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Some would argue that the government will eventually have to start paying for all the "free" stuff it's been giving people for the last several years, and higher taxes would seem to be the most obvious way to do that. Today's rates, by comparison, are historically low. As such, it's entirely possible that you could have less taxable income in retirement and still be in a higher marginal tax bracket.
The third option is to NOT do this. Still put away $10k a year in the Roth and learn to get by on less take home pay.
Maybe reading and not commenting is best for me. In the last hour I was advised my question was off because traditional growth is in a tax free environment, then corrected that it is all taxable, bringing me back full circle. I'm obviously misfiring on something here. Don't worry, my understanding only impacts my financial planning.
Maybe reading and not commenting is best for me. In the last hour I was advised my question was off because traditional growth is in a tax free environment, then corrected that it is all taxable, bringing me back full circle. I'm obviously misfiring on something here. Don't worry, my understanding only impacts my financial planning.
Same could be said about traditional except that you put the extra money into stocks and pay long term capital gains rates. It’s easy to tell people to save more, few do it.
I’ve mentioned this before as well that don’t be surprised if there are gains type taxes on Roths in the future.
I think I understand all of that. Tell me if I'm thinking about this right:
Growth is never taxed. That’s what I mean. I can easily see the outcry of untaxed money and see them put it into capital gains tax type buckets because of the similarity. Both being investments with after tax money and tax treatment of only gains once sold. Right now Roth is 0% on the “sell” so to speak. Remember that but of outrage at PayPal’s founder basically having billions in gains that will have no taxes. That’s your poster boy.
Yes, someone else mentioned that, and -Oz- linked to an article which mentioned a secondary 'Roth must have existed for 5 years' which must be managed to (or else the growth is taxable, while the contributes remain tax free). Can't really reconcile why the 10 year rule is beneficial, if the 5 year rule is met and no part of the inheritance is taxed at all... why am I benefitting from ability to leave the money there for 10 years when I could get all of it it and start doing something with it immediately tax free? Seems like a benefit that would make more sense for traditional, which is taxed, to take in a way that manages to taxation. Another confusion for another day.
Because it can stay in the Roth and continue to grow tax-free vs. pulling out it now tax-free and then having all future growth be taxed. I guess if you NEED the money now to buy/do something, then it’s a moot point.
He was doing the Mega Backdoor Roth thing that I talked about. Dude should’ve just kept his mouth shut.
I think it’s unlikely but when you’ve got a poster boy and a legitimate argument (gains are never taxed unlike cap gains), I see a bigger chance of it happening. Biden proposed cutting the pre-tax benefits for traditional accounts and that was before poster boy. Poster boy put the Roths on the planning wall and as more and more people retire paying no gains taxes, it may gain momentum.
That is what I meant - it's not taxed while inside the space, but taxed as income on the way out. Sorry if that was imprecise.
I thought that was part of the "rich guy tax leak" that we had a while back. Somehow the feds never found out who leaked that.
While this is possible, they would have to reach pretty far down the scale to up the taxes on a typical retiree income. That may be politically unpalatable to anyone in DC.
They talked about removing the ability to put unregistered securities in IRAs to take care of this. Not sure if that went through or not.
Yeah Thiel. I think that's certainly a risk but I think it's a greater risk that the 12% tax rate will be 14% or will be a lot lower in 15 years.
This is the key. If you max the amount either way, a Roth is functionally letting you save more dollars in a tax advantaged space.
anything is possible I guess but the political backlash of taxing the Roth accounts could be severe.
It would be so much easier to just add a wealth tax and make the IRAs subject to that wealth tax but not income tax. When you’re talking about wealth in excess of $50 million, most people won’t care too much. Even drop that to $10-20 million and most people won’t be affected. But even that didn’t gain enough traction.
Which seems like this would make it a moot discussion b/c the tax savings you'll get from the extra roth dollars would I think give the Roth enough of an edge unless we're taking a significant difference between your working tax rate and your retirement tax rate. If you can max out the roth (20.5k after tax so 27k pre tax if in the 24% bracket), the alternative would be to max out the traditional and to possibly just stick the remaining amount (6.5k pre tax/5k after tax) in a trading account where you'd be paying cap gains tax.Instinctive said:
I couldn’t even hazard on a guess on likelihood but I don’t agree on the backlash. Go look at average savings rates, the folks in here are in a small minority, hence my poster boy mention.
