0% capital gains -- Load of horse shit
People making 37k don't have to worry about capital gains anyway.
March 20th, 2017 10:37am
You are completely missing the point, read the prev thread.
March 20th, 2017 10:39am
Cool, thanks for finding that.
Seemed too good to be true.
March 20th, 2017 11:22am
So the key is that if you're below the threshhold any year, you should should always close the threshold to hit it by selling stocks that are up and immediately repurchasing them. If done right, this "harvests the gains" at a total 0% tax liability.
March 20th, 2017 11:26am
And if married the cut off point is $73,800. So if your family income, including both earned income and capital gains, is below that level, you should be processing enough of your gains by selling and buying them to hit that level.
However, there can be side effects though since it does affect income levels, so it might for example change your subsidy level for Obamacare (not sure if capital gains is included in determining that).
March 20th, 2017 11:29am
"so if you earn less than 37k in total income"
Let's say you are retired, and your only source of income is your after-tax account. I'm excluding social security, just to simplify. If you get SS, then you need to withdraw less. You took out $45k, 80% of which is capital gains. Then your taxable income is only $36k, so you stay within the threshold. No taxes.
On the other hand, if you withdraw from a 401k, you're taxed at the ordinary income tax rate, so you have to withdraw more to get the same amount. At 20% tax rate, you take out $56,250 and are left with $36,000 after tax.
Only the after-tax account benefits from the lower tax rate on capital gains vs. ordinary income. In a 401k, all the capital gains are converted to income and taxed at the higher rate.
That said, as a retiree your living expenses should be relatively low so your tax rate should be low, too.
March 20th, 2017 11:53am
In either case, you're drawing down principle to pay living expenses. So the idea is your money has to outlast you.
This is a really risky way to approach retirement planning. But it's the way that the vast majority of people have been trained to do.
March 20th, 2017 11:54am
Is SS income for determining the cut off? SS is considered taxable income in some contexts these days.
March 20th, 2017 12:01pm
Yes SS income is taxed, too.
Withdrawals from tax deferred accounts don't incur social security taxes since those were paid on the contributions.
March 20th, 2017 2:51pm
I got some 0% dividends this year. I was unemployed for more than half the year. (The 0% rate applies to qualified dividends or long-term capital gains.)
You're confusing two things:
1. 401(k)/regular-IRA withdrawals count as ordinary income when you withdraw. BUT you were effectively taxed at 0% on any gains while in the plan.
2. Some dividends are taxed at 0% if your income is low enough.
If you are retired, have a decent amount of after-tax savings, AND you can control your distribution rate, then you can try to stay under the threshold.
March 20th, 2017 6:55pm