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Do you get deductions for unrealized losses? That seems brutal if not. I'm imagining a nightmare version where that's calculated instantaneously so you get a tax bill every period of a security moving up and down sinusoidally.
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Oct 13, 2015 19:43
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Struensee posted:So in Denmark, we pay taxes on both realised and unrealised gains on securities year by year. The tax rate on these gains starts out at 27% for the first ~10000 bux and 47% on anything above that. How do I account for this in calculating how big of a nest egg I need to live on and how fast I'll get there? Seems like I can't just use the 4% rule. Wait what the gently caress, seriously? That is insane.  I guess it makes sense if unrealised losses get deducted from your income tax but still.
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Oct 13, 2015 19:45
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Wikipedia seems to indicate that it is only realized gains and dividends. I find it hard to believe that any country would tax unrealized gains.
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Oct 13, 2015 19:49
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asur posted:Wikipedia seems to indicate that it is only realized gains and dividends. I find it hard to believe that any country would tax unrealized gains. They changed it a few years ago, so wikipedia is wrong. But yeah, you get a deduction equal to your losses if your stocks tank (also unrealised losses). Due to the way the taxation works, you want a steady rise year by year, but obviously this can't be planned. Anyway, how would I account for something like this when deciding what my drawdown should be? Set a 2-3% safe withdrawal rate? Struensee fucked around with this message at 20:49 on Oct 13, 2015 |
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Oct 13, 2015 20:45
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organize a market-wide conspiracy to tank stock prices on December 31, or whenever the tax year ends
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Oct 13, 2015 20:52
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The 4% safe withdrawal rate presumably is set by the assumption that you can withdraw 4% of your net worth every year and the market will "replenish" what you withdraw. If you have to pay taxes on gains, it'll depend on the rate you pay on those gains. Say you pay 25% for simplicity. If you have, 10,000,000 DKK and take out 4%, that's 400,000 DKK that you would need to assume you would make back in gains. If that is taxed at 25%, you're left with 300,000 in gains. So in order to keep your withdrawals equal to your assumed 4% minus taxes, you could withdraw 300,000 DKK, assume the market gives you 400,000 DKK in gains (the basis of the 4% SWR), taxes take 25% of that or 100,000 DKK and you're left with the 10,000,000 starting point. 10,000,000 - 300,000 + 400,000 - (400,000 * 0.25) = 10,000,000 So yes, if you accept the 4% SWR rule, then take 4% * (1- tax rate%) = Danish SWR. spf3million fucked around with this message at 21:23 on Oct 13, 2015 |
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Oct 13, 2015 21:21
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Struensee posted:They changed it a few years ago, so wikipedia is wrong. But yeah, you get a deduction equal to your losses if your stocks tank (also unrealised losses). Due to the way the taxation works, you want a steady rise year by year, but obviously this can't be planned. Anyway, how would I account for something like this when deciding what my drawdown should be? Set a 2-3% safe withdrawal rate? I don't think you are correct. It appears that there is a tax scheme in place to tax unrealized gains that are exiting the 'Danish Tax jurisdiction'. http://www.bdo.dk/media/541433/taxwatch-2014-10.pdf
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Oct 14, 2015 15:53
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Struensee posted:They changed it a few years ago, so wikipedia is wrong. But yeah, you get a deduction equal to your losses if your stocks tank (also unrealised losses). Due to the way the taxation works, you want a steady rise year by year, but obviously this can't be planned. Anyway, how would I account for something like this when deciding what my drawdown should be? Set a 2-3% safe withdrawal rate? It's not correct. In Denmark most stocks are only taxed when the profit is realized. For ETFs you are correct, they are what is known as "lagerbeskattede". So don't buy ETFs until someone in government realizes that it's stupid. There are many other options. You can invest in danish passive funds or individual stocks.
