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Guest #1Stunner

President Biden proposing a large Capital Gains Tax hike on the Wealthy

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1 hour ago, SDSUfan said:

Why would it be a positive?  Instead of selling, the choice may be to simply hang on to property and rent it.  I've got two properties on the market right now.  Both generate nice positive cash flow income for me but  as I get closer to retirement, the trouble managing isn't worth it.  If the Democrats are going to take that big of a chunk I'll just hang on to them.

Unless those properties give you a million in gains, you are not hit at that 43%, or am I interpreting this wrong?  If I am not, folks like yourself will be fine but large investor groups and REITs may not swoop on a bunch of real estate as it is less enticing leaving less demand.  And many times they are already holding, so it doesn't put a further freeze on their offloading.  I could be wrong, but it is a thought.

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9 hours ago, NMpackalum said:

If this passes, there will be a rush to Roth conversions for your IRA. Probably lots of selling for the wealthy to put their money in tax havens. They certainly aren't going to reinvest with those types of proposed capital gains and corporate rate increases.

Don’t you have to pay regular income tax on a Roth conversion?   @mugtang can you confirm? 

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16 minutes ago, sactowndog said:

Don’t you have to pay regular income tax on a Roth conversion?   @mugtang can you confirm? 

Yes. But it’s better to pay the tax now than in the future when rates are higher. 

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4 minutes ago, mugtang said:

Yes. But it’s better to pay the tax now than in the future when rates are higher. 

presumably anyway. Hasn’t worked out that way for many who were early in on Roths and are retiring now. But I still believe in the strategy. At the very least, there is something to be said for the certainty of a Roth, even if your tax rates don’t time perfectly.

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11 hours ago, #1Stunner said:

https://www.bloomberg.com/news/articles/2021-04-22/biden-to-propose-capital-gains-tax-as-high-as-43-4-for-wealthy

Biden Eyeing Capital Gains Tax as High as 43.4% for Wealthy

President Joe Biden will propose almost doubling the capital gains tax rate for wealthy individuals to 39.6%, which, coupled with an existing surtax on investment income, means that federal tax rates for investors could be as high as 43.4%, according to people familiar with the proposal.

The plan would boost the capital gains rate to 39.6% for those earning $1 million or more, an increase from the current base rate of 20%, the people said on the condition of anonymity because the plan is not yet public. A 3.8% tax on investment income that funds Obamacare would be kept in place, pushing the tax rate on returns on financial assets higher than the top rate on wage and salary income, they said.

Stocks slid on news about the plan, with the S&P 500 Index down as much as 0.6% after climbing 0.2% earlier. The Nasdaq Composite fell 0.4% as of 1:15 p.m. after rising as much as 0.5%. Ten-year Treasury yields erased gains

For $1 million earners in high-tax states, rates on capital gains could be above 50%. For New Yorkers, the combined state and federal capital gains rate could be as high as 52.22%. For Californians, it could be 56.7%.

 

treat all net income the same. problem solved.

 

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25 minutes ago, mugtang said:

Yes. But it’s better to pay the tax now than in the future when rates are higher. 

Perhaps depends on your tax bracket.  Regardless I don’t think the capital gains tax is relevant to a Roth Conversion. 

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8 hours ago, sactowndog said:

Perhaps depends on your tax bracket.  Regardless I don’t think the capital gains tax is relevant to a Roth Conversion. 

It’s not 

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9 hours ago, mugtang said:

Yes. But it’s better to pay the tax now than in the future when rates are higher. 

The most CPA thing to say LOL. 

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10 minutes ago, mugtang said:

It’s not 

Correct me if I'm wrong. Once able to access 401k at 59, if taxable income exceeds the limit, then the higher cap gains tax kicks in? I understand that this is a small percentage of people with a million dollar income but if this trend keeps going, how many people really think that that threshold doesnt drop to say...$250k. Cap gains revenue currently is around $150 billion, so double that if this passes, pays for the stimulus checks that the government sent out. No new net revenue at this threshold. This seems just a punitive measure against the rich. To me, a Roth conversion seems prudent to me if you have any substantial amount in a 401k.

