Monday, April 18, 2011

Tax time

On to never-never land; no angels here

We, or someone out there, have certainly made things complicated. Let’s see, there are pretax traditional IRAs, pretax 401k contributions, Roth IRAs, post-tax 401k contributions, post-tax Traditional IRAs, and taxable accounts (which can be held individually, jointly--often under alternative joint structures, or in a variety of trust arrangements), each with different tax and liability characteristic. Against that we're arraying C-corp stocks, MLPs, and REITs. (We'll leave out options, commodities, S-corps, and foreign stocks for simplicity). Now, just to keep it fun, let’s add two more dimensions to our matrix: multiple current tax brackets and changes in income over time. Mix in "leaders" who change the rules regularly, and now, let’s plan.

Like the song says "ain't we got fun." Note that I left out that decisions made to address this glom have implications for Required Minimum Distributions from Traditional IRAs and 401(k)s, taxes on SS, and Medicare premiums. If I really wanted to go for overkill, I could have mentioned the alternative minimum tax.

Washington wonders why people aren’t better prepared for retirement. Maybe they’ve made it so complicated many people can’t.

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