UnThreaded | Threaded | Whole Thread (10) | Ignore Thread Prev Thread | Next Thread
Author: bigcaat Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75821  
Subject: Trad. v. SEP? Date: 4/2/2014 1:28 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
I'm really cheesed. Man, they make it so it's impossible to get ahead. We just finished our taxes and got reamed. Why? Because we were trying to save many instead of spending it. But if we would have spent it on deductions, we would have gotten things we wanted for the same as we are handing over to the IRS.

The other thing that screwed us was that because of the tax change, we were only able to claim $700 for medical even though we spent almost $7,000!!! What bullspit!!! They are actually making it so the middle class CANNOT get ahead.

What also makes me mad is that I should have asked if we could have opened up a traditional IRA and contributed before the 15th, could we have used that deduction to offset our payments. We have Roths but not traditionals. But it's been filed, too late now for this year.

Which brings me to my question for next year. I run my own business my husband has a W2 job. We don't have much extra at the end of the month and haven't since the crash. I was just in the past couple of weeks thinking of trying to put an auto pay of $50 to each of our Roths again, which we haven't been able to do for a while.

Since I am not maxing out our Roths, would it be advisable to get a traditional or a SEP anyway and just split some of those payments so that we would have some extra tax write offs? (Even though we have now determined if there is anything deductible and I want it in the slightest way, we will be buying it.) :-/

And if I should get a tax shelter IRA, which should it be? Trad or SEP? I did notice something about income restrictions for taking deductions for a traditional.

Any input would be greatly appreciated. Much thanks in advance,
Caat
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74686 of 75821
Subject: Re: Trad. v. SEP? Date: 4/2/2014 8:18 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 6
I'm really cheesed. Man, they make it so it's impossible to get ahead. We just finished our taxes and got reamed. Why? Because we were trying to save many instead of spending it. But if we would have spent it on deductions, we would have gotten things we wanted for the same as we are handing over to the IRS.

Probably not. Even if you had spent that money and got some sort of deduction, you'd only be getting about 28 cents back for every dollar spent, so you'd still be out that 72 cents. By not spending, you still end up with more money in your pocket even after paying the taxes.

Since I am not maxing out our Roths, would it be advisable to get a traditional or a SEP anyway and just split some of those payments so that we would have some extra tax write offs? (Even though we have now determined if there is anything deductible and I want it in the slightest way, we will be buying it.) :-/

And if I should get a tax shelter IRA, which should it be? Trad or SEP? I did notice something about income restrictions for taking deductions for a traditional.


I'd actually try to be maxing out the Roth first even though it is after-tax dollars because the money comes out tax-free on the other side. If you think you will be in the same or higher tax bracket, then the Roth makes more sense than a deductible Traditional IRA. If you think you will be in a lower tax bracket, then the Traditional IRA makes more sense.

However, if you are self-employed, I think you are much better off with a self-employed type of retirement account than a Traditional IRA because you can put so much more money away. DH has a solo 401k, and I am able to put his own $23k ($17,500 contribution plus $5500 catch-up contribution), but I can also then put an employer-match or profit-sharing amount in as well, so I save a ton more for him than I can for me as a W2 employee. Compare that to the $5500 plus $1000 catch-up contribution for either a Traditional or Roth IRA, and you're much better off in some sort of self-employed plan.

If you can find the money to put into a self-employed IRA, this is a great way to go. I actually put aside money every 2 weeks, which is my bill-paying cycle, and then see how much DH can put into his solo 401k when I do the taxes. That's also when I figure out if we can contribute to a Roth based on our income for the year because although we are over the limits in most years, there are some years (like this past one) where we can contribute, and I find money for that.

I like the explanation of the various self-employed plans that are available on the Fidelity website here https://www.fidelity.com/retirement-ira/small-business/compa... although you can have these plans at any broker.

