Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by LadyGeek » Tue Jun 11, 2019 9:44 pm

rkhusky wrote:
Tue Jun 11, 2019 9:04 pm
It is worthwhile to note that these pages contain a lot of original research, e.g. all the tables and plots. If these pages were really Wikipedia-like, the vast majority of the text would be either a quote or a paraphrase of text from other publications. Perhaps the first section of the pages should be Wikipedia-like, i.e. heavily referenced, and a second section could include all the original research of Bogleheads' contributors. For example, a page the length of Traditional vs. Roth would probably have 30-50 references on Wikipedia.
I disagree this is original research as defined by Wikipedia:No original research.
Wikipedia articles must not contain original research. The phrase "original research" (OR) is used on Wikipedia to refer to material—such as facts, allegations, and ideas—for which no reliable, published sources exist.[a] This includes any analysis or synthesis of published material that serves to reach or imply a conclusion not stated by the sources. To demonstrate that you are not adding OR, you must be able to cite reliable, published sources that are directly related to the topic of the article, and directly support the material being presented....

The prohibition against OR means that all material added to articles must be attributable to a reliable, published source, even if not actually attributed.[a] The verifiability policy says that an inline citation to a reliable source must be provided for all quotations, and for anything challenged or likely to be challenged—but a source must exist even for material that is never challenged. For example: the statement "the capital of France is Paris" needs no source, nor is it original research, because it's not something you thought up and it is so easily verifiable that no one is likely to object to it; we know that sources exist for it even if they are not cited. The statement is attributable, even if not attributed.

Routine calculations do not count as original research, provided there is consensus among editors that the result of the calculation is obvious, correct, and a meaningful reflection of the sources. Basic arithmetic, such as adding numbers, converting units, or calculating a person's age are some examples of routine calculations.
All of the material is attributable to, and shows compliance with, IRS regulations. Rearranging equations defined in the IRS publications (and forms) would be a routine calculation. The time value of money equations are verifiable - even if the source is not cited.

If anyone has a different perspective, feel free to comment.
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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Wed Jun 12, 2019 12:39 am

rkhusky, it's good to see that you no longer support the "Marginal rate when contributing, average rate on withdrawal" notion expressed in Traditional 401k versus Roth 401k - Bogleheads.org 3.5 years ago, and the wiki edits you made then: https://www.bogleheads.org/w/index.php? ... ldid=53673.

It's not clear why you are overly concerned about "original research" and counting the number of of times "marginal" and "next dollar" are cited together. Nobody seems to be arguing the many textbook examples of using derivatives for marginal rates, but there is discussion about how applicable those textbooks are when they assume smooth, monotonic functions, and the tax code is neither smooth nor monotonic.

Not going to revert your latest edit to fyre4ce's draft marginal tax rate page at this point, because fyre4ce wrote about "doing a scrub of both articles" and it seems good to wait for that.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by rkhusky » Wed Jun 12, 2019 7:24 am

LadyGeek wrote:
Tue Jun 11, 2019 9:44 pm
rkhusky wrote:
Tue Jun 11, 2019 9:04 pm
It is worthwhile to note that these pages contain a lot of original research, e.g. all the tables and plots. If these pages were really Wikipedia-like, the vast majority of the text would be either a quote or a paraphrase of text from other publications. Perhaps the first section of the pages should be Wikipedia-like, i.e. heavily referenced, and a second section could include all the original research of Bogleheads' contributors. For example, a page the length of Traditional vs. Roth would probably have 30-50 references on Wikipedia.
I disagree this is original research as defined by Wikipedia:No original research.
Wikipedia articles must not contain original research. The phrase "original research" (OR) is used on Wikipedia to refer to material—such as facts, allegations, and ideas—for which no reliable, published sources exist.[a] This includes any analysis or synthesis of published material that serves to reach or imply a conclusion not stated by the sources. To demonstrate that you are not adding OR, you must be able to cite reliable, published sources that are directly related to the topic of the article, and directly support the material being presented....

The prohibition against OR means that all material added to articles must be attributable to a reliable, published source, even if not actually attributed.[a] The verifiability policy says that an inline citation to a reliable source must be provided for all quotations, and for anything challenged or likely to be challenged—but a source must exist even for material that is never challenged. For example: the statement "the capital of France is Paris" needs no source, nor is it original research, because it's not something you thought up and it is so easily verifiable that no one is likely to object to it; we know that sources exist for it even if they are not cited. The statement is attributable, even if not attributed.

Routine calculations do not count as original research, provided there is consensus among editors that the result of the calculation is obvious, correct, and a meaningful reflection of the sources. Basic arithmetic, such as adding numbers, converting units, or calculating a person's age are some examples of routine calculations.
All of the material is attributable to, and shows compliance with, IRS regulations. Rearranging equations defined in the IRS publications (and forms) would be a routine calculation. The time value of money equations are verifiable - even if the source is not cited.

