My original statement was that the investment class getting their primary source of income from stock options and bonus are paying roughly 8% in federal income taxes, and you want to go down the rabbit hole talking only about bonuses. It's overall, OK, the investment class pays very little in taxes as a percent of what they make compared to the working class. No matter how they get their income. Some guy making 60 grand a year gets a 2 grand bonus its taxed like hell, but the CEO of a corporation, that made a million in salary, another million in bonuses and 10 million in stock options, is paying at a far lower rate them the little guy making 60 grand. It's a system set up to protect and help the wealthy investor. All forms of income, no matter how you make the money should be taxed at the level that applies to you. Now we are giving people a tax break for buying a private jet, now how stupid is that.
Retirement Targets
- Thread starter yowza
- Start date
Which essentially means Iowa turned everyone's existing traditional IRA's into HSA accounts that can be used to pay for anything, and not just health expenses. Moneys wasn't taxed going in, and it won't be taxed coming out.
Before this change, Iowa's somewhat high income tax rate was one reason for young people to choose Roth over traditional. Now that has flipped. If people think they will retire in Iowa, there is an advantage in going traditional, at least with respect to state income tax.
H
No one is crying for someone who owns $5 million asset outright.
SS is insurance against poverty in old age. Not a retirement plan for the upper middle class/wealthy. Your hypothetical farmer will be fine in this case
I currently only do a 401k and then have some stocks I play with on the side. I am working up towards maxing out the 401k. Should I start an IRA before maxing out the 401k? My wife and I combined make close to the income limits for a Roth IRA but have been reading about backdoor Roth (which I admittedly don't fully understand yet).
I shared the same sentiment as SayMyaName when I was younger: that I couldn't trust the government to honor their pledge not to tax Roth withdrawals. A podcast a couple years ago changed my mind. Not only would it be political suicide, there isn't as much money to go after as you might think.
Americans have roughly $40 trillion socked away in traditional retirement accounts, but only around $1 trillion in Roth accounts ***. If they want to screw people over, the first target might be that big lump of traditional money. Reducing the age where RMDs kick in might generate more revenue than reneging on the Roth promise.
As a result of the Peter Thiel's ridiculous Roth balance, some lawmakers did propose capping the max roth balance at 5 or 10 million a few years back. Once your Roth reached that limit, anything above that would start acting like a traditional. This idea never went anywhere though.
H
*** numbers are from about 4 years ago
The assumption is taxes will go up at some point so you will pay a higher tax on that money when taking RMDs.
I converted some IRA money to a Roth a couple of times. Enough to stay in the tax bracket I was in without crossing into a higher tax bracket.
If you convert IRA funds to a Roth make sure you do it at least 2 years before you start Medicare or IRMAA will hurt you.
1- If you have an HSA, it needs to be part of this discussion
2- Don't bother with an IRA until you are getting the max employer match allowed in your 401k
3- One reason to favor an IRA is if your 401k has a limited offering of funds, or if the funds have high expense ratios
4- If your 401k has a good selection of funds, the rule of 55 is a reason to just keep putting money into the 401k until you max it out
5- For tax purposes, it is wise to start a Roth IRA ASAP, even with a small balance. There are tax rules that involve how old the account is.
The income limits on Roth IRAs are really mind boggling. If someone makes $500,000 / year and wants to make a roth contribution out of the 24% tax bracket... shouldn't we let them?
If you are close to the income limits for roth contributions, you can contribute to a traditional and then convert to a roth. There are no income limits on conversions (which makes the income limits on contributions kind of silly), and this is a relatively clean route to go when it comes to filing taxes. The downer of conversions is that you cant' withdraw the converted money for 5 years. Not really an issue if you plan to keep the money there until you retire.
Things might messy if you contribute to a roth and then go over the income limits. I think you would have to reclassify your contribution, but I'm not positive. Not worth the hassle IMO.
H
No, the trad ira studf isnt with anyone i talked to, nor the one i finally went with. That bunch is just managed by me
But they did all say the same thing "even if you go w someone else, dont take out the trad ira money first". They wanted it to stay there. Said it was best way for both tax and for inheritance later.