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74687 of 75821
Subject: Re: Trad. v. SEP? Date: 4/2/2014 10:17 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
>>> But if we would have spent it on deductions, we would have gotten things we wanted for the same as we are handing over to the IRS. <<<

Reread Two Gifts' post

>>>>The other thing that screwed us was that because of the tax change, we were only able to claim $700 for medical even though we spent almost $7,000!!! What bullspit!!! They are actually making it so the middle class CANNOT get ahead. <<<

Bwah, wah, wah... Most Americans don't itemize and can't deduct anything. Be glad you got well.


>>>>I should have asked if we could have opened up a traditional IRA and contributed before the 15th<<<<

Another DIYer stumps their toe, OTOH the lessons you buy are the ones you remember.

I like SEP-IRAs. I've had one since George W. Bush was a stumbling drunk.

Print the post Back To Top
Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74688 of 75821
Subject: Re: Trad. v. SEP? Date: 4/2/2014 10:27 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 7
Everyone works with the same rules. You may want to look at your spending before you blame your problems on your taxes.

An IRA is a retirement plan, not a tax shelter. You can pay the taxman now or later, your choice.

You also need to read before filing. You could have filed for an extension and contributed to a SEP for 2013 anytime before you filed your return.

Your ignorance is the issue.

Print the post Back To Top
Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74689 of 75821
Subject: Re: Trad. v. SEP? Date: 4/2/2014 12:21 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
The other thing that screwed us was that because of the tax change, we were only able to claim $700 for medical even though we spent almost $7,000!!!

I'll trade you medical expenses. My health insurance alone was over $15k last year. And then I still have a $6k deductible - which we met.

What also makes me mad is that I should have asked if we could have opened up a traditional IRA and contributed before the 15th, could we have used that deduction to offset our payments. We have Roths but not traditionals. But it's been filed, too late now for this year.

No, it's not. But you don't have much time. You can recharacterize your Roth contributions into a Traditional IRA and then take any allowable deduction on an amended return. I'm sure you have at least until April 15 to recharacterize. Of course, you want to make sure that you will actually get a deduction for Traditional IRA contributions before you do this. And if you didn't contribute the max to the Roth IRAs, you can top up the traditional IRAs with the balance by April 15.

And if I should get a tax shelter IRA, which should it be? Trad or SEP?

Your husband is not self employed, so his can't do a SEP. He'd have to qualify for a deductible traditional IRA to get a deduction. You are self employed, so you can choose either. If your income is too high for a deductible traditional IRA, then you'd need to go the SEP route. However, if your husband does not have a retirement plan at work, choosing a SEP for yourself would put an income restriction on his traditional IRA.

You'll need to spend some time with IRS publication 590 or a tax professional to hash that decision out.

--Peter

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: bigcaat Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74690 of 75821
Subject: Re: Trad. v. SEP? Date: 4/2/2014 6:25 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
<<Probably not. Even if you had spent that money and got some sort of deduction, you'd only be getting about 28 cents back for every dollar spent, so you'd still be out that 72 cents. By not spending, you still end up with more money in your pocket even after paying the taxes.>>

Thank you, 2gifts for the explanation, (an explanation without insulting me, unlike others, where I'm not quite sure how they think that helps anyone on anyway, except to try to boost their own false view of themselves, by insulting other people who are trying to learn.)

We are so cash poor right now, we would not be able to max out our Roths, but I'm hoping that things might turn around for us this year and to have what we need in place would not be a bad thing. I will also look at the fidelity explanations, and consider the SEP for myself.

****

<<I'll trade you medical expenses. My health insurance alone was over $15k last year. And then I still have a $6k deductible - which we met. >>

Yes, the 7k was just our co-pays. That didn't include what we paid for our insurance.

If your income is too high for a deductible traditional IRA, then you'd need to go the SEP route. However, if your husband does not have a retirement plan at work, choosing a SEP for yourself would put an income restriction on his traditional IRA.

This answers one of my questions. Thank you.

Caat

****
To the others, who think it's at all useful to fold advice into personal insults, it is not. I'm not sure where you learned that it's acceptable or helpful to call people names who are asking legitimate questions, trying to improve their situation.

