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It’s possible to pay $150 in taxes on an income of $150K

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Re: It’s possible to pay $150 in taxes on an income of $150K

#91

Post by [deleted] »

stu2b50 wrote: post #56
SavantIdiot wrote: post #53

Earlier quoted context omitted.

I've not heard of that. So it goes from one IRA into another? Why? Plus, ROTHs have yearly limits of $6k. While it can be done I don't see the benefit of doing it, esp. given the tiny amounts (compared to what is needed for retirement).

You can rollover 401k money into a Roth IRA (but this is a taxable event and you will pay income tax on that - just a note because "Roth" in the name tricks people up). That money will count as a contribution (ie not a gain). There's also NO limit on how much you can convert. You can withdraw any amount of contributions to Roth IRAs no penalty. But you have to wait 5 years for rollovers. So basically 1. Pick how much…

[deleted]

Re: It’s possible to pay $150 in taxes on an income of $150K

#92

Post by SavantIdiot »

stu2b50 wrote: post #56
SavantIdiot wrote: post #53

Earlier quoted context omitted.

I've not heard of that. So it goes from one IRA into another? Why? Plus, ROTHs have yearly limits of $6k. While it can be done I don't see the benefit of doing it, esp. given the tiny amounts (compared to what is needed for retirement).

You can rollover 401k money into a Roth IRA (but this is a taxable event and you will pay income tax on that - just a note because "Roth" in the name tricks people up). That money will count as a contribution (ie not a gain). There's also NO limit on how much you can convert. You can withdraw any amount of contributions to Roth IRAs no penalty. But you have to wait 5 years for rollovers. So basically 1. Pick how much…

Step two is a big deal. In fact, its kind of a headscratcher. You have to believe you can earn back the lost capital from taxation in your investment horizon for the tax free benefits of the Roth IRA to make sense. Tough computation to make. Or am I missing another benefit?

Re: It’s possible to pay $150 in taxes on an income of $150K

#93

Post by andrewmcwatters »

DoreenMichele wrote: post #32
shiftpgdn wrote: post #22

Earlier quoted context omitted.

Also the extreme headache of an audit

I wonder if odds of that go up if you brag on the internet about your sort of shady approach to taxes and cavalier attitude that it's just some kind of game to be played.

OP probably owns an LLC and writes off things that would have him out of compliance based on the way he talks.

Re: It’s possible to pay $150 in taxes on an income of $150K

#94

Post by encoderer »

SavantIdiot wrote: post #92
stu2b50 wrote: post #56

Earlier quoted context omitted.

You can rollover 401k money into a Roth IRA (but this is a taxable event and you will pay income tax on that - just a note because "Roth" in the name tricks people up). That money will count as a contribution (ie not a gain). There's also NO limit on how much you can convert. You can withdraw any amount of contributions to Roth IRAs no penalty. But you have to wait 5 years for rollovers. So basically 1. Pick how much…

Step two is a big deal. In fact, its kind of a headscratcher. You have to believe you can earn back the lost capital from taxation in your investment horizon for the tax free benefits of the Roth IRA to make sense. Tough computation to make. Or am I missing another benefit?

You’ll get taxed on the IRA gains regardless. In this case, they grow tax free in the Roth after the conversion. The math works out the same.

Re: It’s possible to pay $150 in taxes on an income of $150K

#95

Post by stu2b50 »

SavantIdiot wrote: post #92
stu2b50 wrote: post #56

Earlier quoted context omitted.

You can rollover 401k money into a Roth IRA (but this is a taxable event and you will pay income tax on that - just a note because "Roth" in the name tricks people up). That money will count as a contribution (ie not a gain). There's also NO limit on how much you can convert. You can withdraw any amount of contributions to Roth IRAs no penalty. But you have to wait 5 years for rollovers. So basically 1. Pick how much…

Step two is a big deal. In fact, its kind of a headscratcher. You have to believe you can earn back the lost capital from taxation in your investment horizon for the tax free benefits of the Roth IRA to make sense. Tough computation to make. Or am I missing another benefit?

I think you're confused. 401k withdrawals are always taxed, even when you're over the age limit. The tax advantage is that you aren't taxed on the way in.

The benefit is that you don't get hit with the additional 10% penalty for early withdrawal from a 401k. The Roth IRA is irrelevant; it's just a vehicle for you get money out of the 401k without the penalty.