Not to mention a plain old brokerage account, especially if planning to retire before age 59 1/2. Flexibility is key, and tax diversification can be just as important as asset allocation (if not more so) leading up to and in to retirement.
Bonuses are ordinary income just like wages. Taxed exactly the same. Not sure where you are getting that idea.
Because I've already made tax-free contributions, so if they change the policy later and tax withdrawals, the account becomes no different than a traditional 401k or IRA from a tax treatment standpoint.
Whereas with the Roth, you already pre-paid the tax on earned income to make the contribution, so if in the future the gov't decides to tax withdrawals, you've likely lost the bet.
Pundits and influencers were beating the drum to fund Roths before the end of 2025 due to the expiration of the TCJA rates, and then look what happened.
SE, i have to tell you. I have been on both sides of your example at different times in my career (not quite to 10M lol, but high enough to comment). And i paid a MUCH higher rate in the latter than the former.
Our small biz is taxed as an S-corp, so company profit goes on the owners personal returns. So my income reported on my 1040 is 10x my actual take home. And i can confirm that the effective tax rate % at that level is indeed 2x or more than when i was making <100k annual.
If a person or couple is in the 24% tax bracket why wouldn't the comparison be against the future effective rate?
According to the chat bot the typical effective rate in retirement is around 16-20%
If I'm shaving funds from the 24% while earning and paying 16% at distribution (assuming lower earnings and/or Roth offset) then traditional seems to have a place.
I'm 52-48 Traditional to Roth. The wife is very much traditional (90%), but ramping up Roth for tax diversification
All of this is a rabbit hole that almost makes a pension worth it, but it's interesting as hell
According to the chat bot the typical effective rate in retirement is around 16-20%
If I'm shaving funds from the 24% while earning and paying 16% at distribution (assuming lower earnings and/or Roth offset) then traditional seems to have a place.
I'm 52-48 Traditional to Roth. The wife is very much traditional (90%), but ramping up Roth for tax diversification
All of this is a rabbit hole that almost makes a pension worth it, but it's interesting as hell
Because you are classified as a high earner, making most of their salary through wages and bonuses. The investment class gets most of theirs through stock options, that are not taxed until they sell them. Where the buy, borrow and dies part kicks in. High earners, athletes, entertainers and businessman that make high wages are going to be taxed like hell. That is why the CEO has a relative low salary and gets most of his pay as stock options. They are untaxed, but he is allowed to borrow against them, so he has spending money.
But in the traditional you don’t pay the $2,000 in taxes up front, you put the whole $12,000 in so after doubling 4 times you have $180,000 in earnings. If the tax rate (16.67% in your example) is the same you pay $30,000 in taxes and guess what? You have $150,000 of your earnings left over - exactly the same as the Roth. I’m sure to you paying $30,000 in taxes now feels worse than paying $2,000 in taxes 35 years ago but the math, whether you understand it or not, doesn’t lie.
With all due respect, I think it’s this type of thinking that is keeping us from getting the problem solved. Social security was designed to keep people who worked for a daily wage from falling into a place where they weren’t able to feed themselves or had to try to keep working when they really weren’t physically able. If a person (myself or otherwise) is sitting on $3 or $4 million, I’m not worried about them getting social security…whether they paid in or not. They will be OK.i get that in some way that’s not fair…but we can argue what is or isn’t fair all day. (Two guys working just as hard - one makes $60k, one makes $120k…a female making 70% of what a male makes for the same job…two people doing the same thing, but one makes 20k more because they’ve been with the company longer…)
You understand that many average white collar jobs get bonuses? Not just the investment class.
He’s not hypothetical, as a former Ag loan officer, I can say with the elderly farmers out there, its fairly common.
I don’t care.
That is my point: I don’t care about farmers.
Let them sell their farms and then live off 4% withdrawals forever. They’ll be fine
Not everything needs to be about farmers
One of the biggest groups of people screwing every out there are these trust people. The put assets in a trust so come care center time, they can avoid using that and keep a large asset sitting there while going in Medicaid.
