Money & Economics

[tigerwillow1]

Here's a pretty graph of what I like to call the social security tax trap, showing the high marginal rate "hump". The numbers must be for single filers.


The graph is from Taxation of Social Security benefits - Bogleheads
Another good page is Social Security tax impact calculator - Bogleheads

Bogleheads is a great source for tax and investing info. Good in-depth info without any of the extraneous fluff inserted by media outlets.

I am totally outraged by the deception and complexity of the tax code, fully attributable to the greedy politicians driven by lobbyists. I built a spreadsheet to brainstorm things like IRA withdrawals. I'm an engineer and believe that anything can be represented by an equation. I tried and tried and tried to make an equation out of the social security taxation worksheet. I failed, and finally built the whole dang worksheet, step by step, into the spreadsheet.

 

[1fxman]

87 thousand IRS agents...hmmm...

With guns

 

[1fxman]

One of the biggest error folks make, is not contributing to an employer 401k.
Where my wife worked, only 6% of employees contributed to the 401K, the company matched 80 cents on the dollar.
Half of those 6%, wouldn't leave it alone when they did participate. Withdrawing money for stupid stuff or for buying cars.
I convinced my wife to contribute early on, and to leave it alone, she contributed for around 22 yrs, and at retirement it paid off extremely well.
So many did not understand that for every dollar you saved, they gave you $0.80 cents.

At one time I was doing some day trading, with the likes of Netflix, Groupon, Ruger, Facebook, S&W, Twitter, couple of others I don't recall now.
But as long as I paid attention, I could make 12-18% return.

Several yrs ago, I went with a fee based Financial consultant, he makes no commision on trades, I pay a set fee quarterly and he manages it.
I have full online access to the brokerage account he manages for us, I can easily see exactly what is going on, and over 23 yrs it's averaged 12%.
Me likes me some mutual funds.

Its also easy to setup your own accounts at Vanguard, and you have access to a multitude of different low cost MF's.

I bought 2 mutual funds about 20 years ago (Roth/Ira). one was a little more risk than the other. I started putting $50 in each, each month for 2 years. Then I decided to put $200 in each, each month. Then in 2008 eight I got cold feet and stopped contributing. With that said it‘s still a darn good chunk of money. I just wish i would have keep contributing. It’s also Vanguard. A couple years ago I let there finance team manage it. I never check it. I hope there not losing my money

 

[1fxman]

Back in 2003 I bought 40 acres of land for $26000. And that’s because it was in a flood way. That’s means the water flows when it floods. That’s the property where I have my cameras setup. My dad and brothers, and a few other thought I was crazy for buying the land. Well, one day a guy came out and informed me that he would like to drill for oil. I said ”why you asking me?” And he said, “because you own the mineral rights”. I’ll be damn, I didn’t even know that I did

 

[Gargoile]

Really? So if I buy Gold Eagles that doesnt apply?

LIST OF SALES TAX RULES STATE BY STATE
In the list below, any figures shown are for the state-wide rate and are the minimum you can expect to pay. These do not include any county-specific tax rates.

