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01-07-2008, 03:23 PM
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#1
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Recycles dryer sheets
Join Date: Sep 2003
Posts: 168
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Taxable interest income
Question for you all. Hopefully a simple answer.
I earn about $32,000 per year.
I am 49 yrs old. I turn 50 in early February.
Single.
No mortgage. No car payment. No credit card debt.
In 2008, I plan on maxing out my 401k at $20,500 and my IRA at $6,000, for a total of $26,500.
I have enough cash on hand to do this. Don't want to get into the dirty details on how much I have saved.
I want to put $50,000 into a taxable vehicle, MMA, 1 yr CD, etc. to earn interest for 1 year.
My question is, Will I have to pay taxes on this interest earned?
Thanks in advance.
Rob
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01-07-2008, 03:51 PM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2003
Location: Hooverville
Posts: 22,983
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Quote:
Originally Posted by robls
I want to put $50,000 into a taxable vehicle, MMA, 1 yr CD, etc. to earn interest for 1 year.
My question is, Will I have to pay taxes on this interest earned?
Thanks in advance.
Rob
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Yes.
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
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01-07-2008, 03:57 PM
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#3
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Thinks s/he gets paid by the post
Join Date: Jun 2005
Posts: 2,450
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Yes, but looks like will be in the 10% bracket if you take standard deduction and 1 exemption...
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01-07-2008, 04:13 PM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2005
Posts: 10,252
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Let me rephrase the question differently. If one earns $32,000 and $2500 in interest, contributes $20,500 to a 401(k) and another $6,000 to an IRA, how much income tax does that person owe?
Income is $32K + $2.5K = $34.5K
Exclude $20.5K + $6K = $26.5K
Total AGI $8K
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Less standard deduction -$5.45K
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$2.55K
Less 1 exemption - $3.4K
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Taxable income $0
Maybe you can even get the government to PAY you!
Bottom line you will not have to pay taxes on the interest earned.
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01-07-2008, 04:20 PM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,021
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Quote:
Originally Posted by robls
My question is, Will I have to pay taxes on this interest earned?
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No need to take the word of a bunch of teenage girls from Missoula when it comes to a fairly straightforward tax question. I'd suggest you go to an online tax estimator and run the numbers for yourself.
__________________
Numbers is hard
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Have you considered a Roth conversion?
01-07-2008, 05:39 PM
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#6
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Recycles dryer sheets
Join Date: Aug 2007
Location: Midwest
Posts: 109
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Have you considered a Roth conversion?
If some of your 401k contribution wouldn't have been taxed anyway this year, seems sort of a waste to possibly have to pay taxes on it later.
Do you have some other tax-deferred funds accessible, either traditional IRA money or 401k money from a prior employer that you could convert?
Could be to your benefit long term to convert enough to Roth to push yourself into the 10% or 15% bracket this year. Would depend on how much tax-deferred money you have now / how much you expect to have at retirement. If the total amount is low and your annual distributions in the future are low enough that you wouldn't have to pay taxes, then it wouldn't be to your benefit to convert very much.
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01-07-2008, 05:58 PM
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#7
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Thinks s/he gets paid by the post
Join Date: Jun 2005
Posts: 2,450
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Quote:
Originally Posted by LOL!
Let me rephrase the question differently. If one earns $32,000 and $2500 in interest, contributes $20,500 to a 401(k) and another $6,000 to an IRA, how much income tax does that person owe?
Income is $32K + $2.5K = $34.5K
Exclude $20.5K + $6K = $26.5K
Total AGI $8K
----------------------------------
Less standard deduction -$5.45K
-----------------------------------
$2.55K
Less 1 exemption - $3.4K
------------------------------------
Taxable income $0
Maybe you can even get the government to PAY you!
Bottom line you will not have to pay taxes on the interest earned.
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I assumed he did a Roth Ira....but maybe being paid now is good...
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01-07-2008, 11:19 PM
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#8
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Thinks s/he gets paid by the post
Join Date: Apr 2007
Posts: 1,305
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Quote:
Originally Posted by EngineeringMyFinances
If some of your 401k contribution wouldn't have been taxed anyway this year, seems sort of a waste to possibly have to pay taxes on it later.
Do you have some other tax-deferred funds accessible, either traditional IRA money or 401k money from a prior employer that you could convert?
Could be to your benefit long term to convert enough to Roth to push yourself into the 10% or 15% bracket this year. Would depend on how much tax-deferred money you have now / how much you expect to have at retirement. If the total amount is low and your annual distributions in the future are low enough that you wouldn't have to pay taxes, then it wouldn't be to your benefit to convert very much.
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VERY GOOD POINT and IMO good advice
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