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7 minutes ago, NMpackalum said:

Correct me if I'm wrong. Once able to access 401k at 59, if taxable income exceeds the limit, then the higher cap gains tax kicks in? I understand that this is a small percentage of people with a million dollar income but if this trend keeps going, how many people really think that that threshold doesnt drop to say...$250k. Cap gains revenue currently is around $150 billion, so double that if this passes, pays for the stimulus checks that the government sent out. No new net revenue at this threshold. This seems just a punitive measure against the rich. To me, a Roth conversion seems prudent to me if you have any substantial amount in a 401k.

The chances of a normal person selling enough assets in a year is slim to none...and the assumption that it will go from a million to 250k is based on what? 

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17 minutes ago, NMpackalum said:

Correct me if I'm wrong. Once able to access 401k at 59, if taxable income exceeds the limit, then the higher cap gains tax kicks in? I understand that this is a small percentage of people with a million dollar income but if this trend keeps going, how many people really think that that threshold doesnt drop to say...$250k. Cap gains revenue currently is around $150 billion, so double that if this passes, pays for the stimulus checks that the government sent out. No new net revenue at this threshold. This seems just a punitive measure against the rich. To me, a Roth conversion seems prudent to me if you have any substantial amount in a 401k.

Right if you have a million or so you are going to take the RMD and let the rest keep growing.  Why would you change.  A Roth conversion can make sense but you are going to pay income tax rate on that conversion.   

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feels like a lot of folks don't realize the tax is only effective in the year you sell the assets equal to or in excess of the limit. Consider that only the top 30% of earners make $250k or more a year and then think about how much most would spend in a year of retirement...reality is almost no one outside the wealthy will be selling even close to a mill is assets any given year of their retirement. 

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10 minutes ago, AztecSU said:

The chances of a normal person selling enough assets in a year is slim to none...

It's probably a lot more than you think. 3 million people have 5 million dollar net worth. 8 percent of people in their 40s have retirement and investment savings of >1 million. They have at least 2- 3 doubling cycles until they retire which puts them in the $300k retirement income if in taxable accounts.

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9 hours ago, renoskier said:

treat all net income the same. problem solved.

 

The problem is defining net income. That is where it gets tricky. This is probably the main reason why the tax code is so large. If you too loosely define net income taxpayers will find ways to lower it to zero. 

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5 minutes ago, sactowndog said:

Right if you have a million or so you are going to take the RMD and let the rest keep growing.  Why would you change.  A Roth conversion can make sense but you are going to pay income tax rate on that conversion.   

True. I guess you just pick the year when you think your taxes are lowest to convert. Maybe I'll work as a teacher for a year before I retire.

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6 minutes ago, NMpackalum said:

It's probably a lot more than you think. 3 million people have 5 million dollar net worth. 8 percent of people in their 40s have retirement and investment savings of >1 million. They have at least 2- 3 doubling cycles until they retire which puts them in the $300k retirement income if in taxable accounts.

So, they have to sell a million + to get hit...why would you sell 1/3 of your entire nest egg as opposed to selling what you need and keeping the rest in so it continues to grow? If you lived on annual income of $100k-$200k before retirement it doesn't make sense that you would need a million + in a year after retirement when you are probably not spending as much as before. 

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32 minutes ago, NMpackalum said:

Correct me if I'm wrong. Once able to access 401k at 59, if taxable income exceeds the limit, then the higher cap gains tax kicks in? I understand that this is a small percentage of people with a million dollar income but if this trend keeps going, how many people really think that that threshold doesnt drop to say...$250k. Cap gains revenue currently is around $150 billion, so double that if this passes, pays for the stimulus checks that the government sent out. No new net revenue at this threshold. This seems just a punitive measure against the rich. To me, a Roth conversion seems prudent to me if you have any substantial amount in a 401k.

401(K) distributions are taxed at ordinary rates. 

 

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