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Old 03-01-2016, 10:42 PM   #21
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... In this thread, others (and I agree with them) boast about how us early retirees receive better tax treatment from our investment income than those still working...
In my case, my taxes climb back up when I deplete down my after-tax savings and start to tap tax-deferred accounts. My dividends and cap gains off the after-tax savings are not enough to live on, and I have been liquidating principal too.

Soon, the only advantage I have over workers is that my IRA and 401k withdrawals do not get FICA and Medicare tax.
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Old 03-02-2016, 06:59 AM   #22
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We've discussed it before, but the 'break' on cap gains often isn't.

If I bought $1,000 of stock 20 years ago, and sold it for $1,100, I'd likely pay $15 tax on it.

If my neighbor bought $1,000 of stock 1.1 years ago, and sold it for $1,100, he'd likely pay $15 tax on it.

n that case, I don't feel like I got a break - my investment lost money to inflation, yet I have to pay the same tax that someone else did who made the money 20x quicker? I should at least be able to take a credit (even if only against other gains) for the loss!

Adjusting gains to inflation would account for this, and is easy with computers.

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Old 03-02-2016, 08:38 AM   #23
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Given our very similar total incomes, it would be an interesting exercise to see if her (income tax + FICA tax + HI premiums) is more or less or about the same as mine. Have any of you ever done such an exercise?
If you already prepare her tax forms you have all the info you need to figure that out. All you need is her age and zip code to figure out how much she'd pay for a health insurance plan on the exchange.

And don't forget to factor in the ACA subsidies, too, which can be viewed as a negative tax.

It's important to note, though, that health insurance premiums for most retirees through Medicare are far lower than what young(er) people pay for exchange plans. So we're really talking more about age specific issues than wage and investment income issues.

And also there's still the option to get a High Deductible plan and contribute to an HSA. My HSA contributions for the past five years where higher than my insurance premiums, so I'm basically getting a bigger tax deduction for my health insurance than if I were a company.

Also, if you can manage to get some 1099 income, your health insurance premiums become deductible too.
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Old 03-02-2016, 08:50 AM   #24
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My tax rate will likely exceed 20% of AGI. Much of my income ($70K) will be shielded by depreciation, so perhaps the effective rate is really lower. It is something I will have to recapture at 25% if I sell before I die.

The DGF will have a negative tax rate. She will get money back, even though she will not have to pay any in. Factor in virtually healthcare ($20 a month all inclusive, $0 deductible) , and it's a huge bonus.

This is really a great country.
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Old 03-02-2016, 08:50 AM   #25
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Quote:
Originally Posted by ERD50
We've discussed it before, but the 'break' on cap gains often isn't.....

Adjusting gains to inflation would account for this, and is easy with computers.

-ERD50
It's never going to happen so I hope you get over it quickly.
I'm not expecting it to change, just pointing it out.

-ERD50
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Old 03-02-2016, 09:01 AM   #26
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It probably applies to only a few here, but I just learned this the other day and thought it was a nice little trick. If you're subject to the tax torpedo (taking RMDs that push up your tax bracket), you can avoid the problem of making estimated tax payments or withholding from SS by simply waiting until December to take your RMD and having a chunk of tax withheld from it. The IRS considers that money to have been withheld throughout the year. Of course, if you need all that RMD money to live on, it may not be possible, but if not, this is a good thing to know.
Good to know this. Thanks for sharing this tip. Our tax torpedo starts next year for DH and 2 years later for me plus I'll claim SS under my own record that year and I've been wondering when to plan the RMD vis a vis estimating taxes. This approach makes a lot of sense.
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Old 03-02-2016, 09:16 AM   #27
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The annualized inflation of the period 1945-2015 is 3.8%. If looking forward, the real return is low as Bogle and other pundits have said, say 4%, then it makes a big differerence whether the inflation part is taxed or not, because inflation can be just as high as the real return.

Consider two retirees, one whose asset is all after-tax savings, while the other one has it all in a 401k. Both live off the 7.8% return thrown off by their savings.

The one with the after-tax saving gets most if not all of his income exempted, or taxed at 15% marginal rate for the portion in the 6-figure.

For the one drawing 401k, if his income range is average, will pay at least 15% or 25% marginal tax rate as ordinary income. If inflation spikes, he will be hurting big time.
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Old 03-02-2016, 10:22 AM   #28
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Also Canadian. 2015 looks like 21% while 2014 was 12%. Really depends on your mix of income. Pensions and interest taxed at full rates while divs and cap gains taxed at lower rates. Tax rates certainly going up for high earners in Canada.
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