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Author: TMFExRO Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121585  
Subject: Re: We're getting pounded Date: 12/10/2000 5:43 PM
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I don't mean to sound like I have a chip on my shoulder - I would just like advice - not judgement.
Thanks (maybe I got this way after getting bashed on the LBYM board for being one of the “ whining, uncaring wealthy” ;)


We try not to bash here in Taxland.

You asked about the 401(k) limits for 2001. They will remain at $10,500.

You also asked about tax-exempts. Typically such bonds pay a lower rate of interest than taxable bonds, and historically the net returns on bonds have been less than that on stocks. I mention all this as a prelude to suggesting that your tax goal in investments should be to pay more tax, not less. The more money you make, the more tax you pay.

Choosing tax-free investments will not reduce your current taxable income. It will reduce your future taxable income by reducing your investment return. To figure out whether you'll have more money after tax from investment A, which is tax-exempt, and investment B, which is not, reduce investment B's expected return by the tax hit, and then compare the two. Example: assuming the 31% Federal bracket, a 10% taxable yield will be a 6.9% after-tax yield. (This ignores state taxes.)

TMF ExRO
Phil Marti
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