Tax discussion, strategies and questions

[jhm]

Here's my strategy.
1. Bet on TSLA and make a ton of money.
2. Pay my taxes without whining about it.

It's truly pathetic watching people get rich through no actual work on their part and complain endlessly about how they don't get to keep it all.

Be sure you make your bet in a taxable brokerage account or Roth IRA, not a traditional IRA. The problem is that most of us have been told our who working life that a traditional IRA is a sensible retirement plan with tax advantages meant to encourage workers to save for their retirement years. The reality is that for many retirees IRA investments force them to pay more in taxes than had they simply put their retirement savings into a taxable brokerage account. It's one of the ways that ordinary workers have been trapped into bearing a bigger tax liability than they really ought to bear. Now democrats are working on ways to make sure retirees cannot escape the IRA tax trap set decades ago.

 

[capster]

No sense in worrying about something over which you have no control. Wait and see if it becomes law, then deal with it.

You can write to your Congressperson and Senators.

And, as you say, wait and see, then deal with it.

 

[brantse]

Seems like they are not forcing the penalty on you for this forced distribution even if it's before 59 yo. So you can get some of those sweet gains early without paying taxes from a roth? Seems to be a win.

Not really, in the way that article reads. You can already take SEPP distributions under rule 72t to avoid the penalty, but having to take 50% of anything over $10M could be terrible for those with very large accounts. I'd much rather take SEPP distributions to prevent having to sell large amounts at once.

 

[Coolio2000]

Here's my strategy.
1. Bet on TSLA and make a ton of money.
2. Pay my taxes without whining about it.

It's truly pathetic watching people get rich through no actual work on their part and complain endlessly about how they don't get to keep it all.

So busting my ass for the last 25 years and stockpiling my 401k with TSLA equals "no actual work on my part and complaining?" GMAFB! I just don't like the government to change the rules of the game, especially when I'm too young to retire. I have no problem paying my taxes on withdrawals at 59 1/2, but forcing me to in my 40s is absurd. Might as well make it illegal to have a 401k balance over $10 million. While we're at it, let's force Elon to sell all of his stock over $10 million.

 

[MikeC]

Not really, in the way that article reads. You can already take SEPP distributions under rule 72t to avoid the penalty, but having to take 50% of anything over $10M could be terrible for those with very large accounts. I'd much rather take SEPP distributions to prevent having to sell large amounts at once.

Yes, it really depends how much over $10M people expect to have. Slightly over is not a big deal and can be dealt with by using SEPP, charity, etc. I think they’re targeting the mega-accounts like Peter Thiel with his Roth that has billions of untaxable gains.

 

[SOULPEDL]

No sense in worrying about something over which you have no control. Wait and see if it becomes law, then deal with it.

Especially since I don't have $10M anywhere. The last thing I worry about is having to spend some of this in the future, being forced to disburse from my IRA. The same place where I haven't paid a penny on capital gains (so far).

I can only assume this proposal is responding to the fact that people are hoarding their money (or investments in Apple, TSLA, etc...) and will be forced to withdraw (maybe even sell) 50% on holdings over 10M. If I make it past 10M and have to start withdrawing money to help free cash flow in the economy, is that such a bad thing? I mean, how much money do you folks want? Go spend some of it and pay some taxes. Start a new business with real US manufacturing or just donate to a good cause - you made it already.

Maybe I'm misunderstanding the problem with this proposal, but I don't think hoarding wealth is good for the economy on whole. Anyone happen to look at their receipts on their last trip to Canada? Would you rather pay taxes that way - with GST etc?

 

[82bert]

Absolutely agree with you.

Although the proposal also talks about taking away back door Roth conversions for a large portion of people who do it. People that have strong incomes, but aren’t necessarily uber wealthy. I’m not a fan of being double taxed. A traditional IRA contribution comes from already taxed money (that I can’t take a deduction on) and then gets taxed again on withdrawal from gains down the road.

 

[jerry33]

Maybe I'm misunderstanding the problem with this proposal, but I don't think hoarding wealth is good for the economy on whole. Anyone happen to look at their receipts on their last trip to Canada? Would you rather pay taxes that way - with GST etc?

If I received healthcare without having to fight the insurance companies over every single bill, and didn't have to fear bankruptcy from the exorbitant rates charged today. Yes, I think I'd go for that (much as I don't like to have yet another type of forever tax).

 

[BornToFly]

Especially since I don't have $10M anywhere. The last thing I worry about is having to spend some of this in the future, being forced to disburse from my IRA. The same place where I haven't paid a penny on capital gains (so far).