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Oct 14, 2015 18:51
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n8r posted:I don't think you are correct. It appears that there is a tax scheme in place to tax unrealized gains that are exiting the 'Danish Tax jurisdiction'. I don't get why you would keep questioning this. What you've linked clearly states that in order to avoid cheating the system, equities are taxed according to the general principle of taxing gains (realised or not) when moved out of the country. The document just says that payment of these taxes may be deferred for self-employed people pending legislation. Saint Fu posted:So yes, if you accept the 4% SWR rule, then take 4% * (1- tax rate%) = Danish SWR. This is helpful, but there's a 47% tax rate on gains above 50.000 DKK, so the tax rate will be much closer to 35 or 40%. I think the safe assumption will be 2,5%, but this basically leaves me finished saving by the time I'd retire anyway (not really, but almost). It looks like I'll have to look very hard at tax deferred accounts and tax advantaged accounts and saving up a nest egg that'll carry me over until I can withdraw from those.
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Oct 14, 2015 18:52
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Struensee posted:this basically leaves me finished saving by the time I'd retire anyway (not really, but almost). It looks like I'll have to look very hard at tax deferred accounts and tax advantaged accounts and saving up a nest egg that'll carry me over until I can withdraw from those. If you can expect a guaranteed income in retirement from the government, then you wouldn't need to take withdrawals from your investments equal to your expenses. If you retire early, you could theoretically take more than 4% out every year to cover expenses until the pension kicks in. The math isn't very hard, you just have to make some assumptions, figure out how much you need to spend per year and for how many years.
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Oct 14, 2015 19:11
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So far my government pension age is 67*, and I think it's a fairly big assumption that I'll be able to rely on that in 37 years, so I'd rather be safe. This undeniably extends the time before I can hope to retire early by quite a lot. *subject to change.
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Oct 14, 2015 19:19
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Struensee posted:I don't get why you would keep questioning this. What you've linked clearly states that in order to avoid cheating the system, equities are taxed according to the general principle of taxing gains (realised or not) when moved out of the country. The document just says that payment of these taxes may be deferred for self-employed people pending legislation. Dude this straight up says it's taxes for when you're moving the money out of the country. The PDF clearly explains it's a strategy that only happens when someone is trying to move a normally taxable asset outside of the Danish tax system. If you continue to hold your money in danishes, cheeses, or whatever other financial instruments the Danish have, it's no problem.
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Oct 14, 2015 20:44
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n8r posted:Dude this straight up says it's taxes for when you're moving the money out of the country. The PDF clearly explains it's a strategy that only happens when someone is trying to move a normally taxable asset outside of the Danish tax system. If you continue to hold your money in danishes, cheeses, or whatever other financial instruments the Danish have, it's no problem. I don't even understand why you're trying to argue about a tax system in a country where you don't speak the language. When I invest in foreign ETFs, I pay taxes on realised and unrealised gains. If I choose a Danish fund, I don't pay taxes on unrealised gains, but if I ever decide to change my fund, I'll take upwards of a 47% tax hit on any gains rather than spreading the gains out and paying as little as 27%. At the same time, fund expenses for Danish funds at the low end are 0,5% and the spreads are bigger because we're only 5 million people. Or I could invest in individual stocks with the same rules, but unfortunately, I don't have the wealth to diversify broadly enough yet. So who cares if you read some pdf? Maybe I made my post with other considerations in mind in order to present a succinct question, rather than translate the tax code for you in detail.
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Oct 14, 2015 21:54
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Struensee posted:I don't even understand why you're trying to argue about a tax system in a country where you don't speak the language. When I invest in foreign ETFs, I pay taxes on realised and unrealised gains. If I choose a Danish fund, I don't pay taxes on unrealised gains, but if I ever decide to change my fund, I'll take upwards of a 47% tax hit on any gains rather than spreading the gains out and paying as little as 27%. At the same time, fund expenses for Danish funds at the low end are 0,5% and the spreads are bigger because we're only 5 million people. Or I could invest in individual stocks with the same rules, but unfortunately, I don't have the wealth to diversify broadly enough yet. So who cares if you read some pdf? Maybe I made my post with other considerations in mind in order to present a succinct question, rather than translate the tax code for you in detail. http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-denmarkhighlights-2015.pdf http://www.pkf.com/media/1954347/denmark%20pkf%20tax%20guide%202013.pdf Please explain where the taxes are normally for unrealized gains? I'm genuinely curious how this is administrated.
