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Post by Deleted on Oct 31, 2014 10:45:36 GMT -5
And as has been pointed out, it's highly doubtful that this kind of savings in tax preferred accounts is common. Even those on here that are maxing their retirement accounts probably aren't looking at over 3.4 million per person, 6.8 million married,(at least not any of them over 35) because as it turns out, most have either just started saving at that rate and/or aren't using every account option. So you don't think there should be a cap? I guess I don't know how you would even do this. It seems like a nightmare to enforce. I have accounts at 4 different places and they're all going up and down. Say, you're at the 3.4 million combined, stock market has a good day and you're up 70,000. Do you have to withdraw that and pay taxes? What if the next day the market drops 20%? It just seems like a PIA to limit what is probably a very small percentage of savers.
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Deleted
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Post by Deleted on Oct 31, 2014 10:49:45 GMT -5
I would think its would be in the withdraw end. After you withdraw so much tax free, then its taxed.
But out retirement is individual. 4 million individual growth isn't going to hit many, if at all...
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Post by Deleted on Oct 31, 2014 10:50:19 GMT -5
So you don't think there should be a cap? I guess I don't know how you would even do this. It seems like a nightmare to enforce. I have accounts at 4 different places and they're all going up and down. Say, you're at the 3.4 million combined, stock market has a good day and you're up 70,000. Do you have to withdraw that and pay taxes? What if the next day the market drops 20%? It just seems like a PIA to limit what is probably a very small percentage of savers. That's why I think do away with the 401k and everyone has 1 IRA and it becomes more manageable with 1 account per person. Say you could make it work that way, should there be a cap?
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Post by Deleted on Oct 31, 2014 10:53:46 GMT -5
I guess I don't know how you would even do this. It seems like a nightmare to enforce. I have accounts at 4 different places and they're all going up and down. Say, you're at the 3.4 million combined, stock market has a good day and you're up 70,000. Do you have to withdraw that and pay taxes? What if the next day the market drops 20%? It just seems like a PIA to limit what is probably a very small percentage of savers. That's why I think do away with the 401k and everyone has 1 IRA and it becomes more manageable with 1 account per person. Say you could make it work that way, should there be a cap? Even IRAs I have 4 of them. Roth and Traditional at Vanguard and Traditional and Rollover at Fidelity. If it was like Oped said, and you can withdraw X amount of dollars tax free and then pay taxes, I could see that. That would be easy enough.
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Deleted
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Post by Deleted on Oct 31, 2014 10:53:54 GMT -5
The current limits are okay for a couple but not for singles. Phase Outs for Roth should be eliminated to allow everyone small accounts with tax free growth. The very wealthy already have loop holes far beyond 50K a year, like Mitt Romney with a $30 million 401K. Limits on 401K will only hurt upper & mid middle class. I can put $23,000 in 401K. Phased Out of Roth. No HCA. I invest in other things outside of 401K to increase my retirement savings. I think I would prefer a lifetime deposit maximum, so if you are fortunate with your early employment you can save more then. How do you save anything when you have kids and a mortgage with an average salary?
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teen persuasion
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Post by teen persuasion on Oct 31, 2014 10:54:57 GMT -5
So you don't think there should be a cap? I guess I don't know how you would even do this. It seems like a nightmare to enforce. I have accounts at 4 different places and they're all going up and down. Say, you're at the 3.4 million combined, stock market has a good day and you're up 70,000. Do you have to withdraw that and pay taxes? What if the next day the market drops 20%? It just seems like a PIA to limit what is probably a very small percentage of savers. I don't think the proposal was about removing excess funds, but rather you'd no longer get to add more to tax advantaged accounts. But you are right, balances are a moving target - when do you take a snapshot to determine eligibility?
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8 Bit WWBG
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Post by 8 Bit WWBG on Oct 31, 2014 11:07:36 GMT -5
...:::"...like Mitt Romney with a $30 million 401K...":::... Technically, couldn't Sum Dum Gai achieve this too in theory? His company is owned by his retirement account. If the value of those shares skyrocket, he could have a huge balance as well.
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Plain Old Petunia
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Post by Plain Old Petunia on Oct 31, 2014 11:30:50 GMT -5
Frankly, I don't see why huge 401k balances are a big deal. They are eventually going to be subject to RMDs.