I can only assume this proposal is responding to the fact that people are hoarding their money (or investments in Apple, TSLA, etc...) and will be forced to withdraw (maybe even sell) 50% on holdings over 10M. If I make it past 10M and have to start withdrawing money to help free cash flow in the economy, is that such a bad thing? I mean, how much money do you folks want? Go spend some of it and pay some taxes. Start a new business with real US manufacturing or just donate to a good cause - you made it already.

Maybe I'm misunderstanding the problem with this proposal, but I don't think hoarding wealth is good for the economy on whole. Anyone happen to look at their receipts on their last trip to Canada? Would you rather pay taxes that way - with GST etc?

Depending on your plans, 10M is nothing. I have realized that I'm much better at growing and spending money than the US government. I'm already paying 7 figures in taxes, but if I can hold my TSLA shares I should be able to quadruple my wealth, and then donate far, far more to charity when I die then I am able to donate during my lifetime, especially if the government keeps taking even more of it now (and I can not grow it nearly as much).

 

[Tyler34]

Absolutely agree with you.

Although the proposal also talks about taking away back door Roth conversions for a large portion of people who do it. People that have strong incomes, but aren’t necessarily uber wealthy. I’m not a fan of being double taxed. A traditional IRA contribution comes from already taxed money (that I can’t take a deduction on) and then gets taxed again on withdrawal from gains down the road.

A traditional IRA contribution does NOT come from already taxed money.

 

[hacer]

... If I make it past 10M and have to start withdrawing money to help free cash flow in the economy, is that such a bad thing? I mean, how much money do you folks want? Go spend some of it and pay some taxes...

The thing is that investment don't represent cash that is locked away. When you bought the securities in the first place the seller took your money as cash and it was thus still cash to flow in the economy -it was never locked away. That's not true of the gains made but the gains themselves are reliant on not having excess selling (cashing out). If everyone is forced to cash out their gains, the price collapses and it still won't put cash flow into the economy. It's like those analyses that claim that billionaires like Musk and Bezos are "hoarding resources": they're not resources, it's theoretical value and it's large only insofar as it isn't being massively tapped into. It's reasonable to have some sort of small taxation of such fortunes for the purpose of wealth redistribution but it can't work unless it's done quite slowly.

 

[Coolio2000]

Especially since I don't have $10M anywhere. The last thing I worry about is having to spend some of this in the future, being forced to disburse from my IRA. The same place where I haven't paid a penny on capital gains (so far).

I can only assume this proposal is responding to the fact that people are hoarding their money (or investments in Apple, TSLA, etc...) and will be forced to withdraw (maybe even sell) 50% on holdings over 10M. If I make it past 10M and have to start withdrawing money to help free cash flow in the economy, is that such a bad thing? I mean, how much money do you folks want? Go spend some of it and pay some taxes. Start a new business with real US manufacturing or just donate to a good cause - you made it already.

Maybe I'm misunderstanding the problem with this proposal, but I don't think hoarding wealth is good for the economy on whole. Anyone happen to look at their receipts on their last trip to Canada? Would you rather pay taxes that way - with GST etc?

J

Especially since I don't have $10M anywhere. The last thing I worry about is having to spend some of this in the future, being forced to disburse from my IRA. The same place where I haven't paid a penny on capital gains (so far).

I can only assume this proposal is responding to the fact that people are hoarding their money (or investments in Apple, TSLA, etc...) and will be forced to withdraw (maybe even sell) 50% on holdings over 10M. If I make it past 10M and have to start withdrawing money to help free cash flow in the economy, is that such a bad thing? I mean, how much money do you folks want? Go spend some of it and pay some taxes. Start a new business with real US manufacturing or just donate to a good cause - you made it already.

Maybe I'm misunderstanding the problem with this proposal, but I don't think hoarding wealth is good for the economy on whole. Anyone happen to look at their receipts on their last trip to Canada? Would you rather pay taxes that way - with GST etc?

With that view, might as well force Elon to sell all of his stock. I’m sure the government will be much more efficient with his stock gains.

 

[SOULPEDL]

Different views by many. I don't see investing in our infrastructure as a poor investment as compared to me holding until I'm 90.
Keep in mind, this discussion stemmed from a current proposal as a way to pay for the bill in congress. Gotta pay somehow, I say.

 

[kcveins]

A traditional IRA contribution does NOT come from already taxed money.