Roth investors might be a minority but they’re a vocal minority who vote. Plus it would largely affect those over 60, who vote and have more time to get involved in causes they care about.
Don’t disagree except for the likelihood. I don’t see big tax increases either but if that unlikely case occurred and it was enough to make traditional IRA/401k higher tax rates than my current tax savings rate, I’d bet there would be a tax on Roth gains and a wealth tax too. We haven’t gotten to that point and I’m not sure we ever will.
Wouldn’t it be there if you went to your county’s tax site? I’d assume it would just have you listed. I don’t know if the deed/title is there but I’d think you’d see if just you were listed. The mortgage would show you as well but not sure if that’s official or just that you took out the mortgage and at closing both of you are listed.
should be in the tax records. I know ours is. I’m also alone on the mortgage, house is deeded to both of us.
Not my area of expertise and please do not consider this as providing tax advice but I believe if there are no living primary or secondary beneficiaries the accounts become part of the estate and need to pass through probate. The estate would report the income from any taxable distributions on a Form 1041 but would most likely have the option of passing the income through proportionally to each beneficiary following the terms of the will. Estate income tax rates get very high, very quickly so passing the income to the heirs would most likely be advantageous.
If the distributions to the heirs are required under the will, the estate takes a deduction for the amount distributed and the heirs end up reporting the income instead of the estate. Trusts often pay tax at the trust level but normally income in estates is passed through because distributions are mandatory pursuant to the will and not discretionary by the executor.
They seem to be a little polarizing but I think they are a good option for a lot of people, but not everyone. The main criticism I read is that they tend to be too conservative (especially in retirement) and I do think picking a fund with a target date 5 or 10 years after your true planned retirement year is a good idea. I think the fees can also be a little higher because there are the target date fund fees and the underlying fund fees. For a lot of people that either don't have the time or interest in rebalancing or people that are inclined to try to time the market too often they are very useful set it and forget it option. For people that enjoy investing they can be very limiting.
It's tough to give advice without knowing all the details but in general money paid or received for the purchase of goodwill would not be reported on a 1099 as it is capital gain and not ordinary income (certainly not self employment income). If the money was for a covenant not to compete, that would be ordinary income to you and possibly reported on a 1099.
Yes, I have a written agreement that spells out the timing and the amount of the two installment payments. But we didn't get into specifics about how that money would be classified, for lack of a better word.
Tom I was reading the same thing, I picked 5 years further out but still don’t love a bond allocation in this rising rate environment. So beyond Vanguard’s fee that is relatively low there are additional to factor in? How would I get a handle on that? Also I noticed my unrealized gain disappeared at year end, with mutual funds did they do a distribution that got reinvested to something? I didn’t noticed my tax info showing I realized a gain and I hadn’t done anything but continue to add shares.
Just be careful if using in a taxable account. The Huge Tax Bills That Came Out of Nowhere at Vanguard
I'm not honestly certain on the fees and it may make a difference what funds you use, Vanguards fees are generally low enough it may now make much of a difference. From what I remember reading, the annual expense ratio of a target date fund is higher than the blended average of the underlying funds which makes sense because there are administrative costs to run the target date fund.Tom I was reading the same thing, I picked 5 years further out but still don’t love a bond allocation in this rising rate environment. So beyond Vanguard’s fee that is relatively low there are additional to factor in? How would I get a handle on that? Also I noticed my unrealized gain disappeared at year end, with mutual funds did they do a distribution that got reinvested to something? I didn’t noticed my tax info showing I realized a gain and I hadn’t done anything but continue to add shares.
Are there ETF target date options that our better than using mutual funds? Somehow this simple setup has me overthinking it, thanks for the help.
Man, that’s exactly what happened. Thanks for sharing. Are there better “set it and forget it” options for taxable accounts? I have a few accounts but Vanguard was supposed to be my low cost, simple option but this is pretty frustrating and would only get more painful as my balance grew.
