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URL:  https://boards.fool.com/twocybers-thanks-for-the-list-of-forbidden-ira-29003949.aspx

Subject:  Re: Retirement savings options for high-income e Date:  1/5/2011  3:24 AM
Author:  madbrain Number:  68076 of 102478

TwoCybers,

Thanks for the list of forbidden IRA investments.

All tax deferred IRA funds are taxed under current law as ordinary income.


Yes, but I wasn't only referring to the tax-deferred plans. If you also consider Roth 401k and Roth IRA options, I don't see the benefit of having a taxable account, unless you are already maxing out all the pre-tax and Roth plans already. I don't see how the Roth could end up with worse tax treatment than taxable accounts.

Last time I checked capital gains and dividends for most companies were taxed at lower levels than ordinary income.


At the federal level yes, but some states don't have special rates for capitals or dividends. In California this would mean a 9.55% state income tax rate currently.


And marginal income dollars can be taxed at rates in the range of 50% for those of us who are over 65. That happens since the portion of Social Security subject to tax increases with income.


Why over 65 ? I thought you could start drawing SS retirement at age 62 ?
I have a slightly difficult time figuring out what situation would bring you to a 50% marginal tax rate. I just glanced over publication 915. It appears that in the worst-case scenario, 85% of the social security benefits amount is taxable. The maximum monthly benefit for a single person is $2346 or $28152 annually. 85% of that would be $23929 per year taxable income.
Using the least-favorable tax table for single in 2010, this yields a federal tax of $3170.63. This would be 13.2% of the taxable benefit amount, and 11.2% of the total social security benefits received. I believe that's the highest taxation rate possible.

Even if you then decide to "assign" all that tax to the dollars in your top income over your SS benefits, that income would have to get to its own marginal tax rate of 36.8% in order for your marginal tax to reach 50%. But the current marginal tax only goes to 35%. So I don't see how you could exceed 48.2%. And you would have to have that rate on the top $23929 of income over $373650, ie. your income would have to exceed $397,579.

But I don't think it would be fair to assign the whole tax on your SS benefits only on your top income. It probably should be spread out. Especially if you are talking about other income that's 13x the benefit amount, the marginal tax rate doesn't mean very much anyway.
The numbers would change if there is state tax .
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