The answer to this is... it depends.
I have been contributing to a traditional IRA as my income is too high to contribute to a Roth, but also unable to deduct this from my taxes
Ergo - as it is nondeductible, the contribution is taxed money, it is the earnings that get taxed when taken out
Fortunately, have been able to do a back door Roth over the years so the amount in the traditional IRA is minimal..

 

[82bert]

The answer to this is... it depends.
I have been contributing to a traditional IRA as my income is too high to contribute to a Roth, but also unable to deduct this from my taxes
Ergo - as it is nondeductible, the contribution is taxed money, it is the earnings that get taxed when taken out
Fortunately, have been able to do a back door Roth over the years so the amount in the traditional IRA is minimal..

This. My contribution is therefore taxed and then withdrawals would be taxed. Backdoor Roth allows me to at least have tax free withdrawals and gains.

 

[Featsbeyond50]

If I make it past 10M and have to start withdrawing money to help free cash flow in the economy, is that such a bad thing? I mean, how much money do you folks want? Go spend some of it and pay some taxes. Start a new business with real US manufacturing or just donate to a good cause - you made it already.

Maybe I'm misunderstanding the problem with this proposal, but I don't think hoarding wealth is good for the economy on whole.

It doesn't matter if it's good or not. It is imposing one belief/ideology on others and that's not a good thing. You believe hoarding wealth is bad for the economy (not that it matters but we're not talking cash in a mattress, we're talking ownership of companies), I believe punishing success is bad for the economy. Who's right?

I believe in Hinduism, is it right for me to impose that belief on others?

 

[ammulder]

Be warned, traditional IRA and 401k plans are a trap for Tesla investors.

So… take that money in your IRA and invest it in an index fund instead?

 

[Featsbeyond50]

I don't see investing in our infrastructure as a poor investment as compared to me holding until I'm 90.

How about removing stifling regulations and taxation so private enterprise can provide the infrastructure?

 

[SOULPEDL]

How about removing stifling regulations and taxation so private enterprise can provide the infrastructure?

If we could make this work everywhere, ya. It's what Elon is doing essentially with SpaceX, Starlink, Boring, Energy etc... More of this could continue unobstructed because it's easy to beat the inefficiencies of gov't. I have this picture in my head seen many times driving - 1 guy working, 4 guys standing there. Or paying 10M for something that could be done with just 1M I'm certain. Same reason a solar install was so pricey until it was streamlined by Tesla down to a city template.

Would be interesting to explore how business could maintain roadways, this is a tough one. I think we all want Tesla's to avoid the pot holes, not fix them. What's the motivation for road maintenance by any enterprise? They'd have to collect a form of use tax, and many roads would simply not get funded.

I do have a concern about Gov't borrowing money to build EV Charging infrastructure when it's a done deal nearly by Tesla alone. Some things gov't isn't very good at doing at all.

 

[jhm]

So… take that money in your IRA and invest it in an index fund instead?

No, convert your traditional IRA funds to a Roth IRA. In a conversion you'll pay ordinary taxes on the amount converted, but you'll have zero capital gains from that point on with the Roth converted funds. If you leave funds in a traditional IRA, you continue to differ taxes until you tap the month, but you wind up paying your marginal income tax rate on the capital gains. So if you're in a high tax bracket, say 35% is your marginal tax on ordinary income, you are also incurring a 35% tax rate on your capital gains. But Roth pushes your capital tax rate down to 0%. Even just converting your traditional IRA to a taxable brokerage account you'll likely pay 15% or 20% capital gains in stead of facing 35% tax rate on the traditional IRA.

Roth conversions are pretty important for any aggressive growth investor. I'm looking for 30% or more annual return on my Tesla shares. In about two decades, when I hit 72 and am required to start taking significant distributions from my IRA, I will have enormous gains on the Tesla shares. Moreover, the total value of my Tesla position could be so large that these required minimum distributions lock me into the highest ordinary tax brackets for the rest of my life and must be paid by my estate. If on the other hand, I convert these shares to a Roth account, I avoid any capital gains on these shares post Roth conversion. Moreover, my heirs can inherit the Roth accounts without paying taxes on them.

A traditional IRA really works out as a tax advantage, if you truly intend to be in a substantially lower tax bracket in retirement and if you are such a conservative investor that your capital gains fail to keep up with inflation. Most Tesla investors will find that a Roth conversion is a much better tax strategy. Oh, yeah, you can always give your traditional IRA to charity and avoid all the deferred taxes. So there is some portion of my traditional IRA that I will never convert, but will simply hold for charitable giving. This avoids the taxes paid on a Roth conversion, but I think it should be an intentional choice to give your wealth away and not just a corner you get backed into later on in life.