I would think such a huge balance is a bad thing. When you must withdraw, say 1m in a single year, you're going to pay an awful lot of tax. You'd have been better off to fund your tax-deferred a bit less and your taxable account a bit more.
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Baby Fawkes
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Post by Baby Fawkes on Oct 31, 2014 11:46:08 GMT -5
So you don't think there should be a cap? I guess I don't know how you would even do this. It seems like a nightmare to enforce. I have accounts at 4 different places and they're all going up and down. Say, you're at the 3.4 million combined, stock market has a good day and you're up 70,000. Do you have to withdraw that and pay taxes? What if the next day the market drops 20%? It just seems like a PIA to limit what is probably a very small percentage of savers. Speaking as someone that has to deal with the FBAR (Foreign Bank Account Reporting) regulations on a yearly basis, this just makes me want to say they shouldn't do it as spare the majority of people the pain of something like this. I have first hand experience of how annoyingly ambiguous this sort of reporting and governance can be and it's awful.
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Post by Deleted on Oct 31, 2014 12:23:01 GMT -5
I think at the end of the day I'm just going to enjoy all of the tax advantaged space I have access to and continue to take advantage of it. I'll chalk it up to one of the things in the tax code that falls my way as there sure are other things that don't.
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movingforward
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Post by movingforward on Oct 31, 2014 12:27:36 GMT -5
I think at the end of the day I'm just going to enjoy all of the tax advantaged space I have access to and continue to take advantage of it. I'll chalk it up to one of the things in the tax code that falls my way as there sure are other things that don't. You can also give more to charity in your old age if you feel like you have more money than you could ever spend. The local animal shelter is going to freaking love me if I end up in that position.
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movingforward
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Post by movingforward on Oct 31, 2014 12:33:11 GMT -5
Frankly, I don't see why huge 401k balances are a big deal. They are eventually going to be subject to RMDs.
I would think such a huge balance is a bad thing. When you must withdraw, say 1m in a single year, you're going to pay an awful lot of tax. You'd have been better off to fund your tax-deferred a bit less and your taxable account a bit more. This is my thought as well. I hope to have around 250K in a taxable account when I retire. That is what I will use to purchase a new car, prescriptions (if I end up in the doughnut hole), and other emergencies that might pop-up. I don't want to have to pull an extra 30K out of my IRA and pay taxes on it to purchase a car or whatever (I probably won't do the phil thing of financing a car when I am retired). I still have to do RMD no matter what but having access to cash for certain things just sounds like a good idea to me. I could be wrong though.
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HoneyBBQ
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Post by HoneyBBQ on Oct 31, 2014 13:41:15 GMT -5
I guess this thread speaks to me. We max our 401s. We have employer contributions that are large. My H has catch up, plus he has the highly compensated employee bonus. Plus he has the family HSA. So, yeah. I think it was around 75k a year or something last time I checked (we do not do IRAS/not eligible for Roth).But everyone is eligible for a non-deductible IRA and you can immediately convert it to a Roth. True, I can always backdoor. But I don't think in my particular circumstance it benefits me. Or at least that's the way I'm betting.
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HoneyBBQ
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Post by HoneyBBQ on Oct 31, 2014 13:45:26 GMT -5
Limits on 401K will only hurt upper & mid middle class. This was exactly my point. I already pay more taxes than most people because I don't get the tax breaks of the ultra rich. You can nail the upper 98.5 - 99.5% to the wall, but you're still not going to get the big bucks from the upper 0.05% because they aren't putting money into the same places 'normal' folks are. So you limit my contributions. BFD. You get my 30% of the 17.5k. That's a drop in the bucket compared to what I already pay in taxes. This is not the way to fix the system. I'm not sure what is, but this isn't going to help anybody.
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Post by Deleted on Oct 31, 2014 14:36:56 GMT -5
Minus contributions, right...
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Post by Deleted on Oct 31, 2014 14:40:03 GMT -5
I guess I don't know how you would even do this. It seems like a nightmare to enforce. I have accounts at 4 different places and they're all going up and down. Say, you're at the 3.4 million combined, stock market has a good day and you're up 70,000. Do you have to withdraw that and pay taxes? What if the next day the market drops 20%? It just seems like a PIA to limit what is probably a very small percentage of savers. If your account is over X - you can't contribute anymore to tax-advantaged funds. If it drops below x - then you could contribute up to the x again. It could work - and it wouldn't have to be overly complicated. So, where's the line in the sand? Do you say on this date? Like January 1st? Otherwise accounts are changing daily and who would be keeping track to make sure you were under 3.4 million between who knows how many accounts on the date you made a contribution somewhere. Plus, you could submit a buy order and have the market go up 600 points that day. I think the government would spend more trying to keep up with this than they're gaining in additional tax revenue.
