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Individual Investing Workshop 3 - Tax Planning
- 1. Tax Mitigation Strategies Presented by: Jason Lankford, CPA
- 4. Basics of Investment Taxes Short Term VS Long Term Capital Gains & Dividends Federal and State Taxes Investment Vehicles- Protect your money
- 5. Tax Rates Long-Term Capital Gains/Dividend Rate Single Taxpayers Married Filing Jointly Head of Household Married Filing Separately 0% Up to $38,600 Up to $77,200 Up to $51,700 Up to $38,600 15-18.8% $38,600-$425,800 $77,200-$479,000 $51,700-$452,400 $38,600-$239,500 20-23.8% Over $425,800 Over $479,000 Over $452,400 Over $239,500
- 7. IRA/401K/403B/TSP Tax-deductible Income Ordinary Income Withdrawals Age 59.5 to avoid 10% Penalty Exception: Age 55 for 401k Minimum Distributions at 70.5 Company Match? 401k Loans IRA 1st Time Homebuyer Withdrawal
- 8. Roth IRA/401K Post Tax Income Tax Free Qualified Withdrawals Withdrawal Contributions Tax Free No Minimum Distributions at 70.5 Income Phase Outs for Roth IRA Backdoor Conversions No Income Phase Outs for 401K
- 9. HSA Pre Tax Income Tax Free Qualified Withdrawals Withdrawals After 65 Ordinary Income ***Must Have HDHP Plan 20% Early Withdrawal Penalty
- 10. Contribution Limits Contribution Limits 2017 2018 Roth IRA $5,500 $5,500 Roth IRA if 50 or over $6,500 $6,500 Traditional IRA $5,500 $5,500 Traditional IRA if 50 or over $6,500 $6,500 401K/Roth 401K $18,000 $18,500 HSA Individual/Family Limits $3,400/$6,750 $3,450/$6,900 Roth IRA Income Limits (for single filers) Phase-out starts at $118,000; ineligible at $133,000 Phase-out starts at $120,000; ineligible at $135,000 Roth IRA Income Limits (for married filing jointly and qualifying widow(er) filers) Phase-out starts at $186,000; ineligible at $196,000 Phase-out starts at $189,000; ineligible at
- 12. Striking Gold $842,101.26 Basic Account 24% Pre-R Tax 35% Post-R Tax $805,180.86 401k/IRA 24% Pre-R Tax 35% Post-R Tax $927,177.96 Roth 401k/IRA 24% Pre-R Tax 35% Post-R Tax $1,219,971.00 HSA 24% Pre-R Tax 35% Post-R Tax Assumptions: $1000/month; 30 years; 7% ROI; All mutual fund investments, ignore income limits
- 13. Keeping the same lifestyle $800,622.25 Basic Account 28% Pre-R Tax 28% Post-R Tax $878,379.12 401k/IRA 28% Pre-R Tax 28% Post-R Tax $878,379.12 Roth 401k/IRA 28% Pre-R Tax 28% Post-R Tax $1,219,971.00 HSA 28% Pre-R Tax 28% Post-R Tax Assumptions: $1000/month; 30 years; 7% ROI; All mutual fund investments, ignore income limits
- 14. Moving in with your kids $728,033.98 Basic Account 35% Pre-R Tax 24% Post-R Tax $927,177.96 401k/IRA 35% Pre-R Tax 24% Post-R Tax $792,981.15 Roth 401k/IRA 35% Pre-R Tax 24% Post-R Tax $1,219,971.00 HSA 35% Pre-R Tax 24% Post-R Tax Assumptions: $1000/month; 30 years; 7% ROI; All mutual fund investments, ignore income limits
- 15. Opening an IRA account
Editor's Notes
- Qualified dividends-LT Cap gains Ordinary dividends- ST Cap gains State income taxes can be avoided by moving to low income state in retirement if you are in an investment vehicle The Internal Revenue Service (IRS) requires investors to hold the stock for a minimum period of time to benefit from the lower tax rate. Common stock investors must hold the shares for more than 60 days during the 121-day period that starts 60 days before the ex-dividend date. For preferred stock, the holding period is more than 90 days during a 181-day period that starts 90 days before the ex-dividend date.
- Net investment income tax for very high income >200k for indiv, 125k for married filing sep, 250k for married filing jointly- 3.8% Rates no longer line up to income brackets after 2018 law changes (used to match certain brackets)
- https://www.wealthenhancement.com/blog/ins-outs-401k-withdrawals-at-age-55/ quit a job at 55 or older, you can withdrawal funds from that employers 401k even if you take a different job You can make a 50% loan from 401k- have to pay origination fees and pay interest to yourself You can take 10k out of IRA penalty free from an IRA (but not 401k) 403B is government/non-profit/schools/religious- lower admin fees than a 401k , TSP military- weird rules
- Backdoor conversion- TIRA then RIRA
- Generally have to get HDHP plan through employer. HDHP plans specially marked by insurance companies (do due diligence) The funds in your HSA can be used to pay for qualified medical expenses incurred by you, your spouse and your dependents. The IRS establishes what is and what is not a qualified medical expense, detailed in IRS Publication 502, Medical and Dental Expenses. Generally speaking, qualified expenses include amounts paid for the diagnosis, cure, mitigation, treatment or prevention of disease, and treatments for conditions that affect any part or function of the body. Expenses for cosmetic reasons and expenses that benefit your general health (for example, vacations) are excluded. If you withdraw funds for a non-qualified expense before you turn 65, you'll owe taxes on the money (it will be taxed as income) plus a 20% penalty. If you are over 65 – or become disabled at any age – you'll owe taxes on the amount but not the penalty. You can keep if you leave an HDHP program, you just can’t make contributions. May be charged monthly fees
- Backdoor conversions useful to avoid income limits 401k/Roth 401k have $55,000 full max for including employer contributions More specific details: https://www.trustetc.com/resources/investor-awareness/contribution-limits Total self contributions for 2018 of $29,500
- Backdoor conversions useful to avoid income limits 401k/Roth 401k have $55,000 full max for including employer contributions More specific details: https://www.trustetc.com/resources/investor-awareness/contribution-limits Total self contributions for 2018 of $29,500
- **shifting between vehicles as your rates change. Do Roth while your rates are low, shift to non-roth as rates rise. **Also do growth stocks and qualified dividend stuff in potentially basic accounts, and do stable income stuff in 401k **convert to roth when you are on low income years (education/illness/job shifting) **Also relevant for FIRE/FatFIRE