Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 01-11-2012, 02:44 PM   #61
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,248
Quote:
Originally Posted by Koolau View Post
My situation was the "worst" of both worlds. My Megacorp had "promised" us a 50% match on our 401(k)s but almost always gave us 100% match (in the good old days). When Megacorp fell on hard times, they temporarily did away with ALL match and gave us future stock options "instead". This happened several times (sometimes they did away with the "bonus" which was actually just a "hold-back" of our compensation). Unfortunately, not one of the options was EVER in the money. Even though the employees took significant hits (either "bonus" or match) they never saw a penny from the options. Very good deal for Megacorp. Other than the paperwork (and maybe a "little" employee good will) it cost them nothing. But, I'm not bitter!

Hey, I just checked... the stock price is only 21 cents less than the strike price!!! They expire next week, so here is hoping it goes up... but I only have a few hundred shares, so big whoop...

PS... I do not work for them anymore... so there is no more possibility of me getting any... I now work for a small closely held company and will not be getting anything but salary...
__________________

__________________
Texas Proud is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-11-2012, 02:47 PM   #62
Thinks s/he gets paid by the post
Koolau's Avatar
 
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 3,240
Quote:
Originally Posted by TromboneAl View Post
This article should serve to remind us how lucky we LBYMers are that we often fall below the radar on tax issues. For example,
paying almost no tax on large Roth conversions.
Al, you obviously played the game the right way. Apparently, you kept back plenty of after tax sources to live on while being able to convert at a low tax rate. Good show. I did it wrong (at least in part) putting "too much" into 401(k) and leaving too little taxed money. That is why I always am the one who suggests those in the accumulation phase should be careful about going "all in" with their 401(k)/tIRAs. You prove the point that YMMV.
__________________

__________________
Ko'olau's Law -

Anything which can be used can be misused. Anything which can be misused will be.
Koolau is offline   Reply With Quote
Old 01-11-2012, 02:52 PM   #63
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Posts: 1,647
Quote:
Originally Posted by MichaelB View Post
The logic behind taxing private equity and hedge funds as investment income is that the owners were the partners, so they were investing their own money, along with that of others. It did not view fund managers as employees receiving compensation. When private equity and hedge funds evolved into broad based investments opportunities with fund managers investing other people's money, the tax code was not updated to make the distinction. This is a true "loophole".

I do not share your confidence.

Carried interest is pretty specific to private equity and hedge funds. Partnerships in general are subject to complex tax regulations, but there is a clearer distinction between general partners, who really are investors, and senior partners, who may be investors but are also employee managers.
Got it! Or at least got the part discussed! Thanks MichaelB!
__________________
sheehs1 is offline   Reply With Quote
Old 01-11-2012, 03:00 PM   #64
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Posts: 1,647
Quote:
Originally Posted by Koolau View Post
Al, you obviously played the game the right way. Apparently, you kept back plenty of after tax sources to live on while being able to convert at a low tax rate. Good show. I did it wrong (at least in part) putting "too much" into 401(k) and leaving too little taxed money. That is why I always am the one who suggests those in the accumulation phase should be careful about going "all in" with their 401(k)/tIRAs. You prove the point that YMMV.
Koolau. Exactly right. I had a conversation with a planner many years ago. Deferring compensation was based on the premise that tax rates would be lower in retirement. Well...that was too general a statement for me and not trusting the government and their regulations regarding IRA's and deferred compensation vehicles...I felt while it is a good idea to defer some...I felt it was a better idea...not to defer all.
__________________
sheehs1 is offline   Reply With Quote
Old 01-11-2012, 03:32 PM   #65
Thinks s/he gets paid by the post
 
Join Date: Aug 2006
Posts: 1,356
I think it is hard for putting too much into a 401k to end up being a tax disaster, unless you have very low rates while accumulating or very high rates when withdrawing.

You may miss out on being able to convert cheaply, but the person who does convert cheaply is only able to do so because they paid income tax on their after tax sources long ago, and on any income generated by the investments along the way.

Am I missing a scenario?

Quote:
Originally Posted by Koolau View Post
Al, you obviously played the game the right way. Apparently, you kept back plenty of after tax sources to live on while being able to convert at a low tax rate. Good show. I did it wrong (at least in part) putting "too much" into 401(k) and leaving too little taxed money. That is why I always am the one who suggests those in the accumulation phase should be careful about going "all in" with their 401(k)/tIRAs. You prove the point that YMMV.
__________________
Hamlet is offline   Reply With Quote
Old 01-11-2012, 03:56 PM   #66
Full time employment: Posting here.
 
Join Date: Jan 2011
Location: Just North of Boston
Posts: 516
Quote:
Originally Posted by sheehs1 View Post
However, the hedge fund managers and the private equity partners...might be a different story. I'm also not well versed in how they are paid. We could get into that one too for an increased understanding...if there is anyone on the board who falls into these categories who is willing to share the information
What do you want to know? Hedge fund and Private equity are similar but slightly different.

In a hedge fund, the manager is usually paid "2 and 20", that means they are paid 2% to manage the money, this is usually what is used to "keep the lights on", pay base salaries, pay for research, analysis, bloomberg, and all the other expenses to run the firm. They are then paid 20% of any profits. Basically, this profit is then taxed in the same way the investor is taxed.