If anyone has a different perspective, feel free to comment.
I doubt that most people would consider the text in https://www.bogleheads.org/wiki/User:Fy ... l_tax_rate or https://www.bogleheads.org/wiki/User:Fy ... ersus_Roth to be obvious or the result of basic arithmetic. It is okay to admit that the Bogleheads' wiki does not conform to Wikipedia standards in regards to original research, if that is what is desired.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by rkhusky » Wed Jun 12, 2019 7:45 am

FiveK wrote:
Wed Jun 12, 2019 12:39 am
rkhusky, it's good to see that you no longer support the "Marginal rate when contributing, average rate on withdrawal" notion expressed in Traditional 401k versus Roth 401k - Bogleheads.org 3.5 years ago, and the wiki edits you made then: https://www.bogleheads.org/w/index.php? ... ldid=53673.
Wow. Thanks for digging that up. Reminded me that you used to support the next dollar definition of marginal rate - viewtopic.php?f=2&t=182081&start=150#p2770462. And now you include average rate in the definition of marginal rate. I guess we've come full circle. :-)

And who says I don't support "marginal rate when contributing and average rate on withdrawal"? It is necessary when analyzing the SS hump.
FiveK wrote:
Wed Jun 12, 2019 12:39 am
Nobody seems to be arguing the many textbook examples of using derivatives for marginal rates, but there is discussion about how applicable those textbooks are when they assume smooth, monotonic functions, and the tax code is neither smooth nor monotonic.
Who's citing textbooks? There are none, even for the discussion of derivatives in the appendix. The citations are for common usage.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Wed Jun 12, 2019 10:38 am

rkhusky wrote:
Wed Jun 12, 2019 7:45 am
And who says I don't support "marginal rate when contributing and average rate on withdrawal"? It is necessary when analyzing the SS hump.
If that is still your position, then it's not worth repeating all the posts from 3 years ago.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by rkhusky » Wed Jun 12, 2019 10:45 am

Regarding original research on Wikipedia, I was recently looking at https://en.wikipedia.org/wiki/Navigation. Here, items that do not have traditional references are still attributed outside the main Wikipedia pages. For example, the source of the image https://en.wikipedia.org/wiki/File:Navigatie.jpg is described as "own work" by https://commons.wikimedia.org/wiki/User:Jcb. And the image is placed in Wikipedia Commons, which perhaps can be thought of as a "publication" outside the main Wikipedia pages. The same is true of https://en.wikipedia.org/wiki/File:Accu ... ystems.svg, which is listed as a derivative work of an image by https://commons.wikimedia.org/wiki/User:Unomano. By attributing these works to individuals, it is clear that Wikipedia itself is not generating the information.
Last edited by rkhusky on Sat Jun 15, 2019 7:27 am, edited 1 time in total.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by rkhusky » Wed Jun 12, 2019 10:46 am

FiveK wrote:
Wed Jun 12, 2019 10:38 am
rkhusky wrote:
Wed Jun 12, 2019 7:45 am
And who says I don't support "marginal rate when contributing and average rate on withdrawal"? It is necessary when analyzing the SS hump.
If that is still your position, then it's not worth repeating all the posts from 3 years ago.
Thank goodness.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by rkhusky » Wed Jun 12, 2019 1:23 pm

rkhusky wrote:
Wed Jun 12, 2019 10:46 am
FiveK wrote:
Wed Jun 12, 2019 10:38 am
rkhusky wrote:
Wed Jun 12, 2019 7:45 am
And who says I don't support "marginal rate when contributing and average rate on withdrawal"? It is necessary when analyzing the SS hump.
If that is still your position, then it's not worth repeating all the posts from 3 years ago.
Thank goodness.
Just for completeness, my position is that knowing the marginal tax rate on each dollar of contribution and each dollar of withdrawal provides the necessary information to determine the Roth vs Traditional question. If the tax rates on contribution and withdrawal are monotonically increasing, comparing the contribution marginal rate versus the withdrawal marginal rate for each dollar provides the optimal solution. If either the contribution or the withdrawal tax rates are not monotonically increasing, then one may need to compute an average over some amount of contribution or withdrawal income, in order to compute the optimal solution.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Wed Jun 12, 2019 2:31 pm

rkhusky wrote:
Wed Jun 12, 2019 1:23 pm
rkhusky wrote:
Wed Jun 12, 2019 10:46 am
FiveK wrote:
Wed Jun 12, 2019 10:38 am
rkhusky wrote:
Wed Jun 12, 2019 7:45 am
And who says I don't support "marginal rate when contributing and average rate on withdrawal"? It is necessary when analyzing the SS hump.
If that is still your position, then it's not worth repeating all the posts from 3 years ago.
Thank goodness.
Just for completeness, my position is that knowing the marginal tax rate on each dollar of contribution and each dollar of withdrawal provides the necessary information to determine the Roth vs Traditional question. If the tax rates on contribution and withdrawal are monotonically increasing, comparing the contribution marginal rate versus the withdrawal marginal rate for each dollar provides the optimal solution. If either the contribution or the withdrawal tax rates are not monotonically increasing, then one may need to compute an average over some amount of contribution or withdrawal income, in order to compute the optimal solution.
That looks better.

And if one chooses to make a lump sum contribution or conversion (instead of going dollar by dollar), the applicable marginal rate is (change in tax)/(amount).

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by fyre4ce » Wed Jun 12, 2019 5:37 pm

Thanks to all for the edits. It will probably be this weekend before I can do a thorough scrub of both these pages.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by rkhusky » Wed Jun 12, 2019 5:51 pm

FiveK wrote:
Wed Jun 12, 2019 2:31 pm
And if one chooses to make a lump sum contribution or conversion (instead of going dollar by dollar), the applicable marginal rate is (change in tax)/(amount).
No. :-)

The optimal is found by going dollar by dollar, in order to determine if the lump sum crosses any marginal tax rate boundaries, where one may want to switch between Traditional and Roth.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by Lee_WSP » Wed Jun 12, 2019 6:11 pm

What RHusky said. Unless the marginal rate (cost per unit) is the same across the entire amount, then and only then can you lump sum it and get an accurate analysis.