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midjd
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Post by midjd on Oct 31, 2014 14:51:09 GMT -5
I guess I don't know how you would even do this. It seems like a nightmare to enforce. I have accounts at 4 different places and they're all going up and down. Say, you're at the 3.4 million combined, stock market has a good day and you're up 70,000. Do you have to withdraw that and pay taxes? What if the next day the market drops 20%? It just seems like a PIA to limit what is probably a very small percentage of savers. If your account is over X - you can't contribute anymore to tax-advantaged funds. If it drops below x - then you could contribute up to the x again. It could work - and it wouldn't have to be overly complicated. It still seems like a PITA to me. Suppose today my account goes from $1M to $999K -- so I make a $1K transfer from my bank into my traditional IRA. It takes at least a day to get money to either Schwab or Vanguard, and in that time, the account goes from $999K to $1.01M. So I withdraw the money since I'm no longer eligible to contribute, and then the account goes back down to $999K. Or do you just keep the money in there until December 31 and watch the market like a hawk to determine buy times? I also don't think limiting withdrawals is a good idea. The account limits now are so arbitrary -- what's to think the withdrawal cap will be any less so? Someone living in SF or NYC is going to have much greater withdrawal needs than someone living in a LCOLA. Is the cap going to be based on COLA, or vary by state, or just a flat amount across the board? Can you imagine the outcry if someone whose lifestyle costs $120K/year is only allowed to withdraw $100K of his own money each year?
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Baby Fawkes
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Post by Baby Fawkes on Oct 31, 2014 15:18:42 GMT -5
So, where's the line in the sand? Do you say on this date? Like January 1st? Otherwise accounts are changing daily and who would be keeping track to make sure you were under 3.4 million between who knows how many accounts on the date you made a contribution somewhere. Plus, you could submit a buy order and have the market go up 600 points that day. I think the government would spend more trying to keep up with this than they're gaining in additional tax revenue. it could work - it doesn't mean it needs be complicated or arduous. There are likely 10 ways to do it simply and 10,000 more complex ways. Unfortunately I am in the extreme pessimism camp when it comes to trusting them to find the simply solution. In the FBAR example I mentioned before, the rules essentially state (paraphrased) "The total of all accounts cannot have a value > $10,000 at any point during the year". This is far too ambiguous when it comes to situations such as a) account value fluctuations throughout the year, b) currency exchange rate fluctuations throughout the year and also c) what is the exact current value of an account such as a pension when I'm 30 years from retirement. I realize that's a little more complicated that the retirement account, but I don't put it past them to turn this into something just as ambiguous or complicated.
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8 Bit WWBG
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Post by 8 Bit WWBG on Oct 31, 2014 16:24:26 GMT -5
I think it would be interesting to watch people scramble to make early contributions to try to maximize growth, then withdraw that money at the deadline, and then put that money right back in.
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Plain Old Petunia
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Post by Plain Old Petunia on Oct 31, 2014 16:28:29 GMT -5
Well, your custodian reports your balance as of the end of the year to the IRS already. So, it would not be too terribly difficult to just let that be the balance which determines if you may contribute the next year or not.
If you have multiple custodians, they are all reporting, so matching them up and arriving at a total is no big trick either. I would think that happens now anyway.
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finnime
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Post by finnime on Oct 31, 2014 22:38:58 GMT -5
The point about the disparate impact of these limitations as a target number, without taking into account income and COL, is very important. My $5,500 Roth IRA contribution here in the metro D.C./Maryland area, will never give me a retirement boost that it would in Maine or Michigan or Montana. I have no idea how to approach this in a more equitable way, though. ![](http://syonidv.hodginsmedia.com/vsmileys/idunno.gif)
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TheHaitian
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Post by TheHaitian on Nov 1, 2014 10:43:16 GMT -5
Romney did it just like dark: use money from his IRA to invest in a company.
Here is the difference:
- company value increased so stocks value increased ... So in returns his IRA value increased.
