Tax law expiring in 2025

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uberdoc
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Tax law expiring in 2025

Post by uberdoc » Mon Feb 11, 2019 1:03 pm

Anyone doing anything financially at this point knowing the fact that new tax law will expire in 2025? In other words, do I need to change anything to take advantage of the period tax law remains in effect?
Thanks.

hirlaw
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Re: Tax law expiring in 2025

Post by hirlaw » Mon Feb 11, 2019 1:08 pm

I believe some are converting pre-tax IRAs to Roth IRAs. There are several online calculators available to see if this strategy is appropriate in your situation.

MnD
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Re: Tax law expiring in 2025

Post by MnD » Mon Feb 11, 2019 1:14 pm

The problem is that one does not know what the expired law will be replaced with. It's a pretty poor assumption to assume the tax code will revert to the 2017 schedule and take actions now on that assumption given the history of such things as a guide. It's also a stretch to assume the current tax law will even make it to 2025. For example I was advised by several on this board several years ago to make Roth conversions to the top of the 28% bracket because obviously marginal tax rates were going up when the then "temporary" 28% tax bracket expired. I'm sure glad I didn't follow that advice! :mrgreen:
Last edited by MnD on Mon Feb 11, 2019 1:27 pm, edited 1 time in total.

badger42
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Re: Tax law expiring in 2025

Post by badger42 » Mon Feb 11, 2019 1:26 pm

uberdoc wrote:
Mon Feb 11, 2019 1:03 pm
Anyone doing anything financially at this point knowing the fact that new tax law will expire in 2025? In other words, do I need to change anything to take advantage of the period tax law remains in effect?
Thanks.
We don't really give it more than a moment's thought. A dollar now is worth more than a dollar later, 2025 is a long way away, and we're likely to move states (which is quite material tax-wise) around that time.

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RickBoglehead
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Re: Tax law expiring in 2025

Post by RickBoglehead » Mon Feb 11, 2019 1:29 pm

Here's my outlook on tax laws. Write it down, note that I said it, and when I'm write you'll say "He was a seer." It's quite profound... :D

1) Spending cannot go on at the levels that it is, and will be, without more revenue coming in. The piper will be paid.

2) To pay the piper, tax rates will be increasing. For everyone. They may differ by administration, but in ten years you'll pay higher taxes than today, and in twenty years higher yet.

3) Therefore, I convert as much as I can when I can. Right now, 99% of our retirement funds are ROTH, much due to some crappy years long ago where I converted a bunch, that has now grown. When we collect Social Security in 9+ years, that plus dividends and interest will put us into the 2nd tax bracket, whatever it is. Therefore, I don't want even more income in those years.

I'm currently evaluating whether to get my $24,500 i401(k) contribution for 2018 changed to a taxable contribution or leave it as ROTH.
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iceport
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Re: Tax law expiring in 2025

Post by iceport » Mon Feb 11, 2019 1:32 pm

uberdoc wrote:
Mon Feb 11, 2019 1:03 pm
Anyone doing anything financially at this point knowing the fact that new tax law will expire in 2025? In other words, do I need to change anything to take advantage of the period tax law remains in effect?
Thanks.
The income tax cut coincided exactly with my first full year of early retirement, and the scheduled expiration (nearly) coincides with my anticipated claiming of Social Security. These coincidences highlight a window period of (expected) lowest taxes combined with (expected) lowest taxable income for the rest of my life. Therefore, I'm taking this opportunity to convert traditional tax-deferred savings to my Roth IRA, up to the top of the 22% tax bracket. My marginal tax rate was 25% while working; it's 22% now in retirement.

In fact, the Roth conversions would probably make sense even if my marginal retirement tax rate were still 25%. With the recently enacted income tax cut, the advantage of Roth conversions is much clearer, locking in an income tax rate cut of at least 3% from tax-deferred contributions made as recently as May, 2017.

PS: I tend to agree with RickBoglehead above that the current relatively low income tax rates are "unsustainable" over the long term. I might be wrong, and the timing of tax increases (or, um, further decreases?) is anybody's guess. Nevertheless, I am comfortable assuming my own federal income tax rate will never go below 22%.
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The Wizard
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Re: Tax law expiring in 2025

Post by The Wizard » Mon Feb 11, 2019 1:42 pm

MnD wrote:
Mon Feb 11, 2019 1:14 pm
...For example I was advised by several on this board several years ago to make Roth conversions to the top of the 28% bracket because obviously marginal tax rates were going up. I'm glad I didn't follow that advice! :mrgreen:
Right.
Generally it's better to base Roth conversions on AGI leveling, not tax bracket boundaries.
Nonetheless, my 24% marginal bracket used to be 28% so I'm definitely doing Roth conversions in this, my last year before starting SS and RMDs...
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Re: Tax law expiring in 2025

Post by janezoey » Mon Feb 11, 2019 1:44 pm

I was listening to the "Jill on Money" podcast and she was interviewing a tax expert. Basically, it is a "tax sale" between now and 2025 because the federal deficit is unsustainable. Income taxes will probably go up. But then again, it depends on politicians.