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Oct 14, 2015 23:09
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n8r posted:http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-denmarkhighlights-2015.pdf Jesus dude. He explained it. In fact since there is a tiered capital gains tax it's actually good for it to be on Unrealized as well
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Oct 14, 2015 23:31
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No he didn't explain it. Ok - so your investment goes up $100 - you owe the king of danishland $25. Now the investment goes the other way and is now $100 in the hole. Do they pay you $25? At what point during the year do they assess it?
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Oct 15, 2015 04:24
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Do you all have any other podcasts you listen to other than the previously mentioned radical personal finance? That one I maybe listen to every 5th show as they're sort of all over the place recently, so I'm looking for some new options.
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Oct 15, 2015 20:18
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Money for the Rest of Us is pretty interesting. It's not really FI related though, more general investing.
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Oct 16, 2015 02:50
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Struensee posted:So in Denmark, we pay taxes on both realised and unrealised gains on securities year by year. The tax rate on these gains starts out at 27% for the first ~10000 bux and 47% on anything above that. How do I account for this in calculating how big of a nest egg I need to live on and how fast I'll get there? Seems like I can't just use the 4% rule. 4% rule is actually expected average return of 7% (post inflation), the 3% is taken off to covers swings in the market in the decades while you are taking money out. For your tax issues, get a e-residency in estonia, open an estonian company, shift your investments assets under that. Estonia doesn't tax reinvested capital( only tax you will pay is 20% when you will take out your capital as dividends). Let those assets compound over the years tax-free. With SEPA, cross border bank payments are cheap and quick, so you can continue paying capital into your company. After your retirement age, you can start taking out capital as dividends and pay your income tax on that.
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Oct 16, 2015 18:30
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Azur posted:4% rule is actually expected average return of 7% (post inflation), the 3% is taken off to covers swings in the market in the decades while you are taking money out. Haha that is way too risky for long-term savings.
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Oct 16, 2015 18:38
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Well, that and the whole tax evasion thing.
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Oct 16, 2015 18:46
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Struensee posted:Well, that and the whole tax evasion thing. That was my point.
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Oct 16, 2015 18:47
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Struensee posted:Well, that and the whole tax evasion thing. I'm not up on the tax codes and treaties of either of those countries, but if this is legal, its tax AVOIDANCE, not EVASION.
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Oct 16, 2015 19:41
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Minty Swagger posted:Do you all have any other podcasts you listen to other than the previously mentioned radical personal finance? That one I maybe listen to every 5th show as they're sort of all over the place recently, so I'm looking for some new options. Not directly related to FIRE I guess but Planet Money is frequently interesting and also the APM: Marketplace has pretty interesting and succinct pieces of decent journalism (and the daily market reports are entertaining if only to see your own reactions to them over time). Family Adventure Podcast is a fun way to dream about the pot o'gold at the end of the FI rainbow. If travelling with family is one of your goals.
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Oct 17, 2015 09:03
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Bloody Queef posted:I'm not up on the tax codes and treaties of either of those countries, but if this is legal, its tax AVOIDANCE, not EVASION. Tax avoidance is always just one legislative change away from becoming tax evasion, especially when borders are involved.
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Oct 17, 2015 09:06
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Azur posted:4% rule is actually expected average return of 7% (post inflation), the 3% is taken off to covers swings in the market in the decades while you are taking money out. The bolded isn't correct. The 4% rule assumes 6%-7% gains with inflation at 2%-3% for a real return of 4%, swings in the market should not be that relevant as investments should be moved to less risky and volatile assets as you grow older.
