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Old 02-21-2016, 06:56 AM
 
Location: Ponte Vedra Beach FL
14,628 posts, read 17,932,507 times
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Quote:
Originally Posted by mathjak107 View Post
interesting enough over the long term even a 1% dividend distribution rate can wipe away any tax advantage by having special capital gains rates in a taxable account . the greater the fund turnover the more it can hurt .

most of us who do hold investments long term will end up behind by trying to keep these investments in our taxable account .

in the mean time we would be taking up valuable space in deferred accounts for income producing assets spinning off little in interest .
For me - keeping in mind that I am not a long term buy and hold forever investor when it comes to equities or things that behave like equities (e.g., junk bonds) - a more important issue is I don't want tax issues to have any role in my investment decisions. Seems like many mutual fund managers do what I do - because they have large annual turnover rates in their portfolios. And the tax issues can be complicated and difficult to predict when it comes to mutual funds (you can have various amounts/flavors of income when the fund is actually down for the year - or you can have less or no income in other years as a result of things like tax-loss carry forwards).

Now (like today) isn't a particularly good time to buy plain vanilla fixed income in any kind of account (although junk bonds seem to be bottoming). But there have been better times in the not-so-distant past. I was a big fan of taxable Build America Bonds (yielding 4-almost 6%) about 5 years ago. But new issues are extinct today. Even 3% longer term brokered CDs have pretty much disappeared since the start of the year. Don't know when the next decent buying opportunity will be - or what it will be. But fixed income - bought at the right time/price - can and does have a place in tax-deferred accounts IMO.

Note that one of my biggest complaints about tax-deferred accounts today is the inability to generate any income at all on cash that has been parked short term while looking for a more permanent home. At least with taxable accounts - you can easily move money into a "high yield" savings account and get .9% or so (it's hard to move money around when it comes to tax-deferred accounts). Robyn
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Old 02-21-2016, 07:07 AM
 
71,587 posts, read 71,751,865 times
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Quote:
Originally Posted by Robyn55 View Post
Your numbers aren't right for people who are 65 or older. Standard deduction is $7850 (personal exemption this year has also increased to $4050).

And - although there are certainly little "gotchas" like you mention (usually right at the cusp of when things kick in/out when it comes to parts of the tax code) - they can often be avoided with the use of a tax calculator (except when it comes to things like RMDs - which - for most people - are probably more than $1000).

There are lots of other things around that have "gotchas" that are worse. Like making 10 cents too much to qualify for an ACA subsidy.

And FWIW - bottom line with Harry according to my tax calculator is his total tax bill on his $58k of income would be $5683 - or about 9.7% of his total income. Which is hardly onerous. Also - if Harry was making this money in a regular job - his tax bill would be $7296 - or about 12.5% of his total income. So Harry is still getting a decent tax break compared to young people who have to work for a living. Robyn
the over all taxes are low . but not when you think in terms of " effective "marginal rates for lower income earners .

once someone clears that point of no return where ss is taxed unless they go well over even with the extra perks of being 65 that small amount of extra money is taxed at an insane rate in effect because it is the tax on ss that was added plus the tax on the additional income .

in harry's case that extra 1k lost almost 1/2 of its value

Last edited by mathjak107; 02-21-2016 at 07:48 AM..
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Old 02-21-2016, 07:11 AM
 
71,587 posts, read 71,751,865 times
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Quote:
Originally Posted by Robyn55 View Post
For me - keeping in mind that I am not a long term buy and hold forever investor when it comes to equities or things that behave like equities (e.g., junk bonds) - a more important issue is I don't want tax issues to have any role in my investment decisions. Seems like many mutual fund managers do what I do - because they have large annual turnover rates in their portfolios. And the tax issues can be complicated and difficult to predict when it comes to mutual funds (you can have various amounts/flavors of income when the fund is actually down for the year - or you can have less or no income in other years as a result of things like tax-loss carry forwards).

