esoteric as to justify an overlook?

newcollegeman

Jumping in again where I am not fully confident of my response.

Two questions/comments. If your D has earned income, regardless of the amount, that income is added to your income for the purposes of calculating your ACA subsidy. So, if she earned $5000 at a more typical summer job, you would have to include her gross earnings when calculating the ACA subsidy. $12K is the standard exemption for the purposes of calculating the income taxes she owes on her earned income. $350 is the offset against unearned income. (Does she have a scholarship for R&B or something else that is reported as a stipend?)

Is she earns more than $12K, then she will pay federal taxes on those earnings, but again, if she is your dependent, her income will be added to your income for the purposes of calculating ACA subsidy.

I have found this to be a helpful explanation of application of kiddie tax, although the kiddie tax is not your concern here.

https://www.marketwatch.com/story/new-t ... 2018-09-24

As to whether or not she is a dependent....will she be using her own earned income to pay her college tuition expenses? I think she will still be your dependent, unless there are details I am missing here.

[newcollegeman]

The shock to me is that she will have a long 6 month research internship making more money than I ever did as a college student: $33,000....

I was told by the accountant that as long as she had less than $340 in unearned income that her overall income would not count towards our ACA Household Income. However, this is now clearly untrue: her large earnings would be counted towards the whole family's ACA Household Income. And, the large size of it brings into doubt that my payments for 1 semester of college meet the Support Test for her being our dependent.

I guess (from what I've read here & in the IRS publications) that she will need to get her own health insurance [whether from her university student plan or the ACA or privately] starting June 1st. And I guess that she will no longer be my dependent when I file taxes for 2019, even though the ACA subsidy will be pro-rated to include her for the first 5 months of the year. If I'm right, then it does not matter on my taxes how much unearned income she has in 2019: she will pay taxes on that via her Form 1040.

Does that make sense & sound correct?

I am no accountant & no financial lawyer. I rely on the accountant to do my taxes & give me forward advice. But this is so complex that it strikes me as hard for anyone to navigate! The Bogleheads are my bedrock advice: I have come to respect & trust the opinions here more than the ones I deduce from the IRS publications or pay for....

Appreciatively,

newcollegeman

[HereToLearn]

The shock to me is that she will have a long 6 month research internship making more money than I ever did as a college student: $33,000....

I was told by the accountant that as long as she had less than $340 in unearned income that her overall income would not count towards our ACA Household Income. However, this is now clearly untrue: her large earnings would be counted towards the whole family's ACA Household Income. And, the large size of it brings into doubt that my payments for 1 semester of college meet the Support Test for her being our dependent.

I guess (from what I've read here & in the IRS publications) that she will need to get her own health insurance [whether from her university student plan or the ACA or privately] starting June 1st. And I guess that she will no longer be my dependent when I file taxes for 2019, even though the ACA subsidy will be pro-rated to include her for the first 5 months of the year. If I'm right, then it does not matter on my taxes how much unearned income she has in 2019: she will pay taxes on that via her Form 1040.

Does that make sense & sound correct?

I am no accountant & no financial lawyer. I rely on the accountant to do my taxes & give me forward advice. But this is so complex that it strikes me as hard for anyone to navigate! The Bogleheads are my bedrock advice: I have come to respect & trust the opinions here more than the ones I deduce from the IRS publications or pay for....

Appreciatively,

newcollegeman

I have no accounting or legal background, but have tried to navigate the definition of dependent and earnings for the purpose of ACA subsidy calculation.

See page 26 here: https://www.irs.gov/pub/irs-pdf/p17.pdf

There are five 'tests' for definition of dependent. Assuming she is at college this semester, she is considered as having lived with you. You are paying for her to go to college, correct? She is not taking this $33K and paying her own tuition, is she?

My son files his own 1040, but I still have to include the income reported on that 1040 when I file my taxes at year end and perform the ACA reconciliation.

I hope that there is someone on here who knows more and can correct me if I am wrong, but I think she is still your dependent, no matter how much money she earns.

BTW---awesome internship opportunity! What sort of research will she be conducting?

[newcollegeman]

She will be doing Materials Science Engineering at a National Lab. We would urge her to do it, even if there was no paycheck involved, just for the experience!

Thanks for your help,

newcollegeman