You'd do this as you enter early retirement - like with a normal 401k withdrawal, in this hypothetical your tax bracket will be far lower in early retirement (and not working) as you withdraw.

Basically, by doing the backdoor Roth ladder you get to pretend there's no penalty on withdrawing early. No penalty. Yes, you still get taxed.

Re: It’s possible to pay $150 in taxes on an income of $150K

#96

Post by SavantIdiot »

stu2b50 wrote: post #95
SavantIdiot wrote: post #92

Earlier quoted context omitted.

Step two is a big deal. In fact, its kind of a headscratcher. You have to believe you can earn back the lost capital from taxation in your investment horizon for the tax free benefits of the Roth IRA to make sense. Tough computation to make. Or am I missing another benefit?

I think you're confused. 401k withdrawals are always taxed, even when you're over the age limit. The tax advantage is that you aren't taxed on the way in. The benefit is that you don't get hit with the additional 10% penalty for early withdrawal from a 401k. The Roth IRA is irrelevant; it's just a vehicle for you get money out of the 401k without the penalty. You'd do this as you enter early retirement - like with a…

Ah. Good point. It is not a penalty, it is just the tax all at once that you would normally pay over the life of the distribution. Unless that tax isn't capital gains and pushes you into a higher tax bracket, as opposed to a lower tax bracket if you had withdrawn over time in smaller quantities. I don't know if IRA dispursions are taxed as capital gains or income tax.

Re: It’s possible to pay $150 in taxes on an income of $150K

#97

Post by stu2b50 »

SavantIdiot wrote: post #96
stu2b50 wrote: post #95

Earlier quoted context omitted.

I think you're confused. 401k withdrawals are always taxed, even when you're over the age limit. The tax advantage is that you aren't taxed on the way in. The benefit is that you don't get hit with the additional 10% penalty for early withdrawal from a 401k. The Roth IRA is irrelevant; it's just a vehicle for you get money out of the 401k without the penalty. You'd do this as you enter early retirement - like with a…

Ah. Good point. It is not a penalty, it is just the tax all at once that you would normally pay over the life of the distribution. Unless that tax isn't capital gains and pushes you into a higher tax bracket, as opposed to a lower tax bracket if you had withdrawn over time in smaller quantities. I don't know if IRA dispursions are taxed as capital gains or income tax.

>it is just the tax all at once that you would normally pay over the life of the distribution.

It's not. You don't have to rollover the ENTIRE account. You can choose to only rollover a certain amount of money.

The idea is say, you calculate that as a person you spend, say, $60k a year. So 5 years ago, you convert $80k of your 401k into a Roth IRA. It becomes ~$60k after being taxed. Your tax bracket is just the one that's an income of 80k would be at, because you only converted 80k.

Now you can take that 60k and spend it on your life. Repeat every year, that's the ladder part, and you can spend money out of your 401k no penalty, normal tax rate, as if you were retirement age.

Re: It’s possible to pay $150 in taxes on an income of $150K

#98

Post by masklinn »

ksherlock wrote: post #35
chooseaname wrote: post #9

Earlier quoted context omitted.

>>150 grand is not a huge family income to support 2 adults and 3 kids An awful lot of families are doing this on 1/3 of that amount.

When you subtract all the retirement savings, they're doing it on half that ($73,000).

Having the money to invest and deciding to do so does not mean you don’t have the money.

A family on the median household income would have negative net income with that level of investment.

Re: It’s possible to pay $150 in taxes on an income of $150K

#99

Post by pembrook »

chooseaname wrote: post #9
imajoredinecon wrote: post #4

The author has 3 children, and that's a _household_ income of $150000. 150 grand is not a huge family income to support 2 adults and 3 kids; as a country, we give people tax breaks to encourage having children and to help support people who make that choice. Calling this "Houdini-like" (author's words) tax hacking seems like a bit of a misunderstanding of deliberate social policy!

>>150 grand is not a huge family income to support 2 adults and 3 kids An awful lot of families are doing this on 1/3 of that amount.

Yes, and an awful lot of families in Africa and Southeast Asia are doing this on 1/150th that amount. With more kids. Your point?

The existence of more extreme poverty doesn’t change the fact that 150k/yr is not a ton of money to support a family of 5 in most American metro areas.

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