Now (like today) isn't a particularly good time to buy plain vanilla fixed income in any kind of account (although junk bonds seem to be bottoming). But there have been better times in the not-so-distant past. I was a big fan of taxable Build America Bonds (yielding 4-almost 6%) about 5 years ago. But new issues are extinct today. Even 3% longer term brokered CDs have pretty much disappeared since the start of the year. Don't know when the next decent buying opportunity will be - or what it will be. But fixed income - bought at the right time/price - can and does have a place in tax-deferred accounts IMO.

Note that one of my biggest complaints about tax-deferred accounts today is the inability to generate any income at all on cash that has been parked short term while looking for a more permanent home. At least with taxable accounts - you can easily move money into a "high yield" savings account and get .9% or so (it's hard to move money around when it comes to tax-deferred accounts). Robyn
i wouldn't even bother moving my cash for .9% .
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Old 02-21-2016, 07:19 AM
 
Location: Gilbert, AZ
3,182 posts, read 1,959,996 times
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Quote:
Originally Posted by mathjak107 View Post
as you see , it would take perfect structure to pull off since any income over 44k or so for a couple gets ss taxed at 85% so trying to draw 98k from anything but money already taxed would be a tall order . most will end up in the 15% bracket ,
I'm just putting the numbers into TaxCaster. Are there any known issues with this software not handling SS benefits correctly?

I haven't bothered with the IRS worksheet... hopefully it would give the same result as TaxCaster
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Old 02-21-2016, 07:26 AM
 
71,587 posts, read 71,751,865 times
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not sure , i have not run the numbers but basically i don't think many will be able to collect ss and not have to use use roths and already taxed money to get zero tax .

70k in dividends or capital gains which make up the zero % capital gains bracket plus 1/2 the social security already gets the ss taxed at 85% . the ss eats up the first level in the zero capital gains bracket reducing the 70k by that amount .

so the amount that can go through with zero capital gains is 70k less 85% of ss , less unqualified dividends and interest . 98k would be tough to get zero tax on .

on the other hand it is easy delaying ss and living off cash , muni's and roths .

Last edited by mathjak107; 02-21-2016 at 07:52 AM..
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Old 02-21-2016, 10:04 AM
 
Location: RVA
2,165 posts, read 1,266,382 times
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Robyn55 is correct on the total tax still being lower. But that was not MY point. My point was that if you saved via IRA OR 401k tax deferred when you were in the 15% brackets, on the assumption that when retired, you would be in a lower tax bracket and are saving money in the long term, you find that while TECHNICALLY you ARE in a lower overall bracket, the money you tax deferred is being taxed when finally wihdrawn at a MUCH higher rate! You would have done far better investing it in after tax vehicles that required taxes at 15% or lower!! I only contribute enough pre tax to my 401k to get the company match and reduce my income to prevent going to the next higher bracket. Ofherwise I contribute the $6500 max to a Roth and the rest as after tax in the 401k which I roll over once a year. I will use IRA/401k withdrawals to delay SS, and increase Roths, after I retire, because of our pensions. I will always pay federal income tax on 85% of our SS, regardless, unless they actually do increase the thresholds which I highly highly doubt.
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Old 02-21-2016, 10:59 AM
 
71,587 posts, read 71,751,865 times
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study's show that keeping equity's in your taxable account to take advantage of lower capital gain rates will not work out as well over the long term .

as little as a 1% dividend over decades wipes out the tax advantage as well as any fund turnover will worsen things . a defered account still seems to be the best plce to keep them despite the fact you do not get the lower capital gain rates .
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Old 02-21-2016, 02:48 PM
 
Location: Ponte Vedra Beach FL
14,628 posts, read 17,932,507 times
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Quote:
Originally Posted by mathjak107 View Post
i wouldn't even bother moving my cash for .9% .
At Fidelity - you are earning basically 0% on cash. Same with me. Even if you only have $100k in cash - your savings out of which you're paying the bills - (and I suspect you have more) - that is $900/year - which is nothing to sneeze at (after all - you got all bent out over Hypothetical Harry paying an extra $400 in taxes and - to me - money is money).