He did not do anything illegal as contribute more, he just invested in undervalued stocks that the rich and famous have access to and let ir ride.
Ex: if you invested in GTA at $3/stock and sold at $18-$20 with your IRA funds like so many did...you could have turn $30,000 into $180,000 or more.
Many use their IRA to day trade, invest in individual stocks... We just never witness it at that level.
Like Honey BBQ said the top 0.05% are not like the rest of us and you try to go after them you will only screw the 99%-99.5% . She said it well: they don't need to save for retirement.
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MN-Investor
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Post by MN-Investor on Nov 1, 2014 13:27:07 GMT -5
100 million in tax advantaged funds - we all get the feel that that isn't what the programs were originally intended to do. Having $100M in a tax advantaged fund is the stupidest thing I can think of, unless I'm missing something. If you are investing in highly speculative stocks you anticipate either huge losses or huge gains. Huge losses are worthless in a tax advantaged account. You want them in your taxable account to offset your gains. Huge gains in a tax advantaged account? Great, you've converted what could have been capital gains taxed at 15% to ordinary income taxed at your higher marginal rate. Am I missing something?
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buystoys
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Post by buystoys on Nov 1, 2014 14:03:12 GMT -5
Isn't this another case of history repeating itself? People are so outraged over Romney's IRA that there is a push for limits. So what if he's delayed the payment of taxes on $100 million? He or his heirs will eventually have to pay taxes on it and at a higher rate than they would have paid if it were all capital gains. linkAnyone else remember AMT legislation? It was originally passed to target 155 high-income households. By 2008, 4% of the taxpayers were impacted by AMT. I don't trust the government to enact legislation that is not overly complicated. There are always unintended consequences. The only change I would like to see is to make IRA limits match what the 401(k) limits are. We should make it easier for people to save, not throw more numbers into the ring and expect everyone to keep it straight.
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buystoys
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Post by buystoys on Nov 1, 2014 20:57:50 GMT -5
Having $100M in a tax advantaged fund is the stupidest thing I can think of, unless I'm missing something. If you are investing in highly speculative stocks you anticipate either huge losses or huge gains. Huge losses are worthless in a tax advantaged account. You want them in your taxable account to offset your gains. Huge gains in a tax advantaged account? Great, you've converted what could have been capital gains taxed at 15% to ordinary income taxed at your higher marginal rate. Am I missing something? I believe he put it all into ROTH IRAs so NO INCOME TAXES would be paid on withdrawals. Everything I have read has stated that it was NOT a ROTH IRA.
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schildi
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Post by schildi on Nov 1, 2014 21:09:53 GMT -5
100 million in tax advantaged funds - we all get the feel that that isn't what the programs were originally intended to do. Having $100M in a tax advantaged fund is the stupidest thing I can think of, unless I'm missing something. If you are investing in highly speculative stocks you anticipate either huge losses or huge gains. Huge losses are worthless in a tax advantaged account. You want them in your taxable account to offset your gains. Huge gains in a tax advantaged account? Great, you've converted what could have been capital gains taxed at 15% to ordinary income taxed at your higher marginal rate. Am I missing something? Not sure I follow. I am looking at it this way: Assumptions: income tax rate = 25%, capital gains tax = 15% Now two scenarios, in both cases you made $100 (gross) and want to invest it. (1) Invested in 401(k). You get to invest the full $100. You get huge gains: 100x. So you have $10,000 in the account. You withdraw during retirement, and pay 25% tax. You end up with $7,500. (2) Invested in after tax Brokerage. You get to invest $75 ($100 – 25% income tax). You get huge gains: 100x. So you have $7,500 in the account. You withdraw with 15% capital gains tax on the $7,425 in profits. That’s $1,113.75 in tax. You end up with $6,387.25, which is less than the above amount you get from the 401(k). Am I missing something? (I mean it) ![](http://images.proboards.com/new/huh.gif)
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schildi
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Post by schildi on Nov 1, 2014 21:34:19 GMT -5
Not sure I follow. I am looking at it this way: Assumptions: income tax rate = 25%, capital gains tax = 15% Now two scenarios, in both cases you made $100 (gross) and want to invest it. (1) Invested in 401(k). You get to invest the full $100. You get huge gains: 100x. So you have $10,000 in the account. You withdraw during retirement, and pay 25% tax. You end up with $7,500. (2) Invested in after tax Brokerage. You get to invest $75 ($100 – 25% income tax). You get huge gains: 100x. So you have $7,500 in the account. You withdraw with 15% capital gains tax on the $7,425 in profits. That’s $1,113.75 in tax. You end up with $6,387.25, which is less than the above amount you get from the 401(k). Am I missing something? (I mean it) ![](http://images.proboards.com/new/huh.gif) I think it's because the the assumed lower tax rate after retirement, so you might be 10% bracket which would be less. Which would support my point more - making the 401(k) advantage even larger, right?