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Oct 17, 2015 09:18
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asur posted:The bolded isn't correct. The 4% rule assumes 6%-7% gains with inflation at 2%-3% for a real return of 4%, swings in the market should not be that relevant as investments should be moved to less risky and volatile assets as you grow older. This isn't quite accurate either. From the Trinity study, and from everyone's favorite direct application thereof (https://www.firecalc.com), you will see that there is generally a strong negative impact in moving your money to less risky and volatile aspects over the course of a retirement, assuming that the goal is not to draw down principal over a long enough timespan.
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Oct 18, 2015 00:17
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The Onion gets it. http://www.theonion.com/article/groundbreaking-study-finds-gratification-can-be-de-51770 Groundbreaking Study Finds Gratification Can Be Deliberately Postponed quote:“We now have sound scientific evidence that suggests one can intentionally enjoy something at a point in time beyond this very moment"
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Nov 8, 2015 06:21
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SpelledBackwards posted:The Onion gets it. Given my roommate's hourly thirst for marijuana, I question the findings of this made-up study.
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Nov 10, 2015 00:51
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Rick Rickshaw posted:Given my roommate's hourly thirst for marijuana, I question the findings of this made-up study. I know some alcoholics with a related thirst. Too bad it's for terrible beer.
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Nov 10, 2015 02:30
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I need advice regarding my emergency fund and what to do with savings after maxing out your retirement accounts. Best problem I've ever had! Income: $2800/month Expenses: $2100/month (including literally everything except rare vacations) Savings: - 17k that will just for spouse's tuition/fees/etc., frontloaded but spread over the next 1.5-2 years. - 20k current emergency fund/cash savings - Rule 4 YNAB (next month's expenses always in my checking account) Notes: - Income is just mine, my spouse is a full time student. - My job is probably pretty secure, if laid off I'd probably be eligible for unemployment which would easily pay our bills, and I work in tech in Seattle, so I expect job-hunting wouldn't be too bad if I had to do it. - Listed income is the amount left over after maxing my 401k, both our IRAs, paying for health insurance, and putting $200/month in our HSA. We are very healthy and rarely go to the doctor for anything but free annual checkups. - No kids, no intention of having them. - We do not have cars or bikes, we get around entirely on bus and by walking. I'm asking for advice because in 2 years, we will almost certainly have to move to accommodate my partner's career post-graduation. Fortunately, I already work 100% remotely so I should be able to keep my job. I do not know where we would move, but probably a major US city. We live in Seattle now. Of course we'll be gaining a second income, but I want to be prepared for stuff like moving expenses, possible but unlikely increase in cost of living, possibly having to buy a car or even two in certain areas, and any other random emergency that might crop up. I'm thinking even if we had to buy 2 cars, we could get 2 used corollas for 5k a piece and have 10k left over for moving expenses and any random expenses. If that's the case, then 20k is enough cash savings/emergency fund, and I feel like it's time to take our $700+ leftover every month and put it either in my HSA or in a taxable account/index fund. Which should I do? We're both 27 now and our end goal is to be FI around age 35-38.
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Nov 10, 2015 21:21
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20k emergency fund sounds fine to me since it also sounds like you two have frugal habits. Have you looked into whether your company supports the mega backdoor Roth IRA? http://www.bedrockcapital.com/blog/bedrocks-guide-to-saving-for-retirement-the-mega-backdoor-roth-ira/
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Nov 10, 2015 21:44
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Max the HSAs, I would do this before maxing the 401k,and then go research FI and determine how you're going to accomplish that. Whoops thought this was the newbie thread.