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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Wed Jun 12, 2019 6:49 pm

rkhusky wrote:
Wed Jun 12, 2019 5:51 pm
FiveK wrote:
Wed Jun 12, 2019 2:31 pm
And if one chooses to make a lump sum contribution or conversion (instead of going dollar by dollar), the applicable marginal rate is (change in tax)/(amount).
No. :-)

The optimal is found by going dollar by dollar, in order to determine if the lump sum crosses any marginal tax rate boundaries, where one may want to switch between Traditional and Roth.
There can be a difference between "mathematical optimum" and "what one chooses".

This is not a first year calculus or college microeconomics class.

When one chooses a lump sum, the answer is the same whether one calculates the weighted average single dollar rates, or simply does (change in tax)/(lump sum amount). Do we all agree on that much?

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by Lee_WSP » Wed Jun 12, 2019 7:28 pm

I think we're overthinking it and I can agree to that. In practicum, you don't have to withdraw the same exact percentage of Roth:Trad that you put in. You can defer your Roth withdrawals indefinitely. So, in that sense, if the two are equally good based on the marginal rate today vs tomorrow calculation, just max out the front door Roth and either make it 50:50 total or however one feels like it as they're both equally good.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by rkhusky » Wed Jun 12, 2019 9:26 pm

FiveK wrote:
Wed Jun 12, 2019 6:49 pm
When one chooses a lump sum, the answer is the same whether one calculates the weighted average single dollar rates, or simply does (change in tax)/(lump sum amount). Do we all agree on that much?
(change in tax)/(lump sum amount) is the average tax rate, which is the same as the weighted sum of the marginal rates, with the weights equal to the percent of dollars at each marginal rate.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Wed Jun 12, 2019 10:20 pm

rkhusky wrote:
Wed Jun 12, 2019 9:26 pm
FiveK wrote:
Wed Jun 12, 2019 6:49 pm
When one chooses a lump sum, the answer is the same whether one calculates the weighted average single dollar rates, or simply does (change in tax)/(lump sum amount). Do we all agree on that much?
(change in tax)/(lump sum amount) is the average tax rate, which is the same as the weighted sum of the marginal rates, with the weights equal to the percent of dollars at each marginal rate.
I'll take that as a yes. :beer

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by Lee_WSP » Wed Jun 12, 2019 11:09 pm

FiveK wrote:
Wed Jun 12, 2019 10:20 pm
rkhusky wrote:
Wed Jun 12, 2019 9:26 pm
FiveK wrote:
Wed Jun 12, 2019 6:49 pm
When one chooses a lump sum, the answer is the same whether one calculates the weighted average single dollar rates, or simply does (change in tax)/(lump sum amount). Do we all agree on that much?
(change in tax)/(lump sum amount) is the average tax rate, which is the same as the weighted sum of the marginal rates, with the weights equal to the percent of dollars at each marginal rate.
I'll take that as a yes. :beer
Sure, but why would a lump sum necessarily be better?

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Wed Jun 12, 2019 11:13 pm

Lee_WSP wrote:
Wed Jun 12, 2019 11:09 pm
Sure, but why would a lump sum necessarily be better?
Don't think anyone said it would be "better" from a green-eye-shade financial perspective. What do you mean by "better"?

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by Lee_WSP » Wed Jun 12, 2019 11:17 pm

FiveK wrote:
Wed Jun 12, 2019 11:13 pm
Lee_WSP wrote:
Wed Jun 12, 2019 11:09 pm
Sure, but why would a lump sum necessarily be better?
Don't think anyone said it would be "better" from a green-eye-shade financial perspective. What do you mean by "better"?
Wisest course of action.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Wed Jun 12, 2019 11:31 pm

Lee_WSP wrote:
Wed Jun 12, 2019 11:17 pm
FiveK wrote:
Wed Jun 12, 2019 11:13 pm
Lee_WSP wrote:
Wed Jun 12, 2019 11:09 pm
Sure, but why would a lump sum necessarily be better?
Don't think anyone said it would be "better" from a green-eye-shade financial perspective. What do you mean by "better"?
Wisest course of action.
Unfortunately that is subjective. E.g., if only "a few hundred" dollars of a $19K 401k annual contribution might (or might not, depending on after-the-last-paycheck mutual fund distributions) save 12% instead of 22%, what is the wisest course of action for that year's 401k t v. R choice? Assume a 15% withdrawal marginal rate.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by Lee_WSP » Wed Jun 12, 2019 11:36 pm

FiveK wrote:
Wed Jun 12, 2019 11:31 pm
Lee_WSP wrote:
Wed Jun 12, 2019 11:17 pm
FiveK wrote:
Wed Jun 12, 2019 11:13 pm
Lee_WSP wrote:
Wed Jun 12, 2019 11:09 pm
Sure, but why would a lump sum necessarily be better?
Don't think anyone said it would be "better" from a green-eye-shade financial perspective. What do you mean by "better"?
Wisest course of action.
Unfortunately that is subjective. E.g., if only "a few hundred" dollars of a $19K 401k annual contribution might (or might not, depending on after-the-last-paycheck mutual fund distributions) save 12% instead of 22%, what is the wisest course of action for that year's 401k t v. R choice? Assume a 15% withdrawal marginal rate.
Is there a real world scenario where this happens or are you saying one is at the margin between the 12 and 22% brackets during withdrawals?