I know for my own family, we're in the public service loan forgiveness program and one of us has a federal pension and a Roth TSP option. Right now we're maxing out pre-tax to bring the student loan payment as low as possible. But once the amount is forgiven, we would switch to Roth TSP for the federal worker (19k) and do pre-tax 401K (19k) for the other person (because Roth 401K is not available at the other workplace). It's mighty tempting to convert some of my orphan 401K accounts into my Vanguard Roth IRA, even at the 22% tax bracket to avoid future RMDs.

DrGoogle2017
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Re: Tax law expiring in 2025

Post by DrGoogle2017 » Mon Feb 11, 2019 1:47 pm

We do more Roth conversion, the band for 22% is higher than before. Kind of make lemonade our of lemon, we’re in high tax state.

riverguy
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Re: Tax law expiring in 2025

Post by riverguy » Mon Feb 11, 2019 3:01 pm

RickBoglehead wrote:
Mon Feb 11, 2019 1:29 pm
Here's my outlook on tax laws. Write it down, note that I said it, and when I'm write you'll say "He was a seer." It's quite profound... :D

1) Spending cannot go on at the levels that it is, and will be, without more revenue coming in. The piper will be paid.

2) To pay the piper, tax rates will be increasing. For everyone. They may differ by administration, but in ten years you'll pay higher taxes than today, and in twenty years higher yet.

3) Therefore, I convert as much as I can when I can. Right now, 99% of our retirement funds are ROTH, much due to some crappy years long ago where I converted a bunch, that has now grown. When we collect Social Security in 9+ years, that plus dividends and interest will put us into the 2nd tax bracket, whatever it is. Therefore, I don't want even more income in those years.

I'm currently evaluating whether to get my $24,500 i401(k) contribution for 2018 changed to a taxable contribution or leave it as ROTH.
People said the same thing 10 years ago about spending. Why are you right now? In 2009, did you say taxes were going to be higher in 10 years?

You said it yourself that the government is going to need more money. What happens when laws around the roth and 401k get changed? Maybe an income limit to having the Roth earnings tax free? Maybe roth earnings aren't tax free anymore. Maybe higher tax rates on 401ks. Change up RMD. etc etc

It's a fool's game to try and predict where fiscal policy is going to go.

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Re: Tax law expiring in 2025

Post by RickBoglehead » Mon Feb 11, 2019 3:06 pm

riverguy wrote:
Mon Feb 11, 2019 3:01 pm
RickBoglehead wrote:
Mon Feb 11, 2019 1:29 pm
Here's my outlook on tax laws. Write it down, note that I said it, and when I'm write you'll say "He was a seer." It's quite profound... :D

1) Spending cannot go on at the levels that it is, and will be, without more revenue coming in. The piper will be paid.

2) To pay the piper, tax rates will be increasing. For everyone. They may differ by administration, but in ten years you'll pay higher taxes than today, and in twenty years higher yet.

3) Therefore, I convert as much as I can when I can. Right now, 99% of our retirement funds are ROTH, much due to some crappy years long ago where I converted a bunch, that has now grown. When we collect Social Security in 9+ years, that plus dividends and interest will put us into the 2nd tax bracket, whatever it is. Therefore, I don't want even more income in those years.

I'm currently evaluating whether to get my $24,500 i401(k) contribution for 2018 changed to a taxable contribution or leave it as ROTH.
People said the same thing 10 years ago about spending. Why are you right now? In 2009, did you say taxes were going to be higher in 10 years?

You said it yourself that the government is going to need more money. What happens when laws around the roth and 401k get changed? Maybe an income limit to having the Roth earnings tax free? Maybe roth earnings aren't tax free anymore. Maybe higher tax rates on 401ks. Change up RMD. etc etc

It's a fool's game to try and predict where fiscal policy is going to go.
I believe that if laws were changed to try and tax existing ROTH contributions and earnings, there would be a revolt.

I was doing ROTH conversions ten years ago, and even before.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

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UpsetRaptor
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Re: Tax law expiring in 2025

Post by UpsetRaptor » Mon Feb 11, 2019 3:21 pm

I would not automatically assume that nothing happens and the entire law straight expires in 2025. Remember that Obama extended the Bush tax cuts for those earning under 400K, and there are parts of the current law (increased standard deduction, expanded child tax credit) that neither party would find politically palatable to allow to expire in entirety for all earning classes. We don't know WHAT will happen - but in all likelihood something. I wouldn't make drastic changes.
Last edited by UpsetRaptor on Mon Feb 11, 2019 3:25 pm, edited 1 time in total.

alfaspider
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Re: Tax law expiring in 2025

Post by alfaspider » Mon Feb 11, 2019 3:21 pm

RickBoglehead wrote:
Mon Feb 11, 2019 1:29 pm
Here's my outlook on tax laws. Write it down, note that I said it, and when I'm write you'll say "He was a seer." It's quite profound... :D

1) Spending cannot go on at the levels that it is, and will be, without more revenue coming in. The piper will be paid.

