The Roth 401k might be a better way to maximize your 401k contributions if you anticipate
being in a higher tax bracket at retirement.
The problem for this option, however, is I may have to pay more federal income taxes if
I am in a higher tax bracket at that time.
The hope being that
you are in a higher tax bracket at retirement.
There is a good possibility that I will
be in a higher tax bracket at retirement, so I'll pay the taxes now.
If you're concerned about taxes going up or
being in a higher tax bracket at retirement, then a Roth IRA can make sense as a complement to your 401 (k).
Not exact matches
State
taxes —
at least as far as the top
brackets go —
are among the
highest in the country.
And now that our careers
are going, we
're looking
at maxing out two traditional 401Ks and two Roth IRAs this year, and we see the Roth IRA portion as a small hedge against rising future
tax rates (or what I think
is a bit more likely to happen —
tax brackets that don't keep pace with inflation, so keep sucking
in more and more people to
higher brackets).
Thus you may still
be working
at age 59 1/2,
in a
high tax bracket, and yet desire to take distributions from your ROTH Ira.
An upwardly mobile person making $ 100K today
at a young age (
in the 25 %
bracket) will most likely
be a
higher tax bracket when they retire assuming they max out their retirement savings vehicles.
However, it
's important to note that you will pay income
taxes on 401k withdrawals when you reach retirement age,
at which point you could
be in a
higher tax bracket.
But after considering the impact of
taxes, the taxable - equivalent yield (the return required on a taxable bond to make it equal to the return of a
tax - exempt bond) of municipal bonds
was a full percentage point
higher,
at 3.75 %, for investors
in the
highest (37 %)
tax bracket.
There
's a hybrid model promised which should answer questions on that score, but meanwhile company car drivers will
be looking
at a top - rate 37 per cent Benefit -
in - Kind
bracket and an associated annual
tax bill that
's knocking on the door of # 25k — assuming users
are in the
highest «additional rate» income
tax band.
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The K900 WILL SIT ON DEALER LOTS AND
IN SHOWROOMS FOR QUITE SOME TIME before any takers actually lease one.The Equus, as nice a car it it is, sits in showrooms for a year or more... having sold HYUNDAI for 15 years and having gone thru all of their growth with them, they are a fine automobile and company as is KIA since the Hyundai purchase of them about a decade ago.I do feel that delving into this high end luxury car arena is a mistake for both Hyundai and Kia.They should have spent money and added a power passenger seat to the Sonata and they would have sold twice as many as they did, and that's no joke.There are not enough people in that tax bracket that will spend 60 + grand on any KIA.The dealership I was at for 15 years selling Hyundai recently gave up the EQUUS LINE FOR LACK OF SALES.I fear that eventually KIA dealers will do the same with the K9
IN SHOWROOMS FOR QUITE SOME TIME before any takers actually lease one.The Equus, as nice a car it it
is, sits
in showrooms for a year or more... having sold HYUNDAI for 15 years and having gone thru all of their growth with them, they are a fine automobile and company as is KIA since the Hyundai purchase of them about a decade ago.I do feel that delving into this high end luxury car arena is a mistake for both Hyundai and Kia.They should have spent money and added a power passenger seat to the Sonata and they would have sold twice as many as they did, and that's no joke.There are not enough people in that tax bracket that will spend 60 + grand on any KIA.The dealership I was at for 15 years selling Hyundai recently gave up the EQUUS LINE FOR LACK OF SALES.I fear that eventually KIA dealers will do the same with the K9
in showrooms for a year or more... having sold HYUNDAI for 15 years and having gone thru all of their growth with them, they
are a fine automobile and company as
is KIA since the Hyundai purchase of them about a decade ago.I do feel that delving into this
high end luxury car arena
is a mistake for both Hyundai and Kia.They should have spent money and added a power passenger seat to the Sonata and they would have sold twice as many as they did, and that
's no joke.There
are not enough people
in that tax bracket that will spend 60 + grand on any KIA.The dealership I was at for 15 years selling Hyundai recently gave up the EQUUS LINE FOR LACK OF SALES.I fear that eventually KIA dealers will do the same with the K9
in that
tax bracket that will spend 60 + grand on any KIA.The dealership I
was at for 15 years selling Hyundai recently gave up the EQUUS LINE FOR LACK OF SALES.I fear that eventually KIA dealers will do the same with the K900
You'll also gain some valuable
tax diversification
in retirement: Because Roth IRA distributions aren't included
in your income
in retirement, pulling money from that pot
in addition to a traditional IRA or 401 (k) could allow you to keep your income
in a lower
tax bracket, potentially reducing the
taxes on your Social Security benefits and lowering Medicare premiums that increase
at higher income levels.
According to this article
at TaxTips.ca,
in that top
tax bracket the same person would pay just 26.76 % on capital gains, although I
was shocked to learn that the rate on eligible Canadian dividends
is a rather stiff 39.34 % (
in the
highest tax bracket).
Here
's a simple example for an Ontario investor
in the
highest tax bracket, where capital gains
are taxed at 23.20 %, Canadian dividends
at 29.52 %, and foreign income
at 46.41 %:
But after considering the impact of
taxes, the taxable - equivalent yield (the return required on a taxable bond to make it equal to the return of a
tax - exempt bond) of municipal bonds
was a full percentage point
higher,
at 3.75 %, for investors
in the
highest (37 %)
tax bracket.
The 10 percent, 15 percent, 25 percent, 28 percent, 33 percent and 35 percent
tax brackets all kick
in at income levels that
are more than 4 percent
higher than they
were in 2009.