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Wed Jun 12, 2019 11:45 pm

Lee_WSP wrote:
Wed Jun 12, 2019 11:36 pm
Is there a real world scenario where this happens or are you saying one is at the margin between the 12 and 22% brackets during withdrawals?
Very real world. E.g., take a single filer earning with $70K W-2 earnings if no t401k contributions are made. You could use the personal finance toolbox Excel spreadsheet to see this in chart form: put 70000 in cell Calculations!B3 and see the chart over cell J100.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by Lee_WSP » Thu Jun 13, 2019 12:04 am

FiveK wrote:
Wed Jun 12, 2019 11:45 pm
Lee_WSP wrote:
Wed Jun 12, 2019 11:36 pm
Is there a real world scenario where this happens or are you saying one is at the margin between the 12 and 22% brackets during withdrawals?
Very real world. E.g., take a single filer earning with $70K W-2 earnings if no t401k contributions are made. You could use the personal finance toolbox Excel spreadsheet to see this in chart form: put 70000 in cell Calculations!B3 and see the chart over cell J100.
I followed the instructions. What am I looking at? It is a flat blue line, then a grey line that goes vertical at 20,000. I don't understand the chart. The 2018 version is just a flat grey line.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by rkhusky » Thu Jun 13, 2019 7:02 am

FiveK wrote:
Wed Jun 12, 2019 10:20 pm
rkhusky wrote:
Wed Jun 12, 2019 9:26 pm
FiveK wrote:
Wed Jun 12, 2019 6:49 pm
When one chooses a lump sum, the answer is the same whether one calculates the weighted average single dollar rates, or simply does (change in tax)/(lump sum amount). Do we all agree on that much?
(change in tax)/(lump sum amount) is the average tax rate, which is the same as the weighted sum of the marginal rates, with the weights equal to the percent of dollars at each marginal rate.
I'll take that as a yes. :beer
But that doesn't mean that one should use the average rate to make decisions. If I am $3K above the 12%/22% boundary and I expect to pay 15% on withdrawals from Traditional, I am likely to split my $6K contribution, with $3K to Traditional and $3K to Roth. I wouldn't use the average rate of 17% and choose all Traditional. Likewise, if I expected to pay 18% on withdrawals, then I wouldn't choose all Roth, based on the 17% average rate.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Thu Jun 13, 2019 10:43 am

rkhusky wrote:
Thu Jun 13, 2019 7:02 am
But that doesn't mean that one should use the average rate to make decisions. If I am $3K above the 12%/22% boundary and I expect to pay 15% on withdrawals from Traditional, I am likely to split my $6K contribution, with $3K to Traditional and $3K to Roth. I wouldn't use the average rate of 17% and choose all Traditional. Likewise, if I expected to pay 18% on withdrawals, then I wouldn't choose all Roth, based on the 17% average rate.
Ah, common ground!

I agree 100% that, regardless of what we name things, our goal should be to give people the best guidelines we can, acknowledging that any choice is subject to the future uncertainty of both their individual situation and the tax code.

Agreed?

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Thu Jun 13, 2019 10:50 am

Lee_WSP wrote:
Thu Jun 13, 2019 12:04 am
FiveK wrote:
Wed Jun 12, 2019 11:45 pm
Lee_WSP wrote:
Wed Jun 12, 2019 11:36 pm
Is there a real world scenario where this happens or are you saying one is at the margin between the 12 and 22% brackets during withdrawals?
Very real world. E.g., take a single filer earning with $70K W-2 earnings if no t401k contributions are made. You could use the personal finance toolbox Excel spreadsheet to see this in chart form: put 70000 in cell Calculations!B3 and see the chart over cell J100.
I followed the instructions. What am I looking at? It is a flat blue line, then a grey line that goes vertical at 20,000. I don't understand the chart. The 2018 version is just a flat grey line.
Is this what you see?
Image

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by Lee_WSP » Thu Jun 13, 2019 11:39 am

Yes it is.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Thu Jun 13, 2019 11:58 am

Lee_WSP wrote:
Thu Jun 13, 2019 11:39 am
Yes it is.
Going by the legend (grey is "Marginal" and blue is "Cumulative"), one can save 22% on any t401k contribution from $1 to something over $18K (the actual number is $18,325). The blue line is superimposed upon the grey line over this range. Between "something over $18K" and the t401k contribution limit of $19K, one can save 12% on that amount (the grey line), while the "cumulative" (aka average) blue curve shows the saving rate on the full $19K falls a little (the actual number is 21.6%).

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by rkhusky » Thu Jun 13, 2019 3:27 pm

FiveK wrote:
Thu Jun 13, 2019 10:43 am
I agree 100% that, regardless of what we name things, our goal should be to give people the best guidelines we can, acknowledging that any choice is subject to the future uncertainty of both their individual situation and the tax code.

Agreed?
Sure.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by fyre4ce » Fri Jun 14, 2019 12:21 am

OK, got partway through a major scrub of Marginal Tax Rates. I rearranged the top section to try to make the definitions more clear. I really tried to write a description that fairly reflects all the opinions expressed here. Based on some PMs I added some content about payroll tax rates. I also added <0, >100%, and spike descriptions to special cases. The >100% one I'm iffy about; y'all will have to let me know if you think it should stay or go.

I still want to add an explicit comment about Saver's Credit; will get to this over the weekend.