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8 Bit WWBG
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Post by 8 Bit WWBG on Nov 2, 2014 12:28:48 GMT -5
...:::"If you make $100K/year (way more than average), it'll take a 17.5% contribution (way more than average) to max out your 401k. Even a strong average salary of $65K would mean you'd need to put 27% away to hit the max.":::...
I'd wanted to comment on this even though you'd already addressed the issue. Maxing retirement requires $17,500/year in pre-tax money, which as you've indicated is not easy to come by depending on the salary.
My starting salary was $31,397. Subtract $17,500, and then divide the rest by 12 (imagining zero tax/deductions). That leaves $1,158/mo to live off. Completely insufficient unless someone else is paying most of the tab. Two earners at that rate might be able to make it work. Life wouldn't be much fun, but that early start would rocket them ahead.
Sure, if I could have maxed from the beginning, then without any match or compounding, I'd have $210k (double what I have now). WITH compounding... Phil... monthly $1,458.00 @ 11% could grow to $420,690.29 in 12 years! Quadruple what I currently have.
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buystoys
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Post by buystoys on Nov 2, 2014 15:21:53 GMT -5
Isn't this another case of history repeating itself? People are so outraged over Romney's IRA that there is a push for limits. So what if he's delayed the payment of taxes on $100 million? He or his heirs will eventually have to pay taxes on it and at a higher rate than they would have paid if it were all capital gains. linkAnyone else remember AMT legislation? It was originally passed to target 155 high-income households. By 2008, 4% of the taxpayers were impacted by AMT. I don't trust the government to enact legislation that is not overly complicated. There are always unintended consequences. The only change I would like to see is to make IRA limits match what the 401(k) limits are. We should make it easier for people to save, not throw more numbers into the ring and expect everyone to keep it straight. money.cnn.com/2012/09/21/pf/taxes/romney-tax-return/and this was the only tax return he provide - leaving us to speculate what was in the ones he chose not to reveal. If there is one thing Romney is good at - it is making money and paying the lowest tax rate possible. I'm sure he is using his techniques for his kids returns too. I sincerely give him props for that. Apparently he broke no laws, so fine. However - it doesn't mean that his case is not illustrative of why some existing loopholes need closing. Well, if you read the links given in your article, you'll see that most of his income was capital gains, which is only taxed at 15% to begin with. ![](http://syonidv.hodginsmedia.com/vsmileys/idunno.gif) So an effective tax rate of 14.5% for 2010 and 2011 doesn't sound too out of line to me..... Now, if you're willing to give up every single tax credit you receive and want to go to a flat tax for everyone, I'm fine with that! ![](http://images.proboards.com/new/smiley.png) Why don't we set it at 15% for everyone, regardless of where the money comes from? Of course, then those who are trying to live on minimum wage will have to pay the same 15% that Bill Clinton, Bill Gates, Mitt Romney, Warren Buffet and everyone else pays. I don't blame Romney for using the tax code as pretty much everyone I know does the same thing. Family trusts also aren't a new idea. Most recently, the Clintons have been in the news for the establishment of their family trust: link. 2nd link.
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schildi
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Post by schildi on Nov 5, 2014 2:16:54 GMT -5
100 million in tax advantaged funds - we all get the feel that that isn't what the programs were originally intended to do. Having $100M in a tax advantaged fund is the stupidest thing I can think of, unless I'm missing something. If you are investing in highly speculative stocks you anticipate either huge losses or huge gains. Huge losses are worthless in a tax advantaged account. You want them in your taxable account to offset your gains. Huge gains in a tax advantaged account? Great, you've converted what could have been capital gains taxed at 15% to ordinary income taxed at your higher marginal rate. Am I missing something? Have not gotten a reply yet - but I still think what you are saying here makes no sense, MN_investor. See above. This could end up being a good discussion, if you'd respond.
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