Tax Bills

[43210]

More evidence that 457b will keep separate $18.5k+$6k limits to the 401k/403b $18.5k+$6k limits (so you'd still be able to do both):

https://www.finance.senate.gov/chai...tee-announces-improvements-to-senate-tax-bill

"Finance Committee Announces Improvements to Senate Tax Bill ... Modifications include: ... Maintaining existing contribution limits and rules for employees of tax-exempt and governmental organizations. The underlying bill included some restrictions on the way these employees could contribute to these plans."

 

[gerntz]

Right - never rebalance. Never sell the equity portion of your portfolio for living expenses while you are alive. Pass all your equity holdings on to heirs.

Of course that solves the problem for everybody.

I suppose some folks with income from other sources can do just that. Hope they like their heirs.

I never said don't do those things. I said it's a choice. Perhaps it's life or death, don't know, but if it is, then I'm wrong & I apologize.

To be clear, re-balancing isn't an imperative to me. +/- a few percent is pretty meaningless in overall return and safety. I've only ever re-balanced with new investments or with withdrawals.

 

[audreyh1]

I never said don't do those things. I said it's a choice. Perhaps it's life or death, don't know, but if it is, then I'm wrong & I apologize.

To be clear, re-balancing isn't an imperative to me. +/- a few percent is pretty meaningless in overall return and safety. I've only ever re-balanced with new investments or with withdrawals.

When you rebalance with withdrawals, are you not selling shares of anything? Maybe you are withdrawing from tax-deferred accounts where tax lot order and cap gains are irrelevant?

 

[kjpliny]

More evidence that 457b will keep separate $18.5k+$6k limits to the 401k/403b $18.5k+$6k limits (so you'd still be able to do both):

https://www.finance.senate.gov/chai...tee-announces-improvements-to-senate-tax-bill

"Finance Committee Announces Improvements to Senate Tax Bill ... Modifications include: ... Maintaining existing contribution limits and rules for employees of tax-exempt and governmental organizations. The underlying bill included some restrictions on the way these employees could contribute to these plans."

This is good news. I just mailed in the 457 enrollment form for my wife this morning! Hope they just leave it alone going forward.

 

[43210]

^ I'm now waiting for the final version before making decisions, as my plans will depend heavily on the details. But it's been interesting for me to analyze the various scenarios. Fortunately I should have time to make decisions (e.g. how/where to direct contributions to various accounts next year). I can see some people will have a time crunch to do things before year's end.

 

[kjpliny]

I'll be mailing in an extra property tax payment in December to take advantage of itemized deductions for the last time. This should shave off an extra $2k from the 2017 tax bill.

 

[Helena]

I think I'm correct on the additional standard deduction for over 65, not being touched.

The House bill eliminated the over age 65 [and/or blind] extra deduction. But the Senate bill did not touch it. God knows what will be in the final bill.

 

[martyp]

I found this site helpful.
Tax Plan Calculator by Maxim Lott

maybe too simplistic for some.

The Standard Deduction, dropping the ACA requirement and giving a break on pass through llc, will all be big savings for me.

Actually, my taxes are pretty much this simple. I like that it compares the future versions with the current tax system. I was mostly interested in seeing the affect of add Social Security to my income next year. With our without SS I get a tax cut and its pretty much the same in the House and Senate versions.

 

[Another Reader]

It looks like the Senate version eliminates the deduction for HELOC interest. I'm surprised the banks and real estate lobbies aren't all over this. I will certainly pay the remainder of mine off ASAP and won't use it to borrow again if this provision ends up law.

 

[jazz4cash]

It looks like the Senate version eliminates the deduction for HELOC interest. I'm surprised the banks and real estate lobbies aren't all over this. I will certainly pay the remainder of mine off ASAP and won't use it to borrow again if this provision ends up law.

Yeah I missed that piece and I'm surprised there's not more pushback. This looks pretty bad for us.

 

[jazz4cash]

I see that some of the mortgage interest deduction changes are retroactive to 11/2/17. There's quite a bit of ambiguity and not much detail specific to the HELOC changes.

 

[audreyh1]

Seriously? Wow!

 

[AndyS]

I have figured this middle-income early-retired family will benefit somewhere between $300 and $700 per year. Unless of course, the House bill's provision to eliminate the tuition-waiver exemption for graduate students goes through .... then it will probably be about a 4k per year loser for us for the next three or 4 years. (ouch!) But I don't expect that to be in the final bill. (keeping fingers crossed!)

As to the long term ... I foresee there will be plenty of room in this for future Congresses/Presidents to make adjustments to various provisions of the bill.

 

[MichaelB]

I think we’re straying into an off topic discussion. The analysis of the inner workings is very good, and my guess is many here are benefitting. It would be nice to keep it going.