Thanks all. Discuss! :D

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Fri Jun 14, 2019 1:42 am

fyre4ce wrote:
Fri Jun 14, 2019 12:21 am
Thanks all. Discuss! :D
Any objections to going from
Marginal tax rate is the tax rate on additional income. By convention, the amount of additional income is "small", so this is commonly described as the tax rate on the "next dollar" or "last dollar" income. In practice, due to rounding errors, tax rates on a single additional dollar are usually inaccurate. In certain situations, it may make sense to calculate the marginal rate on a larger change in income.

The marginal tax rate is often the same as the individual's tax bracket, but not always.

In particular, a marginal tax rate is not the average (a.k.a. "effective") tax rate paid on one's entire income.
to
Marginal tax rate is the tax rate on a change to income, not the tax rate on one's entire income. To emphasize the "change to" calculation, the marginal rate is often described as the tax rate on the "next dollar" or "last dollar" of income. Due to the way the tax code is written, however, actual tax rates on a single dollar change can be misleading. For useful numbers, the marginal tax rate is often either calculated on a larger change in income, or using an approximate form of the tax code.

The marginal tax rate is often the same as the individual's tax bracket, but not always.

Again, a marginal tax rate is not the average (a.k.a. "effective") tax rate paid on one's entire income.
?

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by rkhusky » Fri Jun 14, 2019 7:04 am

FiveK wrote:
Fri Jun 14, 2019 1:42 am
Marginal tax rate is the tax rate on a change to income, not the tax rate on one's entire income. To emphasize the "change to" calculation, the marginal rate is often described as the tax rate on the "next dollar" or "last dollar" of income. Due to the way the tax code is written, however, actual tax rates on a single dollar change can be misleading. For useful numbers, the marginal tax rate is often either calculated on a larger change in income, or using an approximate form of the tax code.

The marginal tax rate is often the same as the individual's tax bracket, but not always.

Again, a marginal tax rate is not the average (a.k.a. "effective") tax rate paid on one's entire income.
How about:
Marginal tax rate is the tax rate on a change in income (i.e. change in tax/change in income). The marginal rate is often described as the tax rate on the "next dollar" or "last dollar" of income. However, due to the way the tax code is written (particularly the requirement to use the tax tables, but for other aspects as well), actual tax rates on a single dollar change can be misleading. For useful numbers, the marginal tax rate is often either calculated on a larger change in income, or by using an approximate form of the tax code.

The marginal tax rate is often the same as the individual's tax bracket, but not always.

A marginal tax rate is not the average (a.k.a. "effective") tax rate paid on one's entire income.
"change in" sounds better to my ear than "change to" but that could just be a dialect thing.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Fri Jun 14, 2019 10:16 am

rkhusky wrote:
Fri Jun 14, 2019 7:04 am
FiveK wrote:
Fri Jun 14, 2019 1:42 am
Marginal tax rate is the tax rate on a change to income, not the tax rate on one's entire income. To emphasize the "change to" calculation, the marginal rate is often described as the tax rate on the "next dollar" or "last dollar" of income. Due to the way the tax code is written, however, actual tax rates on a single dollar change can be misleading. For useful numbers, the marginal tax rate is often either calculated on a larger change in income, or using an approximate form of the tax code.

The marginal tax rate is often the same as the individual's tax bracket, but not always.

Again, a marginal tax rate is not the average (a.k.a. "effective") tax rate paid on one's entire income.
How about:
Marginal tax rate is the tax rate on a change in income (i.e. change in tax/change in income). The marginal rate is often described as the tax rate on the "next dollar" or "last dollar" of income. However, due to the way the tax code is written (particularly the requirement to use the tax tables, but for other aspects as well), actual tax rates on a single dollar change can be misleading. For useful numbers, the marginal tax rate is often either calculated on a larger change in income, or by using an approximate form of the tax code.

The marginal tax rate is often the same as the individual's tax bracket, but not always.

A marginal tax rate is not the average (a.k.a. "effective") tax rate paid on one's entire income.
"change in" sounds better to my ear than "change to" but that could just be a dialect thing.
No problem using "in."

For introductory wiki purposes, using the emphasis on change, instead of discussing smooth functions with non-zero second derivatives as the reason most references use differentials instead of differences, seems appropriate, so I'd like to keep that clause. That gives us:
Marginal tax rate is the tax rate on a change in income (i.e. change in tax/change in income). To emphasize the "change" calculation, the marginal rate is often described as the tax rate on the "next dollar" or "last dollar" of income. However, due to the way the tax code is written (particularly the requirement to use the tax tables, but for other aspects as well), actual tax rates on a single dollar change can be misleading. For useful numbers, the marginal tax rate is often either calculated on a larger change in income, or by using an approximate form of the tax code.

The marginal tax rate is often the same as the individual's tax bracket, but not always.

A marginal tax rate is not the average (a.k.a. "effective") tax rate paid on one's entire income.
If we have consensus on the above, we can probably eliminate or pare down the Description section, but one step at a time....

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by rkhusky » Fri Jun 14, 2019 8:35 pm

FiveK wrote:
Fri Jun 14, 2019 10:16 am
Marginal tax rate is the tax rate on a change in income (i.e. change in tax/change in income). To emphasize the "change" calculation, the marginal rate is often described as the tax rate on the "next dollar" or "last dollar" of income. However, due to the way the tax code is written (particularly the requirement to use the tax tables, but for other aspects as well), actual tax rates on a single dollar change can be misleading. For useful numbers, the marginal tax rate is often either calculated on a larger change in income, or by using an approximate form of the tax code.

The marginal tax rate is often the same as the individual's tax bracket, but not always.

