Unicorns pay no federal tax!

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vanbogle59
Posts: 1314
Joined: Wed Mar 10, 2021 7:30 pm

Re: Unicorns pay no federal tax!

Post by vanbogle59 »

mnnice wrote: Wed Apr 21, 2021 9:38 pm We have found it easy to have no federal liability since capital gains have figured prominently in our income stream. Our state taxes LTCG as income so this unicorn keeps having state taxes.
The techniques surrounding this concept have piqued my interest.
I am coming to the end of 40 years as an employee. Grateful to have SS and my 401k/IRAS promising me financial security.
But, I have almost 0 in taxable. Literally 0 LTCG. That 80K tax free will never apply to me. :(

I think I am OK with my non-unicorn status. But not completely sure. Maybe someone has insights.

Our plan was always to fund 401K at the level that would predict a comfortable retirement after long careers. That got us corporate matching and tax-deferral. But that was it for retirement $. The rest of our income would go for living (kids, house, fun...). No regrets with that balance. I consider myself very lucky.

Over the years, I never put a dime of retirement money into taxable.

Now, on the verge of retiring, if I want to put something into a vehicle that will return tax-free income long term, I could do a Roth conversion on as much as I want. So, there's no sense putting anything in taxable now, either.

Bottom line: FOR ME, adding retirement funds to taxable didn't make sense then. And it doesn't now.

Right? :confused
Normchad
Posts: 5630
Joined: Thu Mar 03, 2011 6:20 am

Re: Unicorns pay no federal tax!

Post by Normchad »

vanbogle59 wrote: Thu Apr 22, 2021 11:17 am
mnnice wrote: Wed Apr 21, 2021 9:38 pm We have found it easy to have no federal liability since capital gains have figured prominently in our income stream. Our state taxes LTCG as income so this unicorn keeps having state taxes.
The techniques surrounding this concept have piqued my interest.
I am coming to the end of 40 years as an employee. Grateful to have SS and my 401k/IRAS promising me financial security.
But, I have almost 0 in taxable. Literally 0 LTCG. That 80K tax free will never apply to me. :(

I think I am OK with my non-unicorn status. But not completely sure. Maybe someone has insights.

Our plan was always to fund 401K at the level that would predict a comfortable retirement after long careers. That got us corporate matching and tax-deferral. But that was it for retirement $. The rest of our income would go for living (kids, house, fun...). No regrets with that balance. I consider myself very lucky.

Over the years, I never put a dime of retirement money into taxable.

Now, on the verge of retiring, if I want to put something into a vehicle that will return tax-free income long term, I could do a Roth conversion on as much as I want. So, there's no sense putting anything in taxable now, either.

Bottom line: FOR ME, adding retirement funds to taxable didn't make sense then. And it doesn't now.

Right? :confused
Yep, I think you’re right.

Most people won’t ever have significant taxable accounts. It makes sense to prioritize 401k, Roth, HSA, etc. and when you do that, there just isn’t much left for taxable accounts.
HootingSloth
Posts: 1041
Joined: Mon Jan 28, 2019 2:38 pm

Re: Unicorns pay no federal tax!

Post by HootingSloth »

vanbogle59 wrote: Thu Apr 22, 2021 11:17 am Bottom line: FOR ME, adding retirement funds to taxable didn't make sense then. And it doesn't now.

Right? :confused
Based on what you have said, it seems quite likely that what you did was smart and that, for you, trying to have zero federal income taxes in retirement would have just meant higher taxes during your working career and less money to spend. You can rest easy.
Global Market Portfolio + modest tilt towards volatility (80/20->60/40 as approach FI) + modest tilt away from exchange rate risk (80% global+20% U.S. stocks; currency-hedge bonds) + tax optimization
delamer
Posts: 17348
Joined: Tue Feb 08, 2011 5:13 pm

Re: Unicorns pay no federal tax!

Post by delamer »

vanbogle59 wrote: Thu Apr 22, 2021 11:17 am
mnnice wrote: Wed Apr 21, 2021 9:38 pm We have found it easy to have no federal liability since capital gains have figured prominently in our income stream. Our state taxes LTCG as income so this unicorn keeps having state taxes.
The techniques surrounding this concept have piqued my interest.
I am coming to the end of 40 years as an employee. Grateful to have SS and my 401k/IRAS promising me financial security.
But, I have almost 0 in taxable. Literally 0 LTCG. That 80K tax free will never apply to me. :(

I think I am OK with my non-unicorn status. But not completely sure. Maybe someone has insights.

Our plan was always to fund 401K at the level that would predict a comfortable retirement after long careers. That got us corporate matching and tax-deferral. But that was it for retirement $. The rest of our income would go for living (kids, house, fun...). No regrets with that balance. I consider myself very lucky.

