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Author: snoopy33 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75658  
Subject: 401K Success Tax Date: 2/20/1998 6:58 PM
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Hello there,

On my quest to become Foolish, I've been thinking
about the Fed's 'Success Taxes' ...

Has this been discussed here with possible
approaches to Foolish 401K/IRA planning
with regards to minimizing/eliminating the
success tax?

For those of you not familiar with the tax,
it affects people in two ways:

1. It penalizes people who through the use
of tax favorable plans (such as a 401K)
accumulate wealth beyond what the
government thinks is reasonably required
for a comfortable retirement.

Under current legislation, withdrawls and
payments from all pension and retirement
accounts that exceed $160,000 per year
(this is the 1997 level indexed for inflation)
suffer a 15% excess-distribution tax.

2. The second way the law affects retirees
is the excess-accumulation tax where
it becomes effective when a retiree dies
with an account the government deems
'too much money'. Currently, it's
approximately $1.2 million for a 65-year
old and $1 million for a 75-year old.

Amounts over this will result in a 15%
tax hit. This only affects sigle people
as excess-accumulation tax can be
deferred if assets are transferred to a
surviving spouse.



Any comments?


snoopy33@rocketmail.com
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Author: beagmaster Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1882 of 75658
Subject: Re: 401K Success Tax Date: 2/20/1998 9:05 PM
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Distressing if not particularly surprising. I assume the stragegy is to get near the maximum, hope future returns don't get you too far ahead of the indexing and hope this and the mriad other examples of class warfare in the tax code get killed with an axe. I'm years away from this mattering, myself, but am interested to know what you and others think.

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Author: TiggerToo One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1883 of 75658
Subject: Re: 401K Success Tax Date: 2/20/1998 9:38 PM
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1. It penalizes people who through the use
of tax favorable plans (such as a 401K)
accumulate wealth beyond what the
government thinks is reasonably required
for a comfortable retirement.
Under current legislation, withdrawls and
payments from all pension and retirement
accounts that exceed $160,000 per year
(this is the 1997 level indexed for inflation)
suffer a 15% excess-distribution tax.

2. The second way the law affects retirees
is the excess-accumulation tax where
it becomes effective when a retiree dies
with an account the government deems
'too much money'. Currently, it's
approximately $1.2 million for a 65-year
old and $1 million for a 75-year old.
Amounts over this will result in a 15%
tax hit. This only affects sigle people
as excess-accumulation tax can be
deferred if assets are transferred to a
surviving spouse.

You may want to take a look at the changes to the law for 1998. I think the limits have been eleminated, and I would not be supprised to find the inheritance tax eleminated in full some time in the not too distant future. Just pray that the Republicans keep hold of congress.

TTFN...TiggerToo

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1889 of 75658
Subject: Re: 401K Success Tax Date: 2/21/1998 11:52 AM
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Greetings, Snoopy33, and welcome.

<<On my quest to become Foolish, I've been thinking
about the Fed's 'Success Taxes' ...

Has this been discussed here with possible
approaches to Foolish 401K/IRA planning
with regards to minimizing/eliminating the
success tax?>>

The "success" tax was a 15% excise tax on what used to be called "excess" distributions from or accumulations of retirement monies in IRAs or plans. Those taxes were repealed in the Taxpayer Relief Act of 1997 and are no longer a planning issue or concern.

Regards…..Pixy


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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1891 of 75658
Subject: Re: 401K Success Tax Date: 2/21/1998 11:55 AM
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Subject: Re: 401K Success Tax
Author: TiggerToo Date: 2/20/98 9:38:43 PM (ET)

TiggerToo,

<<You may want to take a look at the changes to the law for 1998. I think the limits have been eleminated, and I would not be supprised to find the inheritance tax eleminated in full some time in the not too distant future. Just pray that the Republicans keep hold of congress.>>

While the "success" tax has gone by the boards, don't hold your breath on the estate tax. The exclusion limits are increasing on the latter so they move from $600K to $1M by 2006, but that's no big deal. Most of the increase occurs after 2003, and the amount still won't be adjusted for inflation. And there's no huge swell in Congress to amend this exclusion further, either.

