Whats Fair When it Comes to Taxes?

[jdlea]

Originally Posted by saden1

You only get taxed on your profit which is new income. The billionaires hide their money from taxes using similar strategy with capital gains and it isn't fair at all.

I know that, I still have a problem with it when it's on a smaller scale, though. I'm not saying that I necessarily have a solution to the problem, but I don't know that raising the tax is fair to the people who aren't able to put much in and don't end up earning much, either.

[saden1]

Originally Posted by jdlea

I know that, I still have a problem with it when it's on a smaller scale, though. I'm not saying that I necessarily have a solution to the problem, but I don't know that raising the tax is fair to the people who aren't able to put much in and don't end up earning much, either.

Whatever problem you have with it is unfounded. You have 1k in new income, how you got it is irrelevant. If it helps think of the process investing in stock as having invested in a business and making a profit (exactly what you're doing actually). You will pay and you should pay taxes on those proceeds.

[jdlea]

Originally Posted by saden1

Whatever problem you have with it is unfounded. You have 1k in new income, how you got it is irrelevant. If it helps think of the process investing in stock as having invested in a business and making a profit (exactly what you're doing actually). You will pay and you should pay taxes on those proceeds.

How should 401k's be handled then? This is before tax income that's earned compound interest for a number of years. I know it's taxed when it is paid out during retirement, but at what rate should it be taxed? Also, how would the "income" portion of it be determined?

I'm pretty ignorant to tax laws and such, so I'm asking for informational purposes, not to be combative.

I suppose I just never really thought about every bit of money I earn as income before; admittedly, I probably should have. It's just a way of thinking that needs to switch, but this is an interesting discussion, to me.

[saden1]

Originally Posted by jdlea

How should 401k's be handled then? This is before tax income that's earned compound interest for a number of years. I know it's taxed when it is paid out during retirement, but at what rate should it be taxed? Also, how would the "income" portion of it be determined?

I'm pretty ignorant to tax laws and such, so I'm asking for informational purposes, not to be combative.

I suppose I just never really thought about every bit of money I earn as income before; admittedly, I probably should have. It's just a way of thinking that needs to switch, but this is an interesting discussion, to me.

401k contributions aren't taxed at all until they are withdrawn and there a lot of rules around it. For one thing you can borrow against it and not pay taxes or penalty on it so long as you pay it back within 5 years (except when buying a home). You are required to withdraw a minimum amount of it when you turn 70.5 (this requirement was suspended by congress for 2009 because of the economic downturn).

You are technacally suppose to be taxed on it at the tax bracket you were in at your last income generating position before retirement (It doesn't mean you can go get a job at McDonald's though to lower your tax bracket). There are some strategies you can employ to lower your taxes. For example, if you don't anticipate your tax bracket to be lower as you get older and near retirement it might be wise to convert your 401k to Roth IRA before you retire since isn't subjected to minimum distribution rules which could cost you in the long run.


Bottom line is the rules around 401k are quite generous and if you combine it with other financial instruments (i.e. whole life insurance) you can definitely lower your tax bill when you retire.

[firstdown]

Originally Posted by saden1

401k contributions aren't taxed at all until they are withdrawn and there a lot of rules around it. For one thing you can borrow against it and not pay taxes or penalty on it so long as you pay it back within 5 years (except when buying a home). You are required to withdraw a minimum amount of it when you turn 70.5 (this requirement was suspended by congress for 2009 because of the economic downturn).

You are technacally suppose to be taxed on it at the tax bracket you were in at your last income generating position before retirement (It doesn't mean you can go get a job at McDonald's though to lower your tax bracket). There are some strategies you can employ to lower your taxes. For example, if you don't anticipate your tax bracket to be lower as you get older and near retirement it might be wise to convert your 401k to Roth IRA before you retire since isn't subjected to minimum distribution rules which could cost you in the long run.


Bottom line is the rules around 401k are quite generous and if you combine it with other financial instruments (i.e. whole life insurance) you can definitely lower your tax bill when you retire.

Thats such a stupid rule. They allow people to dig into their retirement so they can buy a home they cannot afford.

[saden1]

Originally Posted by firstdown

Thats such a stupid rule. They allow people to dig into their retirement so they can buy a home they cannot afford.

You're too grown to say stupid stuff like this. You know they can't afford it how? Because they are tapping into their 401k? I tapped into my 401k to buy a home I can afford. Why? because it's kinda smart to maximize your 401k investment, borrow money against yourself for 10 years and pay yourself back with interest.

[firstdown]

Originally Posted by saden1

You're too grown to say stupid stuff like this. You know they can't afford it how? Because they are tapping into their 401k? I tapped into my 401k to buy a home I can afford. Why? because it's kinda smart to maximize your 401k investment, borrow money against yourself for 10 years and pay yourself back with interest.

No I'm correct. Your too smart to know people don't do this all the time. You used your 401 to save the money to buy a home. Most people do not think that far out and they decide to buy a home and because they have no savings they tap into their 401. Thats money they will never pay back.

[jdlea]

Originally Posted by saden1

401k contributions aren't taxed at all until they are withdrawn and there a lot of rules around it. For one thing you can borrow against it and not pay taxes or penalty on it so long as you pay it back within 5 years (except when buying a home). You are required to withdraw a minimum amount of it when you turn 70.5 (this requirement was suspended by congress for 2009 because of the economic downturn).

You are technacally suppose to be taxed on it at the tax bracket you were in at your last income generating position before retirement (It doesn't mean you can go get a job at McDonald's though to lower your tax bracket). There are some strategies you can employ to lower your taxes. For example, if you don't anticipate your tax bracket to be lower as you get older and near retirement it might be wise to convert your 401k to Roth IRA before you retire since isn't subjected to minimum distribution rules which could cost you in the long run.


Bottom line is the rules around 401k are quite generous and if you combine it with other financial instruments (i.e. whole life insurance) you can definitely lower your tax bill when you retire.

Interesting. Thanks for that info!