A marginal tax rate is not the average (a.k.a. "effective") tax rate paid on one's entire income.
If we have consensus on the above, we can probably eliminate or pare down the Description section, but one step at a time....
Sounds good to me.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Sun Jun 16, 2019 10:34 pm

rkhusky wrote:
Fri Jun 14, 2019 8:35 pm
FiveK wrote:
Fri Jun 14, 2019 10:16 am
Marginal tax rate is the tax rate on a change in income (i.e. change in tax/change in income). To emphasize the "change" calculation, the marginal rate is often described as the tax rate on the "next dollar" or "last dollar" of income. However, due to the way the tax code is written (particularly the requirement to use the tax tables, but for other aspects as well), actual tax rates on a single dollar change can be misleading. For useful numbers, the marginal tax rate is often either calculated on a larger change in income, or by using an approximate form of the tax code.

The marginal tax rate is often the same as the individual's tax bracket, but not always.

A marginal tax rate is not the average (a.k.a. "effective") tax rate paid on one's entire income.
If we have consensus on the above, we can probably eliminate or pare down the Description section, but one step at a time....
Sounds good to me.
Done in fyre4ce's draft wiki.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by rkhusky » Tue Jun 18, 2019 9:09 am

In looking at the real world example for the Traditional vs. Roth page, I noticed some confusing language. I tried to clarify things but had to revert the changes because I kept getting tripped up in the language and don't have time to unsort it right now.

First was the use of "marginal savings rate" or "savings rate". While this was brought up previously, I don't think it was actually addressed. Savings rate is commonly used as a measure of the percentage of income that is saved. I don't find any reference for it being used in terms of tax rates. Accordingly, I think one should just use a negative tax rate to indicate tax savings, rather than invent new language to describe it, and certainly not use a term that is commonly used for something else.

It also seems like the text is not using the terms marginal and cumulative tax rates consistent with the plot in that section. For example, while the procedure in the Analysis section uses the term "marginal", the first step gives a definition that is for the "cumulative" tax rate.

It would be useful to describe the origin of each of the different marginal rates in the plot (22%, 43%, 33%, 31%, and 21%).

It would also be interesting to see how the analysis changes when the expected marginal rate for withdrawals is 25%, 30%, and 35%.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Wed Jun 26, 2019 11:55 am

Removed use of "savings rate" (other than to say we are treating everything as a positive number) and added description of the components for the various marginal rates.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by fyre4ce » Mon Jul 22, 2019 6:08 pm

All,

Sorry for my sudden departure - my wife and I had a new baby and we've been busy taking care of a newborn. We've settled into a routine and I'd like to finish this effort and get the new article uploaded, in acknowledgement of the hard work the whole editing team has put in. Thanks to all those who put in editing work while I was away. I made a top-to-bottom scrub of both articles over the last couple days. My intent was not to undo any changes that others have made, or reverse any controversial topics. I just tried to take what was already there and get it ready for publication. Summary of recent changes:

Marginal tax rate:
-Reorganized, separated estimation section
-Added section on federal income tax. While this information is elsewhere on the wiki, it's almost always the biggest component of marginal rates in the US, so I think it's worth the space to include

T vs R:
-General clean-up, changed wording to make it more wiki-like, made terminology consistent, added links
-Reorganized. Removed some redundant content for complex cases and replaced with links to full sections. Moved "qualitative" guidelines up top. Combined some sections into Calculation section. Moved "risk of shortfall" into "other tax considerations.
-Cleaned up content for complex cases, and added <math> pretty print.

To all editors- please post here if you agree these latest drafts are significantly better than what's currently on the wiki. In the interest of avoiding more tedious editing cycles, my request is that for more than minor edits, please post a proposal here for discussion rather than make it directly into the article. Also keep in mind that the article can continue to be edited after it's published.

Thanks again to all who contributed.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Tue Jul 23, 2019 5:03 pm

fyre4ce wrote:
Mon Jul 22, 2019 6:08 pm
To all editors- please post here if you agree these latest drafts are significantly better than what's currently on the wiki. In the interest of avoiding more tedious editing cycles, my request is that for more than minor edits, please post a proposal here for discussion rather than make it directly into the article. Also keep in mind that the article can continue to be edited after it's published.
At a quick glance, many of the changes (e.g., lower case "t" for traditional, prettier math equations) look good.

Others are problematic. E.g., there was a change from
However, due to the way the tax code is written (particularly the requirement to use the tax tables, but for other aspects as well), actual tax rates on a single dollar change can be misleading. For useful numbers, the marginal tax rate is often either calculated on a larger change in income, or by using an approximate form of the tax code.
to
However, due to rounding errors, actual tax rates on a single dollar change can be misleading. For accurate numbers, the marginal tax rate is often either calculated on a larger change in income, or by using theoretical values from the tax code.
By definition, there aren't any rounding errors when one follows the tax code. Accurate marginal rates, using the real tax code, are very noisy. For this wiki article's purpose we care about usefulness more than accuracy. One might quibble about the wording "approximate form of" vs. "theoretical values from" when one ignores the tax tables, ignores step changes in various credit calculations, etc., but the real (aka "theoretical") tax code leads to the noisy rates so "approximate" seems better. In short, reverting to the previous paragraph verbatim is appropriate.

In other areas, perhaps your "intent was not to undo any changes that others have made, or reverse any controversial topics" but that didn't happen. Given that rkhusky and I had reached consensus - and that the two of us often have different perspectives :) - you might strongly consider reverting everything except the purely cosmetic (capitalization, one word changes (e.g., "payroll" for "FICA'), math equation appearance), etc.) changes.

