High W-2 earnings are killing our taxes

[Rickt]

Have been there in the past, but I consider paying higher taxes as cheap rent for the privilege of living in the US of A!

 

[Neill]

Have been there in the past, but I consider paying higher taxes as cheap rent for the privilege of living in the US of A!

If it's so great why does the US need a section 877A exit tax to try and prevent people leaving? Why did they hike the expatriation fee to a couple of thousand to stem the unprecedented demand? Why does the US have a wait time of over a year to get an interview to expatriate?

I also think the US is an incredible place but some stuff that's happening around taxes isn't so nice.

 

[Animorph]

We had a year where we crossed over the deduction/exemption rollback "hump" and were back to normal tax rates. I took advantage of it by taking a lot of capital gains at a true 15% (was it 20% then?) marginal rate. Experiment with tax software and see what your marginal rate will be, and where any breakpoints might be. Before that, and after, we were in the middle of the rollback region and marginal tax rates even on capital gains were quite a bit higher than their nominal values. Things have changed a bit since then, like the 3.8% ACA tax that steps instead of humps, so maybe you won't have the same opportunity.

 

[Which Roger]

One thing to consider is making after-tax contributions to your 401k if your plan allows it. While it doesn't help you with taxes currently, under current rules you can roll after-tax 401k balances into a Roth IRA (either in-service if your plan allows in-service rollovers or after you sever service).

However, be aware that the recent Obama budget is proposing to close down this loophole.

Yes, the IRS did finally clarify this, but there are still some limitations. I'm still digesting the details, but my takeaway is that you can't roll over just the post-tax portion of the 401k to a Roth. Rather, you have to roll over both pre-and post-tax money from the 401k (in proportion to the balance) to IRAs. The pre-tax portion can go into a traditional (pre-tax) IRA, and the post-tax into a Roth. Here is one link that provides details:

New IRS Rules on After-Tax 401(k) Rollover To Roth IRA | Bankrate.com

and here is the official IRS notice. Section V example 4 is the most relevent:

http://www.irs.gov/pub/irs-drop/n-14-54.pdf