Great news if you’re flush enough to delay SS to age 70 or your RMDs to 75.
https://thehill.com/policy/finance/3534883-senate-retirement…
Final touches are now being added in the Senate, no doubt to add even bigger breaks for the wealthy.
Biden has promised to sign the legislation.
intercst
from cited URL:
"To pay for these tax breaks, the legislation doesn’t raise taxes elsewhere, as it’s supposed to. It circumvents the problem by allowing retirement plan participants to opt for Roth IRAs instead of traditional ones."
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This is OPINION, not Fact!!! Congress makes their “little rules” for the budget & then carefully avoid/evade their intent. BTW, every dollar going into a Roth has been taxed.
No One knows what the future Taxes will be. For example, Social Security is already subject to income taxes & IRMMA! {double taxation by another Name}
sunrayman
Disgruntled Taxpayer
Intercst, you might enjoy this book.
“A Generation of Sociopaths: How the Baby Boomers Betrayed America,” by Bruce Cannon Gibney.
https://www.amazon.com/Generation-Sociopaths-Boomers-Betraye…
I don’t disagree with any of his points…except that he seems to feel that the following generation, raised by video games and social media, will somehow turn out to be more empathetic and socially responsible than the Baby Boomers. 
Wendy
sunrayman,
This is OPINION, not Fact!!! Congress makes their “little rules” for the budget & then carefully avoid/evade their intent. BTW, every dollar going into a Roth has been taxed.
But not any dollar of earnings, which with compounded growth will far exceed the tax-paid balance with time.
I’d be fine with allowing a Roth IRA capped at some modest amount (say $1 to $5 million), but eventually wealthy people have to start paying taxes at least at the rate of a school teacher or firefighter.
If you understand “skim rates” you can almost live tax free. But you have to exit the “wage & salary” tax regime as quickly as possible.
Minimizing the “Skim” – the Key to Retiring Early
https://retireearlyhomepage.com/minimizing_the_skim.html
intercst
“If you understand “skim rates” you can almost live tax free. But you have to exit the “wage & salary” tax regime as quickly as possible.”
Not everyone is willing to live a very low income life in retirement…driving a 16 year old car…probably not that far either…whose hobbies are mainly walking and low cost eating and saving money.
As for retirement savings, folks could just as easily buy BK stock that pays no annual dividends and just appreciates year after year without any tax, and then when sold gets cap gains rate.
If you’re making $500,000 a year as a ‘wealthy’ (high income) American, an extra $10,000 of savings a year is peanuts…
Since the average age of death keeps ratcheting up, especially if you don’t smoke, use alcohol to excess, do illicit drugs, you’ll be living to 90 and beyond before long. So you start tapping IRAs at 75. When you croak, your heirs if not your spouse, have to drain it all in ten years. Every penny at their marginal tax rates = likely already on top of their decent salaries as you put them through college as a ‘wealthy American’.
It was noted the bill is ‘revenue neutral’. Just more ‘tax the rich’ whine.
There has been a lot of 3 year periods where the market didn’t go roaring up in any 3 year period - say from age 72 to age 75.
SS full retirement age keeps creeping up , too. For a lot of folks it is age 66 and likely will climb even more.
If you let that money pile up in an IRA, you’ll have even bigger RMDs to worry about and by age 90, if you make it, have to be taking 10% a year from it and more in your 90s. If you make it and your heirs don’t have to drain it in just 10 years.
The government always wins in the end. It doesn’t die.
t.
If you’re making $500,000 a year as a ‘wealthy’ (high income) American, an extra $10,000 of savings a year is peanuts…
Exactly! Those people don’t need any extra charity. They are fine. The school teacher and drywall hanger are the ones who need the help. For some reason, the people who need the help aren’t getting it, and the ones who don’t need help are getting plenty of gravy. I wonder why that is?
SS full retirement age keeps creeping up , too. For a lot of folks it is age 66 and likely will climb even more.
If you were born in 1960 or later, it’s currently 67.