And, most importantly, congratulations on your new arrival!

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by rkhusky » Tue Jul 23, 2019 5:43 pm

Perhaps:
However, due to the way the tax code is written (particularly the requirement to use the tax tables, but for other aspects as well, such as rounding and step changes), actual tax rates on a single dollar change are noisy and can therefore be misleading. For useful numbers, the marginal tax rate is often either calculated on a larger change in income, or by using an approximate form of the tax code.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Tue Jul 23, 2019 6:29 pm

rkhusky wrote:
Tue Jul 23, 2019 5:43 pm
Perhaps:
However, due to the way the tax code is written (particularly the requirement to use the tax tables, but for other aspects as well, such as rounding and step changes), actual tax rates on a single dollar change are noisy and can therefore be misleading. For useful numbers, the marginal tax rate is often either calculated on a larger change in income, or by using an approximate form of the tax code.
Looks good!

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by fyre4ce » Tue Jul 23, 2019 8:21 pm

FiveK wrote:
Tue Jul 23, 2019 5:03 pm
By definition, there aren't any rounding errors when one follows the tax code. Accurate marginal rates, using the real tax code, are very noisy. For this wiki article's purpose we care about usefulness more than accuracy. One might quibble about the wording "approximate form of" vs. "theoretical values from" when one ignores the tax tables, ignores step changes in various credit calculations, etc., but the real (aka "theoretical") tax code leads to the noisy rates so "approximate" seems better. In short, reverting to the previous paragraph verbatim is appropriate.
Yeah, you make a good point. My thinking was that the "theoretical" value (eg. 24%) was the "true" value, and the value you get by adding a change and dividing by the change in tax is an "approximation", although you could argue the other way around that the actual change is the "true" change and 24% is just an approximation for larger changes. Similarly, I was thinking of the rounding to whole dollars as an "error" in trying to get to the actual "true" value, although from another perspective it's not an error but rather the way the tax code was designed to work.

I'm an engineer so I'm on-board with the term "noise" but I worry others without a technical background might be confused by it. How about changing those two sentences to this (very similar to what was there a week ago):
However, because the US tax code rounds taxes to the nearest whole dollar, actual tax rates on a single dollar change will be misleading. For useful numbers, the marginal tax rate should be either calculated on a larger change in income, or based directly on the tax code.
FiveK wrote:
Tue Jul 23, 2019 5:03 pm
In other areas, perhaps your "intent was not to undo any changes that others have made, or reverse any controversial topics" but that didn't happen. Given that rkhusky and I had reached consensus - and that the two of us often have different perspectives :) - you might strongly consider reverting everything except the purely cosmetic (capitalization, one word changes (e.g., "payroll" for "FICA'), math equation appearance), etc.) changes.
Oy, I'd rather not - that'd be a ton of work. Besides the wording issue above, what other changes are you unhappy with?
FiveK wrote:
Tue Jul 23, 2019 5:03 pm
And, most importantly, congratulations on your new arrival!
Thanks! He's a cutie! My goal is to have him rebalancing my accounts for me by eight years old.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Tue Jul 23, 2019 8:42 pm

fyre4ce wrote:
Tue Jul 23, 2019 8:21 pm
I'm an engineer so I'm on-board with the term "noise" but I worry others without a technical background might be confused by it. How about changing those two sentences to this (very similar to what was there a week ago):
...
If you want to change "are noisy" to a different word or two, but keep everything else rkhusky proposed:
rkhusky wrote:
Tue Jul 23, 2019 5:43 pm
However, due to the way the tax code is written (particularly the requirement to use the tax tables, but for other aspects as well, such as rounding and step changes), actual tax rates on a single dollar change are noisy and can therefore be misleading. For useful numbers, the marginal tax rate is often either calculated on a larger change in income, or by using an approximate form of the tax code.
that would probably work.
FiveK wrote:
Tue Jul 23, 2019 5:03 pm
In other areas, perhaps your "intent was not to undo any changes that others have made, or reverse any controversial topics" but that didn't happen. Given that rkhusky and I had reached consensus - and that the two of us often have different perspectives :) - you might strongly consider reverting everything except the purely cosmetic (capitalization, one word changes (e.g., "payroll" for "FICA'), math equation appearance), etc.) changes.
Oy, I'd rather not - that'd be a ton of work. Besides the wording issue above, what other changes are you unhappy with?
There are a few....

E.g., the following lines were removed:
Note the possibility of self-defeating predictions:
* Predict high taxable retirement income > contribute to Roth > get low taxable retirement income
* Predict low taxable retirement income > contribute to traditional > get high taxable retirement income
Then, in the example of "A single investor earns $200,000 gross income..." the future value calculation was changed to assume $19K/yr contributions (instead of $0) for all future years. If one makes the $19K/yr to traditional assumption, then determines the expected future tax rate is higher than current, and thus uses Roth now, one will have fallen for the first self-defeating prediction that would no longer be warned against in the wiki.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by LadyGeek » Tue Jul 23, 2019 9:58 pm