2) To pay the piper, tax rates will be increasing. For everyone. They may differ by administration, but in ten years you'll pay higher taxes than today, and in twenty years higher yet.

3) Therefore, I convert as much as I can when I can. Right now, 99% of our retirement funds are ROTH, much due to some crappy years long ago where I converted a bunch, that has now grown. When we collect Social Security in 9+ years, that plus dividends and interest will put us into the 2nd tax bracket, whatever it is. Therefore, I don't want even more income in those years.

I'm currently evaluating whether to get my $24,500 i401(k) contribution for 2018 changed to a taxable contribution or leave it as ROTH.
There are two ways for a government to handle a high debt burden: through an explicit tax, or through monetization (effectively an implicit tax though increased inflation). We don't really know which path a future government will decide to take. If the government does decide to repay debt through taxation, you don't know how that tax will be implemented and distributed. For example, they might impose a VAT in lieu of increasing marginal income tax rates.

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cheese_breath
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Re: Tax law expiring in 2025

Post by cheese_breath » Mon Feb 11, 2019 4:03 pm

I already know about 2525 and beyond...

https://www.youtube.com/watch?v=yesyhQkYrQM
The surest way to know the future is when it becomes the past.

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Re: Tax law expiring in 2025

Post by tj » Mon Feb 11, 2019 4:08 pm

(increased standard deduction
But that removed the personal exemptions. You could use the personal exemptions and still itemize. Is the new one better? It's definitely simpler...but raised taxes on quite a few.

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uberdoc
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Re: Tax law expiring in 2025

Post by uberdoc » Mon Feb 11, 2019 4:11 pm

Let’s focus on current law otherwise thread might get locked. So beyond the Roth conversion, anything else could be done?

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Re: Tax law expiring in 2025

Post by goodenyou » Mon Feb 11, 2019 5:42 pm

uberdoc wrote:
Mon Feb 11, 2019 4:11 pm
Let’s focus on current law otherwise thread might get locked. So beyond the Roth conversion, anything else could be done?
Fill your 529 (if relevant). That comes out tax free as well. You can visit the (over-exhausted) current thead on the 529, throw your hat in the ring, and fight about it too.
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Re: Tax law expiring in 2025

Post by masteraleph » Mon Feb 11, 2019 5:49 pm

Fill in your HSA too- basically, anything that can come out tax free. Remember that HSAs can be used to pay Medicare premiums tax free in addition to saving receipts.

Also, it’s not relevant now, but to the degree that things revert to more itemized deductions available and lower standard deductions, bunching deductible things as much as possible in the first year after expiration.

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Re: Tax law expiring in 2025

Post by willthrill81 » Mon Feb 11, 2019 5:53 pm

uberdoc wrote:
Mon Feb 11, 2019 4:11 pm
Let’s focus on current law otherwise thread might get locked. So beyond the Roth conversion, anything else could be done?
It will get locked anyway.

Stuffing as much money into Roth accounts now is likely to be the best real hedge against higher tax rates in the future. As noted above, 529 accounts in states that offer a tax deduction might be useful in this regard as well, but they carry their own risk (i.e. not needing those funds for a number of potential reasons).
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Re: Tax law expiring in 2025

Post by Dottie57 » Mon Feb 11, 2019 5:57 pm

hirlaw wrote:
Mon Feb 11, 2019 1:08 pm
I believe some are converting pre-tax IRAs to Roth IRAs. There are several online calculators available to see if this strategy is appropriate in your situation.
This is me.

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Re: Tax law expiring in 2025

Post by gclancer » Mon Feb 11, 2019 6:18 pm

alfaspider wrote:
Mon Feb 11, 2019 3:21 pm
they might impose a VAT in lieu of increasing marginal income tax rates.
I live in a state that prides itself on having its fiscal house in order while maintaining “low taxes.” It has an all-of-the-above taxation regime including income tax, property tax, sales tax, gas tax, several annual fees, and tolls on roads. Relative to other states each respective tax is “low”. Point being, future planning based solely on income tax is likely short sighted.

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Re: Tax law expiring in 2025

Post by 2015 » Mon Feb 11, 2019 7:15 pm

I never do anything based on some speculation about the future as the future always laugh last at those who attempt to predict, no matter the "tool". I'm doing roth conversions while delaying SS until 70 only to mitigate higher taxes as a result of SS collection at that time, not because of some guess about the future.

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Re: Tax law expiring in 2025

Post by LadyGeek » Mon Feb 11, 2019 8:11 pm

This thread has run its course and is locked (conjecture, not actionable, speculation on future legislation). See: Politics and Religion
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