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3.8% tax on investment income

By Patrick follow Patrick   2021 Apr 26, 4:07pm 383 views   27 comments   watch   nsfw   quote   share    


I didn't know about this until now:

https://www.irs.gov/individuals/net-investment-income-tax

Looks like it won't apply to me anymore, because my investment income won't exceed this:

"Married filing jointly — $250,000"

And my 401(k) distributions won't be counted anyway:

"Distribution from IRAs, 401 (k)s and other qualified retirement plans also don't count as investment income."

https://www.retirementwatch.com/everything-you-need-to-know-about-the-net-investment-income-tax-niit

They seem to have snuck this in without my noticing:

The NIIT is the least-known of the Stealth Taxes and the one most likely to surprise retirees.

The Net Investment Income Tax (NIIT) was created in the Affordable Care Act.

It was labeled a Medicare surtax, but the proceeds go into general revenues…not the Medicare trust fund.

The NIIT is a 3.8% tax on the excess unearned, or investment, income.
1   ChauvinsKnee   ignore (0)   2021 Apr 26, 4:13pm     ↓ dislike (0)   quote   flag      

Thanks, Obama!
2   clambo   ignore (5)   2021 Apr 26, 7:53pm     ↓ dislike (0)   quote   flag      

It’s an Obamacare tax.

I saw it while handling my father’s financial stuff, he previously had guys in Manhattan do his tax returns.

It applies to gains from real estate sales too.

Start converting your IRA to a Roth now.
3   mell   ignore (6)   2021 Apr 26, 8:41pm     ↓ dislike (0)   quote   flag      

That's Obummer care or (to quote TPB) jive ass mother fucker tax, widely known. Unconstitutional as well.
4   HunterTits   ignore (4)   2021 Apr 26, 8:45pm     ↓ dislike (0)   quote   flag      

Yeah. Obamacare rip off.
5   just_passing_through   ignore (7)   2021 Apr 26, 8:47pm     ↓ dislike (0)   quote   flag      

Ppppft!

Buy bitcorn!

Go to a private island!

Satellite phone!

Transfer to Swiss account!

Done!
6   just_passing_through   ignore (7)   2021 Apr 26, 8:48pm     ↓ dislike (0)   quote   flag      

(someone has to channel AF once in a while)
7   Hircus   ignore (0)   2021 Apr 26, 9:07pm     ↓ dislike (0)   quote   flag      

They sell these taxes by claiming "it only applies to rich people" but its a trick. People see this and think it only applies to those with investment income over 200-250k, and while that's true, its not uncommon to realize lots of capital gains in a single year, putting you over the limits, and taxing your ass.

Look for more of this tax tactic to come from Xoe Briben.

It's made me realize that when planning future investments, one should keep in mind the ability to gradually realize capital gains over multiple years, so as to avoid higher taxes.
8   just_passing_through   ignore (7)   2021 Apr 26, 9:31pm     ↓ dislike (0)   quote   flag      

Mega Backdoor Roth:

https://www.nerdwallet.com/article/investing/mega-backdoor-roths-work

You can still do that and max out your 401K in parallel.
9   REpro   ignore (0)   2021 Apr 26, 9:32pm     ↓ dislike (0)   quote   flag      

Capital gain and net investment tax are two separate items.
10   zzyzzx   ignore (2)   2021 Apr 27, 4:07am     ↓ dislike (0)   quote   flag      

Patrick says
I didn't know about this until now:


You are just figuring this out now???
11   zzyzzx   ignore (2)   2021 Apr 27, 4:41am     ↓ dislike (0)   quote   flag      

https://www.nerdwallet.com/article/investing/backdoor-roth-ira-high-income-how-to-guide-2

And this is why I don't do this:

Is a backdoor Roth IRA worth it?
A Roth IRA is probably a bad idea if ...

The only way you can pay the taxes due is with money from your IRA withdrawal. Not only are you sacrificing any future investment growth on that money, there's also the risk that, if you're under age 59-1/2, you'll owe the 10% early withdrawal penalty on that money.

You'll need the money in five years or less. Money converted from an IRA to a Roth IRA falls under a Roth five-year rule: If you don't wait five years to withdraw it, you could owe taxes and a 10% penalty.

The withdrawal from your IRA will push you into a higher income tax bracket. It's generally a good idea to convert just enough that you're not pushed into paying a higher tax rate that year.
12   clambo   ignore (5)   2021 Apr 27, 6:31am     ↓ dislike (0)   quote   flag      

Re: converting to a Roth.
I have both types of IRA since the Roth didn’t exist when I started to invest.
Would you rather pay the taxes on your capital gains in your IRA today (converting=pay tax) or pay the higher Biden taxes on the future gains in your IRA later?
If you never plan on spending either of them that’s a different situation.
The reason I detest liberal losers so much is they make it ever more complex to keep my own fucking money.
13   just_passing_through   ignore (7)   2021 Apr 27, 8:46am     ↓ dislike (0)   quote   flag      

zzyzzx says
Is a backdoor Roth IRA worth it?


Mega backdoor Roth is post-tax. I get converting 401k to roth, but this isn't that.
14   Eric Holder   ignore (0)   2021 Apr 27, 10:26am     ↓ dislike (0)   quote   flag      

clambo says
Would you rather pay the taxes on your capital gains in your IRA today (converting=pay tax) or pay the higher Biden taxes on the future gains in your IRA later?