• Alabama: No sales tax on bullion
• Alaska: No sales tax at a state level
• Arizona: No sales tax on bullion
• Arkansas: 6.5% on all precious metal sales
• California: 7.5% on transactions below $1,500
• Colorado: No sales tax on most precious metals
• Connecticut: 6% on purchase values below $1,000
• Delaware: No sales tax
• Florida: 6% on values below $500, with an exemption for legal tender
• Georgia: No sales tax
• Hawaii: 4% general excise tax paid by the seller, often added to the purchase price
• Idaho: No sales tax
• Illinois: 6.25% on South African Krugerrands only, all other bullion is exempt
• Indiana: No tax on high-purity bullion, 7% on other types of precious metal
• Iowa: No sales tax
• Kansas: No sales tax
• Kentucky: 6% on all orders
• Louisiana: No tax on precious metals
• Maine: 5% flat rate
• Maryland: 6% on order values below $1,000
• Massachusetts: 6.25% on transactions below $1,000
• Michigan: No sales tax on high-purity bullion
• Minnesota: 6.88%
• Mississippi: 7%
• Missouri: No sales tax on high-purity bullion
• Montana: No sales tax
• Nebraska: No sales tax
• Nevada: 6.85% with some exemptions
• New Hampshire: No sales tax
• New Jersey: 7%
• New Mexico: 5% paid by the seller
• New York: 4% on transactions below $1,000
• North Carolina: No sales tax
• North Dakota: 5%, but with high-purity bullion exempt
• Ohio: Basic sales tax of 5.75% applies to silver and gold bezels, high-purity bullion is exempt
• Oklahoma: No sales tax on precious metals
• Oregon: No sales tax on any precious metals purchase
• Pennsylvania: 6% on silver and gold coins which are not legal tender, bullion is exempt
• Rhode Island: 7% tax applies only to bullion that’s not been refined or smelted
• South Carolina: Most precious metals are exempt, but some coins and processed items attract 6%
• South Dakota: No sales tax on investment-grade bullion or legal tender
• Tennessee: No sales tax on gold or silver bullion
• Texas: No sales tax on gold or silver bullion
• Utah: A 4.75% tax applies to bullion with purity below 50%
• Vermont: 6% on all precious metal transactions
• Virginia: 5.3% levied on all precious metals with no exemptions
• Washington: No tax on any non-collectible precious metals
• West Virginia: Investment-grade bullion and coins are tax-exempt
• Wisconsin: A 5% tax on all precious metal purchases
• Wyoming: A basic 4% rate on all precious metal purchases

 

[David L]

One of the biggest error folks make, is not contributing to an employer 401k.
Where my wife worked, only 6% of employees contributed to the 401K, the company matched 80 cents on the dollar.
Half of those 6%, wouldn't leave it alone when they did participate. Withdrawing money for stupid stuff or for buying cars.
I convinced my wife to contribute early on, and to leave it alone, she contributed for around 22 yrs, and at retirement it paid off extremely well.
So many did not understand that for every dollar you saved, they gave you $0.80 cents.

At one time I was doing some day trading, with the likes of Netflix, Groupon, Ruger, Facebook, S&W, Twitter, couple of others I don't recall now.
But as long as I paid attention, I could make 12-18% return.

Several yrs ago, I went with a fee based Financial consultant, he makes no commision on trades, I pay a set fee quarterly and he manages it.
I have full online access to the brokerage account he manages for us, I can easily see exactly what is going on, and over 23 yrs it's averaged 12%.
Me likes me some mutual funds.

Its also easy to setup your own accounts at Vanguard, and you have access to a multitude of different low cost MF's.

401k is a no brainer. Free money from the company. I know several who are now millionaires because of 30 years of contributing to 401k. Any broker will tell you to leave your 401k alone, of course there are some crooked ones who just want the money to invest and make their cut. I would steer from them.

I got 100% match dollar for dollar up to 6% of my salary at one company I worked for. 100% return, again no brainer...Once you budget for it you don't miss the money...it is like any other auto-withdrawal.

 

[looney2ns]

I'll build on that with one of my pet peeves. Applies equally to IRAs. If your situation allows, get the money out of the 401k and IRA accounts before you start taking social security. Best case is roth conversions if you can pay the taxes out of other money. Once you draw social security, any 401k/IRA money you withdraw not only gets taxed at your marginal rate, but also increases the amount of SS that's taxed. If you're in the 12% tax bracket, the net effect is that 401k/IRA withdrawals are taxed at 22%, until you hit the maximum 85% SS taxation. And very conveniently, right about when you hit the 85% SS taxation, you also hit the 22% tax bracket, so there's no easy way to beat the system here. In fact, there's a small overlap of hitting the 22% bracket before the 85% SS taxation, resulting in a niche where the effective marginal rate is in the mid-30%,

Yep, rolled her 401k into a Roth.

 

[David L]

Yep, rolled her 401k into a Roth.

So I have a stupid question, did you have to pay all the taxes for the 401k the same year that you rolled to the ROTH?

 

[Jim I.]

Correction, now making 3.3% Started with 1% a few years ago...

View attachment 148879

While it seems nice making 3 percent or so on your money when the stock market is down, keep in mind you are still losing money when the inflation rate currently is over double that amount. So you are really in the hole 3% or so.

