Federal taxes, and moving them around a bit

[pb4uski]

Quote:

Originally Posted by Gumby Being a lawyer, I'll go with this one: "Taxes are what we pay for civilized society" Justice Oliver Wendell Holmes Jr., dissenting in Compania General de Tabacos v. Collector, 275 U.S. 87, 100 (1927)

Quote:

Originally Posted by misanman I'm hoping we get what we paid for!

We're getting gypped.

[Fermion]

Quote:

Originally Posted by misanman I'm hoping we get what we paid for!

I think we do actually.

I can walk outside and around my house without a great fear of getting jumped or kidnapped. For the most part, I can go to the store and not be mobbed by 100 starving children looking for a handout. Yes there might be a person or two on the street corner with a sign stating how they will work for food (and usually have a gas can or snow shovel next to them) but then the store I am going into has a big sign "now hiring, $18/hr to start" so I am unsure of the motivation of said person.

I can go to the library and sit in air conditioning and read many books and articles that disparage the current government, while not greatly worrying I will be arrested and sent to a labor camp.

[pb4uski]

^^^ DS recently moved and ended up going to an Amazon job fair. Basically, if you are sober, don't have 5 heads and can pass a drug test then they offer you employment. They never asked anything about experience, prior employment or anything from what he relayed to me.

I think what they do is have loads of people lined up to work, a lot never show up, a lot wash out within a week and the rest are potential keepers for them to offer full time with benefits.

[sakowitzm]

On the subject of tax rates, I always enjoy informing young people that the top federal tax rate in 1963 was 91%. They stare at me blankly for a moment, taking that in, and then say "that's impossible; you're wrong." To which I reply "google is your friend" and walk away.

[Time2]

My minor addition: if I had known how much money I would have now, I would have maximized Roths and minimized tax deferred during accumulation.


We were in a lower tax bracket all our life, looks like that bracket will be higher when we have SS, Dividends and interest, and RMDs.


pb4uski, where were you in 1997 when I needed to understand the tax arbitrage nature of Roth vs Tax deferred?



Yep, Roth Converting as fast as I can.

[steelyman]

Quote:

Originally Posted by Time2 My minor addition: if I had known how much money I would have now, I would have maximized Roths and minimized tax deferred during accumulation.

To be fair, Roths didn’t exist before 1998. My former employer didn’t start offering a Roth option until ten years later. There was a lot of time to accumulate in traditional accounts.

As soon as a Roth option appeared I went all in but the earlier balances stayed. You do what you can at a given time.

The only “positive” was that the market started diving in 2008 so the new Roth picked up shares at very good prices.

[pb4uski]

Quote:

Originally Posted by pb4uski .... Now if on the other hand you are paying more in taxes than you saved in taxes when you deferred that income it means that you have been much more financially successful than you expected to be, so count your blessings and stop complaining.

Quote:

Originally Posted by Time2 My minor addition: if I had known how much money I would have now, I would have maximized Roths and minimized tax deferred during accumulation. We were in a lower tax bracket all our life, looks like that bracket will be higher when we have SS, Dividends and interest, and RMDs. pb4uski, where were you in 1997 when I needed to understand the tax arbitrage nature of Roth vs Tax deferred? Yep, Roth Converting as fast as I can.

In 1997 I was working, making six-figures, in a high tax bracket and would have "felt" that I would be in a lower tax bracket in retirement... which ended up being the case... and I would have been totally clueless about all this stuff.

Got lucky, but if I was in a higher tax bracket in retirement than I was then ouldnsider myself to be luckier. It's all relative.

[pb4uski]

Quote:

Originally Posted by steelyman To be fair, Roths didn’t exist before 1998. My former employer didn’t start offering a Roth option until ten years later. There was a lot of time to accumulate in traditional accounts. As soon as a Roth option appeared I went all in but the earlier balances stayed. You do what you can at a given time. The only “positive” was that the market started diving in 2008 so the new Roth picked up shares at very good prices.

Yes, by the time that Roths were available to us we were in such a high tax bracket that it would not have made sense to save in a Roth vs tax-deferred.

[Time2]

Quote:

Originally Posted by steelyman To be fair, Roths didn’t exist before 1998. My former employer didn’t start offering a Roth option until ten years later. There was a lot of time to accumulate in traditional accounts. As soon as a Roth option appeared I went all in but the earlier balances stayed. You do what you can at a given time. The only “positive” was that the market started diving in 2008 so the new Roth picked up shares at very good prices.

Ok, I missed it by a year, I saw 1997, I guess that was when then legislation passed.
Either way, I put to much into SEPs and IRAs when I should have maxed Roths.

[steelyman]

Quote:

Originally Posted by Time2 Ok, I missed it by a year, I saw 1997, I guess that was when then legislation passed. Either way, I put to much into SEPs and IRAs when I should have maxed Roths.