If you were born exactly in 1960, you’re turning 61 sometime this year.
The youngest people eligible for full retirement sometime this year - March 2021 through February 2022 - were born in 1955 or on New Years day 1956. Those born on Jan 2 1956 aren’t eligible until May 2022.
(For Social Security birth dates, Jan 1 is part of the previous year. I have no idea why.)
tele writes,
<<“If you understand “skim rates” you can almost live tax free. But you have to exit the “wage & salary” tax regime as quickly as possible.”>>
Not everyone is willing to live a very low income life in retirement…driving a 16 year old car…probably not that far either…whose hobbies are mainly walking and low cost eating and saving money.
Tele, you need to go back and read that article again. A married couple can earn over $100,000/yr in qualified dividends and capital gains with no Federal income tax liability (assuming that’s their only income – plan ahead.) If you’re wealthy enough to own a mortgage-free home and a paid for automobile, and lucky enough to live in a state with no income tax and low property taxes, a $100,000/yr income is a fortune.
This obviously doesn’t work in New Jersey. And it’s getting less possible in Texas as property taxes rise and you’re paying the additional costs of State gov’t incompetency like the electric grid failures and lack of flood control. But in places like Washington State where they generally use science and arithmetic to inform public policy, it’s easily doable.
intercst
skye:“The school teacher and drywall hanger are the ones who need the help. For some reason, the people who need the help aren’t getting it,”
if you read the article:
"While geared toward wealthy Americans, both the House and Senate retirement packages do contain provisions for the average household, which pulled in about $67,500 in 2020
These include an expansion of the saver’s tax credit, which subsidizes retirement account contributions for people at the low- or middle-income level by giving them a 50 percent government match for contributions up to $2,000. "
That’s a 50% government match ( make that tax payer match)… Five Oh percent…
If you live in many counties in TX, your real estate taxes are frozen at age 65. I’m enjoying ‘senior status’ here in TX now paying about half of what a new owner would pay on my house. Of course, seniors likely have no kids in the school system, but I paid in at full real estate tax for decades before I turned 65.
When I moved here from VA 30 years ago…I found my tax burden to be…EXACTLY the same. Arlington VA had low real estate taxes - other cities were a lot more. VA had income tax and personal property tax on cars. Add them all together and it was the same as my taxes in TX - which had no car annual tax, had no state income tax, but slightly higher sales tax and larger real estate taxes. Within a few percent!
Now my sister in MD pays $12,000 a year in real estate taxes. It goes up every year. No kids in schools. Pays MD state income taxes on similar size house. Pays more to register her car. My real estate taxes in TX? $4000/yr. No income tax. I can’t complain.
Yeah, having a lot of dividend and cap gains for ‘income’ is very nice. Of course, I have a bit of RMDs to pay tax on requires me to pay regular tax rates on it. Didn’t have the opportunity to stash $$$ into a ROTH. Came too late.
t
These include an expansion of the saver’s tax credit, which subsidizes retirement account contributions for people at the low- or middle-income level by giving them a 50 percent government match for contributions up to $2,000. "
That’s a 50% government match ( make that tax payer match)… Five Oh percent…
Great point! If you are low are middle income and make the full contribution of $2K you can get a $1K bonus. But if you are a high earner in say, the 20% tax bracket and make the extra $10K contribution, you save $2K! Twice as much government charity for someone who doesn’t need the help. Is this a great country or what?
syke6 writes,
Great point! If you are low are middle income and make the full contribution of $2K you can get a $1K bonus. But if you are a high earner in say, the 20% tax bracket and make the extra $10K contribution, you save $2K! Twice as much government charity for someone who doesn’t need the help. Is this a great country or what?
The fact that retirement tax credit programs favor the wealthy is only half of it.