Note that it is very easy to link up brokerage accounts - including Fidelity accounts - with high yield savings accounts - and to transfer money between the accounts with a mouse click or two. There is no reason not to do it IMO - unless you like to pi** money away. Which I don't.

Also - there is a part of my brain that says that anyone in a brokerage firm that I deal with would mark me as stupid if I were leaving $100k+ plus in an account where I was earning zero for more than a few days or weeks. And would act accordingly when dealing with me.

Finally - cash in a brokerage account is only SIPC insured to the tune of $100k. Not FDIC insured. In the high yield savings accounts - they're FDIC insured - $250k/person - $500k for a couple - more for multiple account holders. So not only do you get more money - your money is more secure as well.

I don't think your position is logical. Perhaps you are too set in your ways (or too wedded to dealing with only one institution)? Robyn
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Old 02-21-2016, 02:52 PM
 
71,587 posts, read 71,751,865 times
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i use mostly laddered cd's for cash . the average is pretty close to . 70% or so except for this years spending money which is at .10 . but i really don't care because i am spending it down . .

my fidelity core account which is a cma account is fdic insured . they have a program with a number of banks for sweeping and holding cash .

https://accountopening.fidelity.com/...p/fdicBankList

https://www.fidelity.com/cash-manage...count/overview

cash in your brokerage account also carry's additional extended insurance after sipc.

"Total aggregate excess of SIPC coverage available through Fidelity's excess of SIPC policy is $1 billion.
Within Fidelity's excess of SIPC coverage, there is no per-account dollar limit on coverage of securities, but there is a per-account limit of $1.9 million on coverage of cash awaiting investment. This is the maximum excess of SIPC protection currently available in the brokerage industry."

Last edited by mathjak107; 02-21-2016 at 03:04 PM..
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Old 02-21-2016, 03:08 PM
 
Location: Ponte Vedra Beach FL
14,628 posts, read 17,932,507 times
Reputation: 6716
Quote:
Originally Posted by Perryinva View Post
Robyn55 is correct on the total tax still being lower. But that was not MY point. My point was that if you saved via IRA OR 401k tax deferred when you were in the 15% brackets, on the assumption that when retired, you would be in a lower tax bracket and are saving money in the long term, you find that while TECHNICALLY you ARE in a lower overall bracket, the money you tax deferred is being taxed when finally wihdrawn at a MUCH higher rate! You would have done far better investing it in after tax vehicles that required taxes at 15% or lower!! I only contribute enough pre tax to my 401k to get the company match and reduce my income to prevent going to the next higher bracket. Ofherwise I contribute the $6500 max to a Roth and the rest as after tax in the 401k which I roll over once a year. I will use IRA/401k withdrawals to delay SS, and increase Roths, after I retire, because of our pensions. I will always pay federal income tax on 85% of our SS, regardless, unless they actually do increase the thresholds which I highly highly doubt.
I was in a 50% tax bracket (federal only) on earned income when I made my pension/profit sharing plan contributions (which are now mostly in a Rollover IRA - some in a Roth). So it was a total non-brainer for me. Also - since municipal bond interest is included in modified adjusted gross income - we will always have 85% of our SS taxed (although we pay pretty much zero in federal taxes as a result of deductions).

Note that one moving part when it comes to all of this in terms of deductions is medical expenses. I wonder how much money some people actually save by using Medicare Advantage plans as opposed to traditional Medicare and Medigap policies - since what you pay for the latter is all tax-deductible medical expenses (subject to 7.5% of income now - 10% starting next year for people over 65).

All of this tax stuff has a lot of working parts - and will vary greatly from person to person - couple to couple. I think it's always best to run one's personal situation (or possible variations) through a good tax calculator - to see what makes the most sense. For example - I always found that making large Roth conversions (six figures) never made sense as opposed to just waiting until the time when I have to take RMDs out of non-Roth accounts (which will be five figures). At least when I was in my 50's and 60's (Roth accounts didn't start until 1998 - when I was over 50). The mileage of other/younger people might vary.

In my experience - it's almost always easier to save a dollar in taxes than to make a dollar investing. Robyn
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