Perspective on Income Taxes

[Koolau]

I think you are tracking. If RMDs ever go away or keep going up, Roth conversion strategies could change, depending upon one's legacy objectives. Good, bad, or indifferent, my priority has always been to "flatten the curve" as Fauci might say, staying in the same tax bracket until the dirt nap. I figure who ever is left standing as a single spouse will have $hit load of money so who cares if they pay more taxes. Also, I think my kids should look at inherited $$ (and there should be plenty) as found $$... that's how we trained them. Perhaps I will change over time, but right now I am focused on how mama and I can live on max net $$ over a reasonable life span.

Yeah, I'm sure I should think of it like you do, but I'd hate for my DW to go to the accountant and have to say "WHAT?" when she sees her tax bill sans Ko'olau.

 

[Sunset]

Starting to think in terms of remaining spouse issues upon death of other spouse. Thinking mostly income taxes now. Probably needs its own thread, but...

If DW inherits my Roths, they don't add to her taxable income (at her single tax payer rate) upon liquidation as would happen when she inherits (and liquidates) my 401(k) or tIRAs, right? SO, Roths would have another advantage over any other form of wealth transfer among spouses. Right? Or am I thinking incorrectly?

When you die, the spouse gets all the stock transferred in kind, no liquidation and no tax.

The spouse then needs to take RMD's from the 401K and IRA pot, which has been added to her own original pot.

The spouse doesn't need to take RMD's from roth, so roths are great to inherit.

Regular stock accounts are also great to inherit, as the basis is stepped up so $0 capital gain, if for example all the inherited stocks were sold on the day of death.

In my view due to the step up basis, regular brokerage accounts are almost as good as a Roth to inherit, but the Roth wins as everything continues to grow tax free and it can contain bonds. I think bonds in a regular account might have the interest as taxable when inherited (?)

 

[audreyh1]

I think bonds in a regular account might have the interest as taxable when inherited (?)

You will file MFJ for the year the spouse died, and yes all income incurred during that year would be considered joint.

The following year the surviving spouse would file single (unless they remarried already ).

 

[Midpack]

It depends if its "the right thing to do". Good for some, bad for others.
Who says taxes will be more expensive? Actually they would have to be ALOT
more before I would do a Roth conversion.
Probably a whole new discussion on this somewhere.

Yes of course it depends for each of us regarding Roth conversions. But if you’d done the analysis I did in 2019 (all detailed here then) you’d know it was definitely “good” for us. Even if tax rates stay as they are and revert when TCJA expires, odds are we’ll save about $400K in taxes lifetime, and I don’t believe tax rates will remain the same over the next 20+ years. And I did the analysis all over again a few months ago, exact same results.

Do you believe tax rates will stay the same or go down over the next 20-30 years?

 

[DawgMan]

The spouse then needs to take RMD's from the 401K and IRA pot, which has been added to her own original pot.

I believe the spouse can roll the inherited IRA into their own IRA and not take RMDs until the spouse hits RMD age??

 

[FiveDriver]

Definitely not trying to make this political so please just comment on the idea of abolishing the income tax for a consumption tax like the bill that will be introduced in the current house session. Acknowledging the impossibility of this bill passing in this congress, it's not too far fetched to think this could surface again in a few years when the party balance is different.

https://www.thestreet.com/politics/...bolish-the-irs-how-that-would-hit-your-wallet

Will they Tax our Groceries under this 'Consumption Tax' being proposed ? How will this regressive tax treat the other basic living needs ?? If they think they can fund all Government spending with a regressive consumption tax....they haven't done enough homework on their proposal. The Military Budget alone is $816 Billion bucks.
And please stop referring to Social Security and Medicare as an Entitlement Program. I paid into that for over 25 years. SSA is budgeted at about $15 Billion. Are they going to collect that much by taxing Consumption ??


I'm always bemused by the claim that '47% of households pay no Income Tax'. This meme is one of the most mis-used Economic Statistics in the history of economic statistics.

That 47% group of earners is said to have an average Income of between $40K and $50K per year, before any other deductions. Or between $800 and $1000 per week. Per Household. The Federal Poverty Level for a family of 4 in 2023 is $30K. Shall we start taxing the first level of Income above the FPL ??

 

[Koolau]

Definitely not trying to make this political so please just comment on the idea of abolishing the income tax for a consumption tax like the bill that will be introduced in the current house session. Acknowledging the impossibility of this bill passing in this congress, it's not too far fetched to think this could surface again in a few years when the party balance is different.

https://www.thestreet.com/politics/...bolish-the-irs-how-that-would-hit-your-wallet

No gummint will ever give up the power to manipulate behavior with the income tax. Now, they may ADD a consumption tax on top of an income tax. Two different animals. The term "bait and switch" comes to mind, but I'll stray no further to avoid politics.

 

[MichaelB]

<mod note> The consumption tax mentioned multiple times is not any legislation under consideration. It’s a partisan talking point and not really an appropriate forum topic.

 

[FiveDriver]

I will refrain from further mention of the Consumption Tax cited earlier in this thread-- it must be stated that this idea is farther along than a mere Talking Point. From no less a source than The Street --

The bill would get rid of all federal taxes and institute a 23 percent national retail sales tax. Supporters of the measure say that is similar to a 15 percent income tax plus the 7.65 percent payroll tax rate that employers pay.

 

[audreyh1]

That doesn’t matter. We don’t generally discuss new possible laws on this forum until there is actual legislation introduced.

 

[Montecfo]

It exists as a 132 page bill. It was introduced in the last Congress.

https://www.congress.gov/bill/117th-congress/house-bill/25?r=96&s=1

 

[Midpack]

It exists as a 132 page bill. It was introduced in the last Congress.

https://www.congress.gov/bill/117th-congress/house-bill/25?r=96&s=1

Do you believe it will be enacted?

 

[Gumby]

The forum rule is that we don't discuss proposed legislation until it is reported out of committee. Most bills are not, and an even more miniscule number are ever passed. It just serves as a lightning rod for complaints. Therefore the thread is closed.