Excuse the hell out of me that we pretty much live paycheck to paycheck and it's upsetting to me that we are this year not able to take the same deductions that we were last year because of change in tax laws -- according to our CPA. And, excuse the hell out of me if I don't understand how everything works in the tax world. I must be the only one, since tax code is clearly so simple a pig could do it, right?

Of course, if I did, I wouldn't be here needing to ask such ignorant questions now, would I? (Oh, I'm sorry, my questions aren't ignorant, I'M ignorant. I have to remember that.) The next time someone asks my advice to legitimately try to learn and improve their situation, I will make sure to remember, "Call them names, hurt their feelings, and tell them what idiots and whiners they are because they don't know what I know." That will certainly work. And what a lovely example to pass down to future generations.

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74691 of 75821
Subject: Re: Trad. v. SEP? Date: 4/2/2014 7:15 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 9
To the others, who think it's at all useful to fold advice into personal insults, it is not. I'm not sure where you learned that it's acceptable or helpful to call people names who are asking legitimate questions, trying to improve their situation.

Caat - You did drag an awful lot of baggage into the discussion. I'm used to dealing with frustrated taxpayers - that's my actual job. So I do my best to look past the baggage and frustration and try to find some humor and/or actual advice.

I do suggest you try to tone down your posts to get more actual ideas (or explanations) and fewer people reacting in kind.

--Peter

Print the post Back To Top
Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74692 of 75821
Subject: Re: Trad. v. SEP? Date: 4/2/2014 7:23 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 6
Caat - You did drag an awful lot of baggage into the discussion. I'm used to dealing with frustrated taxpayers - that's my actual job. So I do my best to look past the baggage and frustration and try to find some humor and/or actual advice.

I do suggest you try to tone down your posts to get more actual ideas (or explanations) and fewer people reacting in kind.


It's not really that hard to see that someone is just frustrated and is wanting a bit of compassion along with answers to questions. The personal attacks added nothing constructive to the thread, and only served to compound the frustration. The answers could have easily been composed without the personal attacks, as two were.

IP

Print the post Back To Top
Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74694 of 75821
Subject: Re: Trad. v. SEP? Date: 4/3/2014 12:00 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 17
You've raised several points. Let me address them as you've raised them.

...We just finished our taxes and got reamed. Why? Because we were trying to save many instead of spending it. But if we would have spent it on deductions, we would have gotten things we wanted for the same as we are handing over to the IRS.

You cannot make money through consumption spending. The only partial benefit you can achieve through spending is if the spending is on something you'd be spending on anyway (such as property taxes on property you hold to meet your living or investment needs) and this spending is deductible on your tax return. But spending just for a deduction means that you will reduce your tax liability by your marginal tax rate times the expense, but the rest of the expense is lost. So if you buy an unneeded widget for $100 that is tax deductible and your marginal tax rate (Fed + State) is 30%, you will reduce your tax bill by $30 but will have wasted $70. If marginal tax rates exceeded 100%, this kind of strategy would make sense.

The other thing that screwed us was that because of the tax change, we were only able to claim $700 for medical even though we spent almost $7,000!!! What bullspit!!! They are actually making it so the middle class CANNOT get ahead.

I assume you're speaking of the Medical Expense itemized deduction, that for those under 65 has gone this year from a threshold of 7.5% to 10% of AGI. In 2016, this will also affect those age 65 and older. If so, then yes, this deduction has increased. I'm not sure, but this change in the tax code may have been one of the ways Congress raises money to pay for the ACA. And frankly, I agree with you that this will disproportionately affect lower income individuals more than high income individuals under 65.

What also makes me mad is that I should have asked if we could have opened up a traditional IRA and contributed before the 15th, could we have used that deduction to offset our payments. We have Roths but not traditionals. But it's been filed, too late now for this year.

As others have mentioned, either you or your husband may make a deductible traditional IRA (TIRA) contribution depending on a couple of factors. If your husband participates in a retirement plan through his work and your Adjusted Gross Income (AGI) is under $95,000, then both of your TIRA contributions will be fully deductible. If your AGI is between $95,000 and $115,000, then he can deduct only part of it. If over $115,000, then he can still make a TIRA contribution, but it will not be deductible. If your AGI is under $178,000, then that part of the TIRA contribution that is not deductible should instead be made to a Roth IRA (RIRA), which begins phasing out at $178,000 and then is fully phased out by an AGI of $188,000 for him and you.