(There are A LOT of nuances I am skipping over in this example, like the Management fee is usually paid out quarterly not in a lump sum)
For example, If I invest 100k with a hedge fund, I pay $2k to the firm in management fee. So, my 100k is reduced to $98k. If at the end of the year, lets say my investment is worth 110k, made up of 100k initial investment + 2k Long Term gains + $15k Short Term + ($7k Unrealized loss) = $110k value. The Manager would then be paid $400LT + $3,000ST + ($1400 Unrealized) = $2,000 and would pay 15% on the LT, their "income" tax rate on the ST and nothing on the Unrealized because it is unrealized (they would pay taxes when it is sold).
__________________
ChiliPepr is online now   Reply With Quote
Old 01-11-2012, 04:01 PM   #67
Thinks s/he gets paid by the post
Koolau's Avatar
 
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 3,240
Quote:
Originally Posted by Hamlet View Post
I think it is hard for putting too much into a 401k to end up being a tax disaster, unless you have very low rates while accumulating or very high rates when withdrawing.

You may miss out on being able to convert cheaply, but the person who does convert cheaply is only able to do so because they paid income tax on their after tax sources long ago, and on any income generated by the investments along the way.

Am I missing a scenario?
I do see your point and it is well taken. From my point of view, the "goal" is to end up with as much in a Roth (and, ultimately) as little in 401(k)s/tIRAs as possible because of their flexibility and tax advantages once obtained. The only comment I have on your premise is that doing BOTH (401(k) AND after tax) gives a lot more flexibility. If the rules change during the process, you have more ability to adjust. Who knows if it will turn out "better" to go this way, but it certainly would have for me in retrospect. Obviously, this would not be true for everyone - thus the value of your point of view.

But, to your specific question of another scenario. This one didn't actually work out for me, but the plan was to sell my appreciated house and use the proceeds (including tax-exempted gains) to pay the taxes on my conversions. I suppose you could still find a scenario within this scenario where tax deferral is "better", but it seemed like a good idea at the time. In fact, I did use my proceeds for early FIRE living costs and Roth conversion tax payments. The only thing that went "wrong" was that the house didn't appreciate. But, that was my plan. YMMV.
__________________
Ko'olau's Law -

Anything which can be used can be misused. Anything which can be misused will be.
Koolau is offline   Reply With Quote
Old 01-11-2012, 04:03 PM   #68
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,248
Quote:
Originally Posted by Koolau View Post
Al, you obviously played the game the right way. Apparently, you kept back plenty of after tax sources to live on while being able to convert at a low tax rate. Good show. I did it wrong (at least in part) putting "too much" into 401(k) and leaving too little taxed money. That is why I always am the one who suggests those in the accumulation phase should be careful about going "all in" with their 401(k)/tIRAs. You prove the point that YMMV.

YES... I agree with this thought... I have heard so many people who 'max out' their 401(k) even though they are in the 15% bracket or even less.. the ROTH 401(k) has helped out, but I do not know if that many people are utilizing it... at my company only a couple of people are, but I guess that is 10%....
__________________
Texas Proud is offline   Reply With Quote
Old 01-12-2012, 09:20 AM   #69
Full time employment: Posting here.
ronocnikral's Avatar
 
Join Date: Apr 2010
Posts: 852
another scenario in which one could be screwed, depending on how everything is calculated.

heaven forbid I kick the bucket, DW and 4 week year old DD (if in a couple of years, more kiddos on the way) collect the life insurance and depending on how they fare through the proceedings, their net worth is now over $3mil. That $3mil+ needs to last DW another 55-60 years, plus raise kids, put them through college etc.

Sure, DW and kiddos could be in a lot worse situation, but no one would envy their situation either.
__________________
ronocnikral is offline   Reply With Quote
Old 01-12-2012, 09:44 AM   #70
Recycles dryer sheets
 
Join Date: Feb 2009
Location: Cville
Posts: 399
So since we are off topic completely from the original post and on to pre-post tax IRA/401K savings, I agree with those that put some in pre and some in post. I am being taxed today at 28% marginal rate, so my analysis says no way I'll make the same taxable rate in retirement, take the tax break now and go traditional. Then came to ask what if tax rates go up, so figured Roth. Then what if they do this national sales tax / VAT thing, so pay taxes now while I can afford it. Then back with what if I pay now and they somehow tax my Roth accounts for anyone making more than $1 a year, so back to traditional.

Who knows where taxes are headed. So now I'm doing Roth to get my Roth assets closer to 50%. In my case, since I'm doing both, I can't be all wrong (or I'm sure to be partly wrong?).
__________________
RetireBy90 is offline   Reply With Quote
Old 01-12-2012, 09:55 AM   #71
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,248
Quote:
Originally Posted by RetireBy90 View Post
So since we are off topic completely from the original post and on to pre-post tax IRA/401K savings, I agree with those that put some in pre and some in post. I am being taxed today at 28% marginal rate, so my analysis says no way I'll make the same taxable rate in retirement, take the tax break now and go traditional. Then came to ask what if tax rates go up, so figured Roth. Then what if they do this national sales tax / VAT thing, so pay taxes now while I can afford it. Then back with what if I pay now and they somehow tax my Roth accounts for anyone making more than $1 a year, so back to traditional.

Who knows where taxes are headed. So now I'm doing Roth to get my Roth assets closer to 50%. In my case, since I'm doing both, I can't be all wrong (or I'm sure to be partly wrong?).

You are right in that who knows what taxes will do... when I was in college I took a tax class (heck, I was a tax accountant for a few years)... but, the professor said his class was one of the few where he did not have to change his test questions, but the answers would change..

I also remember an estate tax professor say 'you have to plan the estate for the taxes today, but your plan might not be the best for them next year'.
__________________

__________________
Texas Proud is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Natalie Wood Drowning Case Re-Opened haha Other topics 17 11-19-2011 01:50 PM
Do you ever feel a case of road rage coming on? DFW_M5 Other topics 18 08-02-2011 09:31 AM
Size Of Government - What Do We Really Want? cb7010 FIRE Related Public Policy 183 07-20-2011 08:55 AM

 

 
All times are GMT -6. The time now is 06:41 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.