fyre4ce wrote:
Tue Jul 23, 2019 8:21 pm
FiveK wrote:
Tue Jul 23, 2019 5:03 pm
And, most importantly, congratulations on your new arrival!
Thanks! He's a cutie! My goal is to have him rebalancing my accounts for me by eight years old.
^^^ His first words will be "Dad, can I have an allowance?" :)
FiveK wrote:
Tue Jul 23, 2019 8:42 pm
fyre4ce wrote:
Tue Jul 23, 2019 8:21 pm
I'm an engineer so I'm on-board with the term "noise" but I worry others without a technical background might be confused by it. How about changing those two sentences to this (very similar to what was there a week ago):
...
If you want to change "are noisy" to a different word or two, but keep everything else rkhusky proposed:
rkhusky wrote:
Tue Jul 23, 2019 5:43 pm
However, due to the way the tax code is written (particularly the requirement to use the tax tables, but for other aspects as well, such as rounding and step changes), actual tax rates on a single dollar change are noisy and can therefore be misleading. For useful numbers, the marginal tax rate is often either calculated on a larger change in income, or by using an approximate form of the tax code.
that would probably work.
I'm also an engineer and understand "noise", but I think the use of "misleading" suggests that something is incorrect or wrong. One more try:
However, due to the way the tax code is written (particularly the requirement to use the tax tables, but for other aspects as well, such as rounding and step changes), actual tax rates on a single dollar change are noisy and can therefore be misleading inaccurate. For useful numbers, the marginal tax rate is often either calculated on a larger change in income, or by using an approximate form of the tax code.
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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Tue Jul 23, 2019 10:28 pm

LadyGeek wrote:
Tue Jul 23, 2019 9:58 pm
I'm also an engineer and understand "noise", but I think the use of "misleading" suggests that something is incorrect or wrong. One more try:
However, due to the way the tax code is written (particularly the requirement to use the tax tables, but for other aspects as well, such as rounding and step changes), actual tax rates on a single dollar change are noisy and can therefore be misleading inaccurate. For useful numbers, the marginal tax rate is often either calculated on a larger change in income, or by using an approximate form of the tax code.
"Actual [marginal] tax rates" are, by definition, accurate.

But often not useful unless, for example, one is itemizing and finds taxable income is a dollar or two into a tax table step: in that case, remembering that $5 cash contribution to some charity might save $12 in federal tax. ;)

In a similar situation, a $5 tIRA contribution might save $6 in tax, but extrapolating that 120% marginal rate to suggest traditional is better in the 12% bracket seems "misleading" - in other words, "incorrect or wrong."

We could provide a link to the word "noisy" - perhaps https://www.quora.com/What-do-we-mean-w ... statistics or similar - or it might be clear enough in context to leave it as is.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by LadyGeek » Wed Jul 24, 2019 4:20 pm

I see your point and agree that leaving it "as-is" would be the best approach. I have no further comments.

I assume the discussion 3 posts up from here (FiveK) still needs to be worked out for User:Fyre4ce/Traditional versus Roth.

Is User:Fyre4ce/Marginal tax rate ready to go "live"?
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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Wed Jul 24, 2019 5:06 pm

LadyGeek wrote:
Wed Jul 24, 2019 4:20 pm
Is User:Fyre4ce/Marginal tax rate ready to go "live"?
No, that is the one to which the specific example in viewtopic.php?p=4658227#p4658227 applies.

There are other issues. Referencing https://www.bogleheads.org/w/index.php? ... ldid=65905, and using line numbers from the older version, here are reasons:
Line 1: Leave the "To emphasize the "change" calculation" clause, because the difference between marginal and (overall) effective remains an issue in many personal finance sites.

Line 56: Already discussed. Leave as is.

Line 65: Leave the paragraph space for readability. Go ahead and change "Assuming that your marginal tax rate is equal to your tax bracket, calculated using your taxable income (Adjusted Gross Income minus deductions), is often correct." to "Assuming that your marginal tax rate is equal to your federal tax bracket is sometimes correct." if desired, but leaving as is also works. Delete either all additional text, or just delete "Most commonly, the term "marginal" denotes a "small" change. In the context of tax rates, "small" means a change in income small enough to capture only the local tax effects."

Line 78: Don't care whether "For visual learners," is retained or not. Delete the added paragraph.

Line 84: Delete added text. Just reference the existing federal tax section. The more those tables are reproduced, the more chance for error and at the very least requires more work to update each year. The calculus concept of a derivative is inappropriate for this context.

Line 135: Don't care whether "FICA" or "payroll" is used.

In short, going live with LadyGeek's revision as of 21:21, 17 June 2019 seems fine.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by LadyGeek » Wed Jul 24, 2019 5:36 pm

I have updated the draft page with the version from 17:21, 17 June 2019 (by LadyGeek).*

Is this version ready to go "live"? See: User:Fyre4ce/Marginal tax rate

Is User:Fyre4ce/Traditional versus Roth also ready to go "live"?

(This has been a long discussion with two related pages. I want to be sure on the status.)

* When logged in, the wiki shows your local time zone. My timezone is different than FiveK's.
==================
For those not familiar with the wiki, it is well designed to track changes. Not only what changed, but an editor can restore an article's content for any edit, any time.

Fyre4ce's updates are not lost. They're tracked in the View history tab.
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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Wed Jul 24, 2019 6:19 pm

LadyGeek wrote:
Wed Jul 24, 2019 5:36 pm
I have updated the draft page with the version from 17:21, 17 June 2019 (by LadyGeek).*

Is this version ready to go "live"? See: User:Fyre4ce/Marginal tax rate
Might depend on who you ask ;). I vote aye.
Is User:Fyre4ce/Traditional versus Roth also ready to go "live"?
(This has been a long discussion with two related pages. I want to be sure on the status.)
No on the t vs. R page, as there were many changes made recently. But I think the draft marginal rate page fits both the current and draft t vs. R pages, so (if others concur) it could be moved live.

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