 

[tigerwillow1]

Another IRA related tax ploy if you make charitable donations is to use the Qualified Charitable Distribution (QCD). Instead of writing a check to a charity and probably not being able to take an itemized deduction for it, you can write a check from your traditional IRA to get a couple of big advantages:

(1) The donation amount is not added to your AGI,therefore does not trigger any increased AGI penalties.
(2) Donation amount counts toward your RMD.

It's a true gift loophole for anybody able to use it. It's the logical equivalent of taking the standard deduction AND itemized deduction for charitable at the same time, while not raising your AGI for the deduction amount or RMD. A 4-bagger! How did this come about? My guess is that the politicians set it up for themselves, and accidentally allowed the serfs use it too. A bunch of rules need to be understood before planning to use it, and not all IRA administrators let you write checks. One that does is Fidelity.

Enough savings possible to buy a few new cameras.

 

[David L]

While it seems nice making 3 percent or so on your money when the stock market is down, keep in mind you are still losing money when the inflation rate currently is over double that amount. So you are really in the hole 3% or so.

True, nice dream though...sad though everyone loses during Inflation...

 

[bigredfish]

While it seems nice making 3 percent or so on your money when the stock market is down, keep in mind you are still losing money when the inflation rate currently is over double that amount. So you are really in the hole 3% or so.

Though it kinda depends on your age and objectives doesnt it? I’m in the 12 months to retirement and more or less set “capital preservation” mode. I’ll take it vs risking a big pile in the market a la 2008 and having to wait 5-7 years to make it back no?

 

[Jim I.]

Though it kinda depends on your age and objectives doesnt it? I’m in the 12 months to retirement and more or less set “capital preservation” mode. I’ll take it vs risking a big pile in the market a la 2008 and having to wait 5-7 years to make it back no?

Yes, it does. I'm very close to retirement as well. It changes your perspective on things a bit! A safe, secure 3% beats the average stock market return this year for sure.

 

[tigerwillow1]

A safe, secure 3% beats the average stock market return this year for sure.

I was thinking about how the government is continually robing us, with an example. For the example, say you buy an asset that happens to exactly hold its buying power over time, the value of the dollar falls by 50% over 10 years, and you sell you asset for dollars 10 years later. First you work to raise funds to buy the asset. The government taxes the pay you earned, and the government takes it's first chunk. Then you sell the asset 10 years later for twice as many dollars. Even thought you've broken exactly even, the government says you have a big gain and takes another chunk. Then you die and the asset is taxed again. All you did was work to buy something that did not increase in real value, and the "big guy" took a chunk out of it 3 times. I don't think we have much of a clue how heavily we are really taxed.

 

[DesertRat]

I'll build on that with one of my pet peeves. Applies equally to IRAs. If your situation allows, get the money out of the 401k and IRA accounts before you start taking social security. Best case is roth conversions if you can pay the taxes out of other money. Once you draw social security, any 401k/IRA money you withdraw not only gets taxed at your marginal rate, but also increases the amount of SS that's taxed. If you're in the 12% tax bracket, the net effect is that 401k/IRA withdrawals are taxed at 22%, until you hit the maximum 85% SS taxation. And very conveniently, right about when you hit the 85% SS taxation, you also hit the 22% tax bracket, so there's no easy way to beat the system here. In fact, there's a small overlap of hitting the 22% bracket before the 85% SS taxation, resulting in a niche where the effective marginal rate is in the mid-30%,

Here's another one. I have some 20 year EE bonds that mature this month (12/22). My plan was to redeem half this month and the other half in January 2023, to avoid the 85% thingy on my social security income. Well, I just discovered that you must pay taxes on the date of maturity, whether you redeem them or not. What a bunch of BS.

 

[Sybertiger]

I'm in my 50's and I look back and can't figure out how my parents did it. Dad, no college degree and most of his starter knowledge was serving as a radar tech for 4 years in the Navy. Mom always a housewife whose job was non-paying running the household with four kids. We must have been the most bottom rung to be considered middle class. Most likely, mom skimping, gave the appearance of being barely middle class but really we were probably on the high rung of lower class.

I remember as a kid my parents flipping fixer junker houses and busting ass doing all the work. By the time I graduated high school I had lived in 11 or 12 homes had gone to 8 schools. I distinctly remember asking my mom for a penny to buy a piece of bubble gum from the ice-cream man truck as a kid and being told no because we couldn't afford it. All the neighborhood kids were buying the fancy ice cream bars, snow cones, and various candy. As you can tell, it really left an impression on my young mind.