 

[FIRE'd@51]

This is not meant to be political, but I don't think this is a done deal.

[Mod Edit]

In summary, I'm wondering about the wisdom of rushing ahead with plans to take more itemized deductions this year, when under the status quo, one might be inclined to take them next year.

 

[PatrickA5]

It will be interesting to see if the education credits end up being simplified (House) or remain as is (Senate). If there was ever an area that could use some simplification -
it's the education area. I have a kid in college and currently take the American Opportunity Credit, so I don't think it will affect me either way (at least I hope so).

 

[gerntz]

When you rebalance with withdrawals, are you not selling shares of anything? Maybe you are withdrawing from tax-deferred accounts where tax lot order and cap gains are irrelevant?

Yes, withdrawing from IRA's or bond MF accounts with little cap gains. Also take dividends from taxable accounts vs. reinvest and have some rental income (~10%). But haven't sold any substantial amounts of taxable shares of stock or MF since being retired. With SS coming into play in a big way next year, even less reason to withdraw. More likely will add to equity accounts and/or tax exempt bonds.

 

[MichaelB]

A number of posts have been removed that were off topic. One last reminder, please keep the discussion on the tax bills and how they work.

The discussion on SS taxation is not part of this thread, so a new thread discussion was made with those posts, here http://www.early-retirement.org/forums/f28/ss-taxation-from-the-tax-cut-bill-89663.html

 

[jazz4cash]

Thanks to Mods for keeping this thread open. I'm sure it takes a fair amount of effort but I've learned more here than anywhere else and wish we had been permitted to discuss this earlier.

 

[catotx]

Was there anything in the tax bills affecting the ability to use savings bonds (EE & I bonds) to pay for education tax-free?

 

[catotx]

Here's some news on the stock FIFO sales:

Dozens of House Republicans are pushing back against a provision in the Senate’s tax bill that would cause investors to pay millions of dollars more in taxes.

In a letter to Senate leaders on Thursday, 41 House Republicans urged the lawmakers to drop the first-in, first-out provision that would govern how investment gains and losses are taxed when an investor sells part of a position.

Dec 7, 5:57pm
https://www.wsj.com/livecoverage/tax-bill-2017

 

[tessaduncan]

Could the upcoming GOP tax reform have an effect on HSAs?

 

[USGrant1962]

Could the upcoming GOP tax reform have an effect on HSAs?

I've seen nothing reported regarding changes to HSAs in either bill.

 

[pb4uski]

I was thinking some more about the change in Roth rechacterizations.

Since the bills provisions are effective for tax years beginning after December 31, 2017, I'm interpreting that in 2018 we can do recharaterizations of Roth conversions done in 2017 since those recharaterizations reduce 2017 taxable income. However, it is not particularly clear from the language in the bill.

I have a question into my Vanguard rep as to whether Vanguard will allow recharterizations of 2017 Roth conversions in 2018 or not. Not sure if I will get an answer, but if I do I'll post it.

As expected, I got a non-answer from Vanguard:

Thank you for taking the time to compile and send your message. We are still largely unaware of the impacts of the new tax reform, and what new regulations will ultimately be passed. Unfortunately, we are not tax trained here, so the best way to understand the impacts of the new bills would be to work with your tax professional to see what the potential implications of a recharectorization would be.

I wrote back and pressed him:

[rep name], I can guarantee you that someone at Valley Forge should have a view on the question... you need to escalate the question to find him or her. I acknowledge that there are uncertainties as to what will ultimately be passed and certain assumptions will need to be made and that is fine. However, the future prohibition on Roth recharacterizations is in both the House and Senate bills as is the effective date of the law being for tax years beginning after December 31, 2017 so with respect to this specific issue a lot is known.

The essence of the question is whether a recharacterazation of a 2017 Roth conversion in 2018 relates to the 2017 tax year or not. If you guys don't know, you should be talking with your contacts at PwC or the IRS.

To be clear, I am NOT looking for tax advice.... so let me reframe the question.... it is a transaction processing question... when I call Vanguard in February 2018 seeking to do a partial recharacterization of my December 2017 Roth conversion will Vanguard accept my instructions and process the recharacterization transaction? Yes or no?

Obviously, my tax professional can't tell me if Vanguard will process the transaction or not... that is something that only Vanguard can answer and the answer has implications for customers currently doing Roth conversons so time is of the essence.

FWIW, I expect a non-answer response to the re-framed question as well but it is still fun to be a pain in his side.

 

[cathy63]

FWIW, I expect a non-answer response to the re-framed question as well but it is still fun to be a pain in his side.

Not surprised. Wells Fargo at least understood why I was asking the question, but they were still unable to answer.