For your deductible TIRA contribution....if your husband participates in a retirement plan at work and you have not made a self-employment retirement plan contribution for the year, then you can make a deductible TIRA contribution up to an AGI of $178,000. If you have made a SE retirement plan contribution, then you too would be limited to an AGI of $95,000 to 115,000, beyond which your TIRA contribution would not be deductible.

You have until April 15 to make this contribution for 2013.

If your husband does not have a retirement plan he or his employer contributes to at his work, then there is no AGI limit for making deductible contributions to his and your TIRA, as long as you have earned income that at least equals your contributions.

If he has a retirement plan at work then you can make a deductible TIRA contribution using the 'spousal IRA' rule, up to an AGI of $178,000, phased out by an AGI of $188,000.

As to a self-employed retirement plan, you can set this up and make contributions to it, with the amount based on your net self employement income minus 1/2 of your self employment tax. For a SEP IRA, the max contribution you can make is 20% of (net SE income - 1/2 SE Tax). This contribution can be made up until Oct 15 of the next year. And the SEP is always deductible to you on your form 1040.

If you wish to contribute more to the SE retirement plan, you can set up a Solo-401(k), to which you make a max contribution of $51,000 or if you don't want the work of a qualified plan (which the solo-401(k) is), you could set up a SIMPLE IRA, to which you would likely be able to contribute more than to a SEP IRA.

But contributing to your IRAs and a SE retirement plan is not an either-or....you may contribute to both.

And as another here mentioned, retirement plans should not be held simply because they are 'tax shelters'...they should be held because you need to save for your retirement.

I'm reading in between the lines, but it sounds like you're put off because you have a significant tax bill this year. If so, this likely means you're making more income this year than you have in the past. Personally, I've seen this many times, particularly with large unexpected bonuses. Let me offer you this.....taxes are the consequences of making more money. You cannot spend away these additional taxes....you just pay them. If writing checks to the IRS annoys you, then increase your husbands withholdings at work. Yes, absolutely make contributions to deductible retirement plans. But spending just to deduct will net reduce your income and you'll be financially the worse for it.

BruceM
Author: "IRA: A Quick Reference Guide"

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: ChurchyLaFemme Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74703 of 75821
Subject: Re: Trad. v. SEP? Date: 4/4/2014 2:05 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
I'm really cheesed. Man, they make it so it's impossible to get ahead. We just finished our taxes and got reamed. Why? Because we were trying to save many instead of spending it. But if we would have spent it on deductions, we would have gotten things we wanted for the same as we are handing over to the IRS.

As others have said, spending won't really help your tax situation. At best, you're spending dollars to save cents. At worst, you're just wasting money.

The other thing that screwed us was that because of the tax change, we were only able to claim $700 for medical even though we spent almost $7,000!!! What bullspit!!! They are actually making it so the middle class CANNOT get ahead.

Sorry, but I have no sympathy as we got caught in the same situation (our outlay was a bit over $6K). In our case, it was at least partly my own fault for withdrawing too much from the IRA, which put us into the 25% bracket. I'm not sure why I had such a brain fart that I would withdraw enough to put us into a higher bracket, but it happened. It wasn't necessary as I could have waited until after 1/1/2014 to tranfer the money. It's a mistake that won't happen again. OTOH, in about 3 years, I'm subject to the RMD from the IRA, so our tax bracket may no longer have the element of choice.

What makes our situation worse is that since we're both over 65, we're still allowed the deduction if the medical expenses exceed 7.5% of income rather than the 10% for everybody else. Oh well, that's good through tax year 2016.

Damn! I really effed up in 2013.

Churchy

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
UnThreaded | Threaded | Whole Thread (10) | Ignore Thread Prev Thread | Next Thread
Advertisement