Regards…..Pixy



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Author: TiggerToo One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1899 of 75658
Subject: Re: 401K Success Tax Date: 2/21/1998 8:18 PM
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While the "success" tax has gone by the boards, don't hold your breath
on the estate tax. The exclusion limits are increasing on the latter so
they move from $600K to $1M by 2006, but that's no big deal. Most of the
increase occurs after 2003, and the amount still won't be adjusted for
inflation. And there's no huge swell in Congress to amend this exclusion
further, either.

I think that maybe I was doing some wishful thinking on this. Although the amount raised by the estate tax is only $40 Billion (did I say "only"), 90+% comes from estates under $3=5 million, so that the super rich never get taxed, and only we poor slobs that eke out a living and save and take risks do get stuck with the tax.

Louis Ruckheiser (sp) and CNBC have been having discussions with congressmen and other politicos, and while nothing may happen real soon, the environment seems to be getting better for some sort of movement. As I said, maybe I was doing some wishful thinking.

Thanks,

TTFN...TiggerToo

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Author: snoopy33 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1908 of 75658
Subject: Re: 401K Success Tax Date: 2/22/1998 4:25 PM
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Hello,

Thanks to those who updated me on the
status of the 'Success Tax'. The help
is always appreciated.





snoopy33

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Author: snoopy33 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1945 of 75658
Subject: Re: 401K Success Tax Date: 2/24/1998 12:58 PM
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Hello again,

Earlier I asked:

<<On my quest to become Foolish, I've been thinking
about the Fed's 'Success Taxes' ...

Has this been discussed here with possible
approaches to Foolish 401K/IRA planning
with regards to minimizing/eliminating the
success tax?>>

TMFPixy was kind enough to reply:

The "success" tax was a 15% excise tax on what used to be called "excess" distributions
from or accumulations of retirement monies in IRAs or plans. Those taxes were repealed in
the Taxpayer Relief Act of 1997 and are no longer a planning issue or concern.

But correct me if I'm wrong here but I recently read:

------------------------------------------------------
(http://biz.yahoo.com/taxes/xsdistr.html)

The limits on how much money you can withdraw from your retirement plan without incurring a
penalty have been suspended for 1997, 1998 and 1999. For several years there has been a limit on the
amount of money you can withdraw each year from your retirement plan(s) without getting hit with
an "excess distribution" penalty of 15% on the excess amount. For 1996 the limit is $155,000 for
IRA distributions and non-lump sum distributions ($775,000 for qualifying lump-sum
distributions), beyond which you'll pay the penalty.

In the last year or so, however, some taxpayers whose plan assets were invested in stocks have seen a
sharp increase in the amounts accumulated in their retirement accounts, causing many people to
potentially be subject to excess distribution penalties when they withdraw the minimum required
distribution. The suspension of the excess distribution penalty will allow taxpayers to withdraw
funds for the next three years in sufficient amounts to allow reduction of the retirement account
balances to a level where penalty imposition will be avoidable when the penalty is reinstated in the
year 2000.

------------------------------------------------------

Has the excess distribution tax been eliminated or has
it only been 'put on hold' for the next three years and
will resume again in the year 2000?

Since I'm still a fair number of years of retiring,
I'm interested in this.

Thanks in advance

snoopy33



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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1950 of 75658
Subject: Re: 401K Success Tax Date: 2/24/1998 5:44 PM
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Snoopy 33,

<<Has the excess distribution tax been eliminated or has it only been 'put on hold' for the next three years and will resume again in the year 2000?>>

The article you were reading was based on 1996 law and is now badly out of date. The Taxpayer Relief Act of 1997 totally repealed the excess distributions and excess accumulations excise tax.

Regards…….Pixy



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