IF YOU’RE LIKE ME, you almost dread looking at the morning newsfeed. This is why I’m happy to share some good news: The U.S. poverty rate has been cut nearly in half. What’s more, it was accomplished while the economy was practically flat on its back, with tens of millions out of work.
When I was a Washington, D.C., reporter in the mid-1990s, I reported from some of the poorest neighborhoods in Baltimore, Camden and Washington.
IT’S PROPERTY TAX time. Amid the holiday mail from friends, many of us get notices of payments due from our friendly local tax assessor.
No one likes getting taxed. But in many places, property taxes make up a huge part of the funding for public education. What always surprises and irks me are those who say the tax is unfair because they don’t “use” the public schools.
One neighbor says he has no children.
OPEN ENROLLMENT begins in early November for many employees. This is a great time to see if you’re making the most of your workplace benefits, especially flexible spending accounts, or FSAs.
FSAs allow you to deduct pretax dollars from your paycheck for medical, adoption, commuting and dependent-care expenses. There are some new rules for the accounts this year in response to the pandemic.
First, the basics: During open enrollment, you tell your employer how many dollars you want deducted for these accounts over the next year.
THE NEWSPAPERS ARE full of reports that a new tax on billionaires may be uncorked. The Washington Post even ran an article estimating what the 10 richest Americans would pay over the next five years should it pass.
I take no stand on the politics of the proposal. But I have seen enough trial balloons to be skeptical that Elon Musk will soon write a 10-digit check to the U.S. Treasury. As Chuck Collins has written in The Wealth Hoarders,
AFTER YOU QUIT the workforce and before you start Social Security, you may find yourself with little or no taxable income. As many financial experts have pointed out, this can be a great time to convert a traditional IRA to a Roth and pay taxes at a relatively low rate.
But here’s another tax-savings opportunity to consider: If you have winning stocks and funds in your regular taxable account, this period can also offer the chance to realize long-term gains and pay taxes at a 0% federal rate.
NEWS OF ENTREPRENEUR Peter Thiel’s $5 billion Roth account, which was funded with PayPal stock, has motivated Congress to look at restricting the growth and size of Roth accounts.
There’s talk of limiting Roth account balances to $5 million or $10 million. There are also proposals to limit both backdoor IRA conversions and so-called mega-backdoor conversions. The latter involves funding a nondeductible 401(k) and then immediately converting the money to a Roth. There’s even discussion of not allowing high-income workers to convert traditional IRAs to Roth accounts.
AT THE START OF THE pandemic, we picked up a nice chunk of capital losses. I say “nice” because these were intentional. When the market dropped significantly, we realized losses and immediately reinvested the proceeds in other fallen stocks.
What about capital gains? In 2020, some of our mutual funds distributed capital gains, but we didn’t intentionally realize any other gains. Some of our realized losses offset the distributed fund gains. Another $3,000 was applied against ordinary income.
MY BROTHER AND sister-in-law are approaching retirement age and will likely relocate so they can be nearer their children. The last time they sold a house, it took more than a year to find a buyer. But they’ve spent time and money fixing up their current home, and it’d likely sell quickly, especially in today’s hot real estate market. Their thought: Why not sell now, and then rent for a few years until they retire and move?
MY NEPHEW GRADUATED from high school this past spring and starts college in the fall. Alex is fortunate to have received a full scholarship from his college of choice.
Wait, scratch that.
Alex isn’t fortunate. Rather, his diligence and academic success in high school have been rewarded.
While Alex needs no help paying for college, his notable accomplishment should still be recognized. We’d write him a check, but where’s the fun in that? How about a financial gift that’ll allow some one-on-one time that might spark an interest in sensible investing?
WE LOOK AT OUR traditional IRAs each year and decide how much we’ll convert to a Roth IRA. We’re worried our tax rate may increase down the road, either because of tax law changes or because of the extra taxable income once we start taking required minimum IRA distributions at age 72. To head off that threat or at least limit the damage, we’ve been shrinking our traditional IRAs by converting them to Roths,
RETIREMENT SAVINGS and decent health insurance are major goals for most Americans. Politicians attempt to help. Yet the resulting laws and regulations are confusing to the point of being counterproductive.
Can the average worker figure all this out? Nope. It’s too complex and unnecessarily so. Lucky Americans may get help from an employer, but many folks are on their own. Consider seven examples:
1. You can contribute up to $19,500 to a 401(k) in 2021 if you’re under age 50.
IF THERE’S ONE STORY that seems to have captured the investing public’s imagination this summer, it’s the revelation that venture capitalist Peter Thiel has managed to accumulate more than $5 billion in his Roth IRA—where it will be entirely tax-free to him.
In its reporting, ProPublica, the news outlet that carried the story, focused mostly on the tax aspects—the fact that Thiel was able to use his Roth IRA in such unusual ways. In my opinion,
TYPE THE WORDS “safe withdrawal rate” into Google and it’ll return more than a million results. I’m not surprised by this. People debate practically everything in personal finance, but the debate around this question is particularly intense.
For at least 25 years, the conventional wisdom has been that it’s safe for retirees to base portfolio withdrawals on the 4% rule. But not everyone agrees. Some feel that percentage should be higher, while others feel it ought to be lower.
LET ME TELL YOU about Alvan Bobrow. His tale—and specifically his lawsuit—are important for every investor to understand. That’s because the legal loophole he sought to exploit is now a pothole for everyone else.
The first thing to know about Bobrow: He’s a tax attorney and, back in 2008, he had a clever idea. In need of cash, he took a $65,000 distribution—the technical term for a withdrawal—from his IRA. Ordinarily, a distribution from an IRA (unless it’s a Roth IRA or includes nondeductible contributions) is treated entirely as taxable income.
CONGRESS IS BACK at it, aiming to change the tax laws again. Just since 2017, there’s been the Tax Cuts and Jobs Act (TCJA), the SECURE Act and the CARES Act, each of which contained tax provisions, some very significant. As I type this, Congress and the White House are horse-trading on another round of changes.
Because new legislation is still being negotiated, I think it’s too soon to change your financial plan. But there’s one strategy that makes sense for a lot of people,