Fast forward and my parents are 86 years old, live in an upper middle class neighborhood....a big ol' house too ridiculous for two old people. They have some nice rental properties, have play money to invest, get their SS money and Dad's health benefits and retirement from most recent employer. Not bad for the two formerly young upper-low-classs "fake" middle class peeps with one income and four kids. How the hell they did it still mystifies me even though I lived it...LOL.

Bottom line, they worked their asses off, saved money, did without and invested. This is one formula for that works.

 

[Gargoile]

I'm in my 50's and I look back and can't figure out how my parents did it. Dad, no college degree and most of his starter knowledge was serving as a radar tech for 4 years in the Navy. Mom always a housewife whose job was non-paying running the household with four kids. We must have been the most bottom rung to be considered middle class. Most likely, mom skimping, gave the appearance of being barely middle class but really we were probably on the high rung of lower class.

I remember as a kid my parents flipping fixer junker houses and busting ass doing all the work. By the time I graduated high school I had lived in 11 or 12 homes had gone to 8 schools. I distinctly remember asking my mom for a penny to buy a piece of bubble gum from the ice-cream man truck as a kid and being told no because we couldn't afford it. All the neighborhood kids were buying the fancy ice cream bars, snow cones, and various candy. As you can tell, it really left an impression on my young mind.

Fast forward and my parents are 86 years old, live in an upper middle class neighborhood....a big ol' house too ridiculous for two old people. They have some nice rental properties, have play money to invest, get their SS money and Dad's retirement from and health benefits from that retirement. Not bad for the two formerly young upper-low-classs "fake" middle class peeps with one income and four kids. How the hell they did it still mystifies me even though I lived it...LOL.

Bottom line, they worked their asses off, saved money, did without and invested. This is one formula for that works.

Remember it's not how much you make, but what you do with what you have. Choices have consequences.

 

[Sybertiger]

I too am looking for some ideas on where to preserve "wealth" as a result of my belief that hard times are right around the corner in large part due to Brandon, his socialist ilk, American "America haters" , wokeness, irresponsible and corrupt politicians in both major parties, etc, etc. Our money is purposely being devalued most likely from those forcing the Great Reset. I have additional concerns about the dollar being replaced as the reserve currency for business and replacement with a digital currency.

I've mostly exited the stock market and have cash sitting in 401k, Roth and other cash assets. Like others, I don't belive gold/silver necessarily to be a safe haven or able to preserve wealth at 100%.I find gold/silver in your hands to not be practical for storage or liquidity. I don't believe in gold/silver to be held on your behalf by a 3rd party who issued you a piece of paper stating your holdings are safe and guaranteed.

Right now I'm involved with crowd funding projects (with risk) yielding 10 to 12 percent in a desperate attempt to counter inflation. Other cash is currently earning about 3.8% thanks to the Fed jacking rates up. This is better than a poke in the eye with a sharp stick and certainly beats near 0% only 6 short months ago. I'm open to some ideas too like the OP and have given very short thought to 6 month CDs.

When shit hits the fan where do you want your assets? In land....but now you're on the hook for property taxes and it might be a long haul venture with low liquidity. In rental property where unless the value is increasing at a decent clip it's not worth the headache and fake perceived rate of return due to forced depreciation by the gubermint tax rules and subsequent capital gains at sale time. Trust me, my parents have been doing rentals for a long time and it ain't what it's cracked up to be especially with huge corporations buying up properties to rent. And all it takes is something like Covid-19 or some other fake disaster for the gubermint to force you in to providing free housing for others on your dime.

 

[tigerwillow1]

Here's another one. I have some 20 year EE bonds that mature this month (12/22).

Did you buy the bonds in 2002? If so, they have another 10 years left before their 30 year final maturity and forced redemption. The 20 year number is when EE bonds purchased after June 2003 reach "original maturity", i.e. double their purchase price. Original maturity for bonds purchased in 2002 was 17 years. Here's what the treasury calculator says for a bond purchased in 12/02:

 

[tigerwillow1]

I thought this was an interesting headline this morning:


In other words, holiday sales were down, but we'll say they were up to continue the constant deception about everything.