Maybe someone can find the link in the Congressional Record, but a few years ago they had a hearing in the Senate Finance Committee on retirement tax credits. The Chairman lamented that "we’ve spent “X” hundreds of billions of dollars in “tax expenditures” on this with little to no improvment in the retirement prospects for the average American. And a lot of the money seems to have been lost to investment fees and admin costs. (i.e. “Wall Street”)
intercst
"promised to sign the legislation.
intercst "
It is an election year.
Howie52
Everything is a “gift” to voters - even when you tax them to supply the gift.
Especially when you do not actually provide taxpayers anything at all.
skye:" If you are low are middle income and make the full contribution of $2K you can get a $1K bonus. But if you are a high earner in say, the 20% tax bracket and make the extra $10K contribution, you save $2K! Twice as much government charity for someone who doesn’t need the help. Is this a great country or what?"
Shall we analyze what you just said.
Warren Buffet lives in his original home. Probably worth $300,000…
Lots of other folks live in houses that much. The ‘average’ new house is now over $4000.
It costs X amount to provide police and fire protection for ‘low and medium’ income folks as it does for Warren Buffet. Hmmmmm… It costs just as much to plow the streets in a snow storm.
It’s irrelevant what his is worth…but…
NOw…the little guy pays little Federal tax to offset what it costs. Pays little state income taxes for the state police…but of course, if you get hit by a drunk driver, or run into a pot hole and wreck the front end of your car - it matters little on how much you pay in state and federal taxes. But the little and medium income folks get the same protection, the same roads, the same weather forecasting and tornado alerts…
So you think Buffet rides on gold plated roads with no potholes because he pays oodles of taxes? Nope…
So… stop the whining.
Those folks making $500,000 a year and paying $100,000 a year in taxes…are doing ‘their fare share’ and don’t get gold plated roads with zero pot holes, no traffic jams and accidents, no drunk or speeding drivers, and instantly plowed roads…they get the same as someone making $30,000 a year…
t.
A married couple can earn over $100,000/yr in qualified dividends and capital gains with no Federal income tax liability (assuming that’s their only income – plan ahead.) If you’re wealthy enough to own a mortgage-free home and a paid for automobile, and lucky enough to live in a state with no income tax and low property taxes, a $100,000/yr income is a fortune.
Using the 4% rule you’d need to have saved at least $2.5 million to retire on an income of $100,000. About 4.5% of American households fall into this category.
I figure that $10 mil is the target for building the perpetual motion wealth machine. At $10 mil you can live on $200,000 a year at a 2% withdrawal rate and will probably leave your heirs with more money than you started with at retirement. Of course it also means you’re a one percenter.
"If you’re wealthy enough to own a mortgage-free home and a paid for automobile, and lucky enough to live in a state with no income tax and low property taxes, a $100,000/yr income is a fortune.
Using the 4% rule you’d need to have saved at least $2.5 million to retire on an income of $100,000. About 4.5% of American households fall into this category."
Once you hit SS eligibility, you don’t even need that much to have a $100,000 a year income.
A professional couple, each having maxed out SS contributions, will be getting $30,000+ a year income at full SS age. Out of that, a good chunk goes to Medicare payments, but you still wind up with probably $25,000 each or $50,000
So to retire with a $100,000 a year income would only require $50,000 a year from their portfolios or $1.5 million at 4%.
If they had any pension income, even less.
It’s nice to have a paid for house/condo, paid for car(s), live in a reasonable tax state. Even get the benefit of ‘frozen real estate taxes’.
Texas
Real estate taxes on 4 bedroom house with pool = $4000/yr (frozen for life now - won’t go up)
State income tax - zero
Insurance for house/two cars - $2500/yr
sales tax 8.25% but not on food , medicine, medical supplies
HOA - $170/yr
t.
… you save $2K
This isn’t really correct. You only defer the $2k. When you withdraw from your 401k, you will pay taxes on that $10k+earnings.
This isn’t really correct.
You miss the point.
The poorer person, who arguably needs more help, gets half the benefit of the better-off person, who arguably needs less help.
Doesn’t really matter if the benefit is tax savings or tax deferral.
—Peter