Yes, as I recall I read a short piece in a pop financial magazine that said you could make a $2K traditional IRA contribution in late 1997 and immediately convert it to a Roth in 1998. Then contribute another $2K for ‘98. That’s what I did to start a Roth with the princely sum of $4,000.

I thought I was a Big Man On Mulberry Street! [emoji3]

[audreyh1]

Quote:

Originally Posted by steelyman To be fair, Roths didn’t exist before 1998. My former employer didn’t start offering a Roth option until ten years later. There was a lot of time to accumulate in traditional accounts. As soon as a Roth option appeared I went all in but the earlier balances stayed. You do what you can at a given time. The only “positive” was that the market started diving in 2008 so the new Roth picked up shares at very good prices.

When Roth IRAs became available I didn’t qualify due to income too high, and the next year I retired!

I couldn’t do Roth conversions either until 2010.

[Popeye]

Quote:

Originally Posted by sakowitzm On the subject of tax rates, I always enjoy informing young people that the top federal tax rate in 1963 was 91%. They stare at me blankly for a moment, taking that in, and then say "that's impossible; you're wrong." To which I reply "google is your friend" and walk away.

My thought is that this is why we need to remain vigilant. Our government at one point was willing to impose 70-80-90% marginal rates. I encourage complaining to ensure we don’t return to those days.

[latexman]

Quote:

Originally Posted by misanman I'm hoping we get what we paid for!

We get what “we” voted for.

[RunningBum]

I dropped to part-time in 2009 and should have done some Roth conversion that year. I Must not have been paying close enough attention here.

I started converting in 2010 but where I really missed the boat is that I could have converted a bunch more and deferred paying taxes on it, splitting it over 2011 and 2012 taxes. I had convinced myself that I should do fairly even conversions for 2010, 2011 and 2012 and split the tax over the three years, not two. But there were some huge gains in that period and it would have been a lot better for all of that growth to be done in the Roth instead of the tIRA. Maybe my thinking would've been right with modest gains, but that ship has sailed and won't return.

[Rianne]

We can start converting in 2023. The ACA held us back. And before that, we were in a higher tax bracket. This has been discussed, but just to be sure, the 5-year withdrawal rule on Roths doesn't apply since we've had Roths for over 10 years and are 65. We more than likely would not withdraw since we'll sell our LTCG mutual funds gradually changing our AA.

[Safe Harbour]

Quote:

Originally Posted by gauss Maybe look at it as a loan (tax-deferred accounts) , but with all the interest permanently forgiven.

I think it's more like a partnership. The Government owns 25% of your deferred account and they therefore also own 25% of your returns (or what ever your effective tax rate is). The interest is not forgiven. They (we) get their percentage of the whole account.

[Healthy Lifestyle]

Quote:

Originally Posted by steelyman To be fair, Roths didn’t exist before 1998. My former employer didn’t start offering a Roth option until ten years later. There was a lot of time to accumulate in traditional accounts. As soon as a Roth option appeared I went all in but the earlier balances stayed. You do what you can at a given time. The only “positive” was that the market started diving in 2008 so the new Roth picked up shares at very good prices.

New guy here and generally agree with comments, but have a slightly different thought on my tax situation.

I bought into saving in this new concept of saving in my 401K plan 40 years ago. I did not have the knowledge and/or experience to truly understand the possible deferred tax issues until years later.
Fast forward 20-30 years, I started to realize that I should not have overfunded my 401K plan because of tax bracket issues, Medicare Premiums, SSi taxes, etc.

Paying my taxes is a good problem to have, but I can say it does irk me that I got caught up in this, when I could have managed my investments differently.

[Dash man]

Quote:

Originally Posted by Popeye My thought is that this is why we need to remain vigilant. Our government at one point was willing to impose 70-80-90% marginal rates. I encourage complaining to ensure we don’t return to those days.

It really isn’t a straight tax rate comparison to pre 1963. So many more things were deductible. Remember how you could deduct interest paid on anything? A lot of other deductions were permitted. If they implemented that tax rate today…

[cbbennet]

Quote:

Originally Posted by pb4uski Fair point.. I was a bit stern to a new poster... I'm sorry.

Classy response.

[KimmK451]

Quote:

Originally Posted by pb4uski Yes, by the time that Roths were available to us we were in such a high tax bracket that it would not have made sense to save in a Roth vs tax-deferred.

Same here. I found out about ROTHs late and only had a few years to contribute before hitting the income limits. Didn't know enough to do conversions and tax guy says not worth it now.



Best option I guess it to move to a LCOL area and get rid of the mortgage and HOA, although I've been out of the US for the last 30 years or so and family are gone, so don't really know where to move to. Every place seems to have its problems!