Taxes on Roth Accounts???

[GrimJack]

I agree, and I mentioned before that DW & I might be very close to the following scenario in just a few years (jIM's work from the thread that inspired this question) ...

Originally Posted by jIM_Ohio View Post
If your AGI approaches 68000 (68000 is in the 15% bracket, 68001 is in the 25% bracket), you want to lower AGI and stay in 15% bracket as long as reasonable.

In this situation, we'd re-route just enough of our contributions to Traditional in order to stay at 15% ... but no more. Heck, we might not even do that if we can reduce the AGI by other means, such as HSA.

Please keep in mind that when you get to 68001, the $1 is taxed at the higher rate and the previous is taxed at 15%. I do not understand why people worry so much about the brackets - could someone explain it to me. It is like paying capital gains taxes - no one goes bankrupt paying capital gains taxes.

[jIM_Ohio]

Please keep in mind that when you get to 68001, the $1 is taxed at the higher rate and the previous is taxed at 15%. I do not understand why people worry so much about the brackets - could someone explain it to me. It is like paying capital gains taxes - no one goes bankrupt paying capital gains taxes.

You are correct in only incremental dollars are taxed at higher rate and deductions are taken within brackets as well, if I have a choice to keep 85% or 75%, I will choose 85% every time.

Certain things, like interest, are always taxed at highest rate you have, and from other tax planning issues, like converting traditional monies to Roth monies in an IRA, knowing how close you are to incrementing a tax bracket are important. Meaning I take deductions to get me into 15% bracket, but once in 15% bracket, I look to realize more income (like capital gains and Roth contributions over 401k contributions) than I do to avoid paying taxes.


I will never turn down a raise because of taxes, but if I know where I am (top end of 15% bracket) certain things are different. Capital gains cannot increase your tax bracket, they are taxed at a rate based on AGI, so its in your best tax interest (for example) to be in 15% tax bracket when you sell stocks at a gain.

[ea1776]

Actually, the trend lines for taxes are down.

IMHO, trend lines won't matter much when the inevitable time comes when the U.S.A. can't borrow any more money and finally has to get serious about paying down the deficit. If gov't health care passes, I'd favor a Roth even more.

I wish our current administration would explore options for making the system more efficient rather than just throwing a ton more tax-payer money at the problem. end rant.

[GrimJack]

You are correct in only incremental dollars are taxed at higher rate and deductions are taken within brackets as well, if I have a choice to keep 85% or 75%, I will choose 85% every time.

Certain things, like interest, are always taxed at highest rate you have, and from other tax planning issues, like converting traditional monies to Roth monies in an IRA, knowing how close you are to incrementing a tax bracket are important. Meaning I take deductions to get me into 15% bracket, but once in 15% bracket, I look to realize more income (like capital gains and Roth contributions over 401k contributions) than I do to avoid paying taxes.


I will never turn down a raise because of taxes, but if I know where I am (top end of 15% bracket) certain things are different. Capital gains cannot increase your tax bracket, they are taxed at a rate based on AGI, so its in your best tax interest (for example) to be in 15% tax bracket when you sell stocks at a gain.

Thanks - good to know about the 1099 stuff taxed at highest rate (and it makes sense when you walked me through it).

[GrimJack]

IMHO, trend lines won't matter much when the inevitable time comes when the U.S.A. can't borrow any more money and finally has to get serious about paying down the deficit. If gov't health care passes, I'd favor a Roth even more.

I wish our current administration would explore options for making the system more efficient rather than just throwing a ton more tax-payer money at the problem. end rant.

They are actually. Have you seen those late night ads saying "we will get you that medical device at no charge - even if Medicare turns your request down"? It turns out that once a medicare patient buys something, his info gets sold and resold to scammers that set up bogus medical supply houses and start billing medicare. The administration is beefing up the fraud investigation teams; teaming with AARP Fraud Busters; organizing local, state, and national groups to work with seniors to watch their accounts. The fraud does not actually affect the senior unless they need a device that Medicare says they already have.

Mel Martinez (R-FL), Bill Nelson (D-FL) and John Cornyn (R-TX) are sponsoring bill to stop medicare fraud. If you would like I will research all the things this administration is working on to fight waste of tax money (without going into polemics or apologia).