Over the years, I never put a dime of retirement money into taxable.

Now, on the verge of retiring, if I want to put something into a vehicle that will return tax-free income long term, I could do a Roth conversion on as much as I want. So, there's no sense putting anything in taxable now, either.

Bottom line: FOR ME, adding retirement funds to taxable didn't make sense then. And it doesn't now.

Right? :confused
Seems to me that your situation is pretty common. Which really means that it is the situation that my family and many of my friends were/are in. :wink:

Aside from some savings for our kids’ college educations, we didn’t put much in taxable while we were working. The attraction of reducing immediate taxes via tax-deferred investing was too strong. At peak, our combined federal/state/local marginal rate was 36%. Looking at lifetime taxes, maybe we would have been better off if we’d directed some of the tax-deferred money to taxable.

We can’t undo those earlier choices. But the long-term goal was financial security (as you mentioned) and not paying as little tax as possible over our lifetimes.

And we have achieved our goal.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Ron Ronnerson
Posts: 3559
Joined: Sat Oct 26, 2013 6:53 pm
Location: Bay Area

Re: Unicorns pay no federal tax!

Post by Ron Ronnerson »

mmmodem wrote: Thu Apr 22, 2021 9:57 am
Ron Ronnerson wrote: Wed Apr 21, 2021 6:02 pm
mmmodem wrote: Wed Apr 21, 2021 10:37 am
Here's Ron Ronnerson's. Method is maximize tax advantaged accounts.
viewtopic.php?t=290459
To be clear, I'm deferring taxes so will eventually have to pay.

...

While it sort of feels nice to have low tax liability at the moment, I have to emphasize that we will likely be faced with having to pay much more in taxes at some point down the road. My hope is that we can just pay those taxes when the time comes and not have to worry much about it.
Yeah, pretty difficult to summarize your post with a single sentence. Did my best. :wink:

Even though the bulk of our savings is tax deferred, my hope is that we will pay very little to no taxes in retirement. I'll need to study up on livesoft's linked post above to achieve it. Should we fail, that's actually a good thing. Because that means we have more money than planned. I'll gladly "pay those taxes when the time comes."
That's a good way to look at it, in my opinion, and I share your perspective. Having enough that you have to pay some taxes is by no means the worst problem to have in the world.

My wife and I only saved in Roth IRA accounts early on in our marriage (about 15 years ago). We did this for about a decade and then slowly started contributing to tax-deferred accounts several years later. We also converted some money in traditional accounts to Roth while in the 15% bracket. For the past few years, the vast majority of our contributions have been to traditional accounts but, due to compounding, much of our retirement savings are still in Roth. Just very generally speaking, I'm a big fan of Roth accounts for people in their 20s and 30s. That money grows and grows over (considerable) time and then is tax free when you go to take it out.

It's hard to get this stuff perfectly, though, since no one knows what the future holds. I think the case for diversifying among different types of accounts is strong.
mnnice
Posts: 830
Joined: Sat Aug 11, 2012 5:48 pm

Re: Unicorns pay no federal tax!

Post by mnnice »

vanbogle59 wrote: Thu Apr 22, 2021 11:17 am
mnnice wrote: Wed Apr 21, 2021 9:38 pm We have found it easy to have no federal liability since capital gains have figured prominently in our income stream. Our state taxes LTCG as income so this unicorn keeps having state taxes.
The techniques surrounding this concept have piqued my interest.
I am coming to the end of 40 years as an employee. Grateful to have SS and my 401k/IRAS promising me financial security.
But, I have almost 0 in taxable. Literally 0 LTCG. That 80K tax free will never apply to me. :(

I think I am OK with my non-unicorn status. But not completely sure. Maybe someone has insights.

Our plan was always to fund 401K at the level that would predict a comfortable retirement after long careers. That got us corporate matching and tax-deferral. But that was it for retirement $. The rest of our income would go for living (kids, house, fun...). No regrets with that balance. I consider myself very lucky.

Over the years, I never put a dime of retirement money into taxable.

Now, on the verge of retiring, if I want to put something into a vehicle that will return tax-free income long term, I could do a Roth conversion on as much as I want. So, there's no sense putting anything in taxable now, either.

Bottom line: FOR ME, adding retirement funds to taxable didn't make sense then. And it doesn't now.

Right? :confused
We had a couple of life events where we that grew our taxable. We sold a paid for house and then rented for three years. That money was put into the market (much of it in AAPL). We also had a fire and a large renter’s insurance payout that we never entirely spent that eventually made it’s way to taxable. Neither are real typical scenarios.
finite_difference
Posts: 3626
Joined: Thu Jul 09, 2015 7:00 pm

Re: Unicorns pay no federal tax!

Post by finite_difference »

My goal is to simultaneously earn as much money as possible and pay as much tax as possible.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh
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