I would rather not pay capital gains taxes now that I have a W2.
15   zzyzzx   ignore (2)   2021 Apr 27, 10:44am     ↓ dislike (0)   quote   flag      

clambo says
Would you rather pay the taxes on your capital gains in your IRA today (converting=pay tax) or pay the higher Biden taxes on the future gains in your IRA later?


I'm expecting my tax rates in retirement to decrease, so I would prefer to have it taxed later.
17   HunterTits   ignore (4)   2021 Apr 27, 10:53am     ↓ dislike (0)   quote   flag      

You will have less in your IRA if it is taxed as you build it up. This is basic math.

Oh, and they will fuck you anyway. Just like Joe Pesci says it about the drive-thru in the Lethal Weapon movies. What? @clambo you think that they won't change the law and ass-fuck all those ROTH IRA suckers at the end game? Hahahahahahah.

They wouldn't to the Boomers, because of the numbers of them who outvote other demographic groups. But they sure as hell will do it for the GenXers, who are outnumbered by the socialist Millennials who will demand more free shit.

Wake up.
18   just_passing_through   ignore (7)   2021 Apr 27, 8:19pm     ↓ dislike (0)   quote   flag      

HunterTits says
Wake up.


Probably but worth a try wif my diversified strategy.
19   zzyzzx   ignore (2)   2021 Apr 28, 4:17am     ↓ dislike (0)   quote   flag      

Step 1: Move to Puerto Rico. Take only what you will need for more than a year.
Step 2: Do Roth IRA conversion on multimillion IRA/401K
Step 3: Move back to mainland US.

With all your money now in after tax accounts, move to someplace without state income taxes, and live in Caligulan Splendor.

https://www.forbes.com/sites/robertwood/2019/09/09/move-to-puerto-rico-slash-your-taxes-to-zero-not-exactly/?sh=3bd4cabd1362
What’s more, there is no tax on dividends, and no capital gain tax in Puerto Rico.
20   clambo   ignore (5)   2021 Apr 28, 6:07am     ↓ dislike (0)   quote   flag      

My point was that it might be better to pay the tax on your IRA conversion before it’s huge.

I consider the conversion as an IRA withdrawal sooner rather than later.

You might find yourself surprised at how annoying taxes are when you are no longer working.

I have until age 72 before I must take my money out of my IRAs, I have to take money out of an inherited IRA each year, I can wait forever for my Roth and I can wait almost forever to spend my variable annuity.

Taxes and Biden suck.
21   zzyzzx   ignore (2)   2021 Apr 28, 6:44am     ↓ dislike (0)   quote   flag      

clambo says
My point was that it might be better to pay the tax on your IRA conversion before it’s huge


Too late!
23   Patrick   ignore (1)   2021 Apr 29, 9:39am     ↓ dislike (0)   quote   flag      

zzyzzx says
Step 1: Move to Puerto Rico. Take only what you will need for more than a year.


Didn't know about this:

Puerto Rico hopes to lure American mainlanders with an income tax of only 4%. Legally avoiding the 37% federal rate and the 13.3% California (or other state) rate sounds pretty good. What’s more, there is no tax on dividends, and no capital gain tax in Puerto Rico.


But it seems I'd have to live there for 10 years first to get that tax rate on my appreciated 401k.
24   Patrick   ignore (1)   2021 Apr 29, 9:43am     ↓ dislike (0)   quote   flag      

zzyzzx says
Yahoo comments on this person's retirement situation is priceless:
https://finance.yahoo.com/m/6e9999fa-4a89-348a-92aa-763a230464bb/i%E2%80%99m-63-years-old-recently.html


I don't see any comment section.
25   WookieMan   ignore (7)   2021 Apr 29, 9:45am     ↓ dislike (0)   quote   flag      

Patrick says
Didn't know about this:

Puerto Rico hopes to lure American mainlanders with an income tax of only 4%. Legally avoiding the 37% federal rate and the 13.3% California (or other state) rate sounds pretty good. What’s more, there is no tax on dividends, and no capital gain tax in Puerto Rico.


But it seems I'd have to live there for 10 years first to get that tax rate on my appreciated 401k.

This is why I'm looking into PR. If I rent a place out for 90-100 days to pay the mortgage, I will almost certainly be able to claim it as a primary given our work and still live in the states. The audit risks are high, but innocent until proven guilty. 10 years is my retirement timeline.

I haven't done my full research either. PR is great, but hurricane season blows.
26   clambo   ignore (5)   2021 Apr 29, 9:56am     ↓ dislike (0)   quote   flag      

I have heard conflicting reports on Puerto Rico, as a nice destination.

The tax situation there is a bit more complex than I thought at first.

I have no desire to go to check it out.
27   HunterTits   ignore (4)   2021 Apr 29, 10:34am     ↓ dislike (0)   quote   flag      

WookieMan says
If I rent a place out for 90-100 days to pay the mortgage, I will almost certainly be able to claim it as a primary given our work and still live in the states. The audit risks are high, but innocent until proven guilty. 10 years is my retirement timeline.


With the Feds maybe but not the states. States can be real assholes about it. Plus, if you get W-2, they can tax you. That's how they usually catch that. This is how people who live in Washington State (no income tax) who commute to work in Portland get nailed by Oregon to pay their state income tax. Ditto for certain cities in the E Coast like NYC and Philly that levy city income taxes on those who commute in.

Feds might ask questions too.

California is FAMOUS for sending tax bills to ppl out of state who got a 1099 issued by a California based company, too.

They nail you with just enough where it is worth it to them but not worth it to you to hire a lawyer to fight it.

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