The other thing to do
is begin to even out the amount
in your RRSPs if there
's a big disparity — that way when you begin withdrawing from your RRSPs
at a standard 4 % withdrawal rate
in retirement, the
higher earner won't end up with an outsized RRSP and get bumped up into a
higher tax bracket, costing the couple lots of money
in taxes.
The reason
is, Iowa has just one
tax bracket regardless of filing status, so two people filing a joint return will
be taxed on their combined incomes
at a
high point
in Iowa's highly progressive
tax bracket.
What
's more,
in her case the RRSP
's tax deferral might
be insignificant because she
is already
in the lowest
tax bracket (29 %) and will pay
tax on future withdrawals
at the same rate, or even a
higher rate, depending on the amount she takes out
in a given year, says Heath.
If you
're not going to retire for
at least a decade, and you
are in a fairly
high tax bracket, itâ's hard to argue with the
tax rebate that goes with contributing to an RRSP.
That
is the rate
at the
highest tax bracket you
are in.
Suppose you
're currently
in the
highest tax bracket, so a Roth conversion this year would
be taxed at 35 %.
This means that dividend income will
be taxed at a lower rate than the same amount of interest income (investors
in the
highest tax bracket pay
tax of around 25 % on dividends, compared to 50 % on interest income).
So another idea
is to forgo the immediate deduction and claim it years later when the money
is withdrawn to offset the
tax at that time, then you don't have to worry about
being in the
higher tax bracket (except for the income earned
in the meantime).
RRSPs
are no brainer if you
're in the
highest tax bracket (unless you have a defined benefit pension) but things get murkier once you contribute enough to bring your taxable income down to the
bracket threshhold and / or enought to start moving into the next
tax bracket at retirement.
The
tax situation
is also difficult to assess since there
are so many variables but the general rule
is if you expect you
are in a
higher tax bracket now than you will
be at retirement, then you
are better off going with the standard 401 (k).
I
was wondering if it
is a valid retirement strategy [after retiring] to withdraw the first couple lower
tax brackets worth of income from the taxable traditional 401k thus taking advantage of lower rates, and then switching over to withdrawing from the
tax - free Roth 401k for income that would normally
be in the
higher brackets and thus
taxed at a
higher rate.
Tax deductions today when your income and tax bracket are high are beneficial if you can take withdrawals in the future at a lower income and tax brack
Tax deductions today when your income and
tax bracket are high are beneficial if you can take withdrawals in the future at a lower income and tax brack
tax bracket are high are beneficial if you can take withdrawals
in the future
at a lower income and
tax brack
tax bracket.
So, for folks already
in the
high income
tax bracket, the dividends
are taxed at a very
high rate.
I don't want to liquidate these investments, as we
were in the
highest marginal
tax bracket in 2017 and any capital gains would have
been taxed at 23.9 %.
For example, if withdrawals from
tax - deferred accounts
are getting close to pushing you into a
higher tax bracket in a given year, you can tap a Roth account for
tax - free income or sell appreciated assets
in taxable accounts for a gain that will
be taxed at the lower long - term capital gains rate.
A
high - income individual might
be in the top
tax bracket, while a school or charity might pay no
tax at all.
Conversely, if you think you'll
be in a lower
bracket, you should opt for the traditional IRA, taking a
tax deduction
at your
high tax rate today while knowing you'll pull those dollars out of your IRA
at a lower
tax rate once you
're retired.
To
be clear, the $ 1,000
in additional credit for each child will
be more than the benefit from the personal exemption they would have
been entitled to for many taxpayers, especially for middle - income households
in the lower
tax brackets and people whose incomes
were formerly too
high to use the credit
at all.
So, if you
're in a
higher tax bracket in 2019 than you will
be in the future, that final RRSP deduction, albeit
at a lower income than your working years, may still make sense.
Note: If you expect to
be in a lower
tax bracket in retirement, paying
taxes today
at a potentially
higher rate may not make sense.
On the other hand, if you expect to
be in a lower
tax bracket in retirement, paying
taxes today
at a potentially
higher rate may not make sense.
Even though you'll have to pay
taxes when you convert to a Roth IRA, these
taxes may
be at a lower rate than you'll face when you
're older and
in a potentially
higher tax bracket.
Since REIT dividends get
taxed at the ordinary income level, when you
are in lower
tax brackets the fat yields easily make up for the
taxes you pay, but as one climbs into
higher tax brackets,
taxes can start taking a pretty large bite out of those dividends.
Capital gains
are not only
taxed at a lower rate
in the
highest tax brackets, but investors can also control when to take them — dividends, on the other hand,
are taxable
in the year they
're paid, even if you reinvest them.
«Sometimes I encourage people to bank capital losses, even if they have capital gains, because they
're going to
be in a
higher tax bracket in the future,» says Jason Heath, a fee - only certified financial planner and income
tax professional
at Objective Financial Partners
in Toronto.
But for those who
are in the
higher tax brackets, it might make sense to look
at debt mutual funds for your asset allocation.
She
is in a
high tax bracket so it makes sense for her to put into the RRSP, but with 36k worth of room
in her TFSA it would
be nice to max it out to have money growing
tax free and have access to it
at any point.
So even when you
're in the accumulation phase, and paying dividend and capital gains
taxes at the
highest bracket, this
is still less money than paying ordinary income rates
at your lower (retired)
tax bracket.
If you have a spouse, partner or kids
in a lower
tax bracket than you, consider a prescribed rate loan strategy whereby the
higher - income spouse or partner loans funds to the lower - income spouse or partner to invest
at the record low prescribed rate, which
is at one per cent until
at least March 31.
And those
in the
highest tax brackets are almost certainly better off contributing to RRSPs
at the expense of TFSAs.