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Nov 10, 2015 22:23
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Cicero posted:20k emergency fund sounds fine to me since it also sounds like you two have frugal habits. Have you looked into whether your company supports the mega backdoor Roth IRA? Hmm no I have not. I'd read about that before, but at the time we were saving for his school and so it wasn't relevant, so I forgot about it. Now it is, I'll read about it again, thanks. asur posted:Max the HSAs, I would do this before maxing the 401k,and then go research FI and determine how you're going to accomplish that. I know HSA basically work like a traditional IRA once you're 65, so there's that advantage, but I don't know if we need more "old man money." I suppose it's reasonable to expect we will have health care expenses in our old age of course, but right now all we do is buy glasses and contacts to the tune of maybe a couple hundred a year. Why do you specifically recommend maxing an HSA before even a 401k? The plan is (roughly, in summary) to live on some or all of the following between mid/late-30s and 60: taxable accounts/dividends, Roth conversion ladder, SEPP, profitable hobbies, fun part-time/contract work. Then of course normal retirement savings after that.
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Nov 10, 2015 22:47
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T. J. Eckleburg posted:
I prioritize my HSA deduction over 401k for the reason that both reduce current tax liability, but unlike the 401k the HSA funds can be withdrawn tax free. It's sort of like the best of all worlds: They're tax-free going in, tax-free growth, and tax-free going out. That and health care costs are inevitable. That said, I do have a related priority question: I have access to both 403b (similar to 401k) and a 457 through my current employer. I am now looking to ramp up retirement contributions. I am not maxing out the 403b, and I have not opened a 457 though it is appealing, particularly the withdrawals earlier than retirement age. What I'm unclear on is what my rollover options would be if I left this employer as I likely would not have 457 access elsewhere. I assume I would lose the window for withdrawals but can this be rolled to an IRA? Does it make sense to open a 457 before I max the 403b? I am maxing Roth IRA and HSA account contributions.
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Dec 5, 2015 00:43
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I didn't realize that the Dividend Mantra guy got taken over. Looks like he came out on top, as the site looks dead now.
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Dec 5, 2015 20:07
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sweet_jones posted:I prioritize my HSA deduction over 401k for the reason that both reduce current tax liability, but unlike the 401k the HSA funds can be withdrawn tax free. It's sort of like the best of all worlds: They're tax-free going in, tax-free growth, and tax-free going out. That and health care costs are inevitable. Unless something has recently changed, you can rollover from a 457b into a traditional IRA, 401k, 403b, or 457b. Keep in mind that if you rollover into anything other than another 457b that the money would be governed by the rules of that plan (so the age restriction comes back into the picture). Are your current 457b investment options reasonable? If so, keeping it with your current employer's provider is also an option when you leave. The 457b has 2 big advantages, one being an extra bucket of 18k/year (currently) you can set aside pre-tax if you also have access to a 403b. The other is the lack of an early withdraw penalty - not that you can't get around with with other accounts at least with the rules that are in place today. I'd try to keep that ability. Here is the priority that I have used with FI/ER in mind: 1) 403b up to employer match (free money) 2) Max out Roth IRA 3) Max out HSA (for the reasons you outlined) 4) Max out 457(b) (prioritized over the 403 due to the lack of an age restriction - both have access to the same funds and have the same minimal fees) 5) Max out 403(b) (where I'm currently working on) 6) Taxable investments When it comes time to leave my employer, my plan is to keep the 457b account I have with them unless something surprising happens to the governing rules or the fees charged there between now and then. Edit: https://www.irs.gov/pub/irs-tege/rollover_chart.pdf Fancy_Lad fucked around with this message at 21:28 on Dec 5, 2015 |
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Dec 5, 2015 21:15
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Fancy_Lad posted:
This was a fantastic post, and really appreciated. I had completely missed the obvious, which is leaving the money there. Given that it has the same advantages without the age restriction, I'm inclined to focus on the 457b so as to keep an extra door open with FI in mind. The plan offerings are the exact same for my 403b and 457b, with some good offerings below 0.1% ER.
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Dec 7, 2015 16:37
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Your funds in a 457 can go up in smoke if your employer goes bankrupt - something to consider
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Dec 7, 2015 19:10
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I should have clarified in my post that I am referring to 457(b) governmental plans. I have limited knowledge of the non-governmental plans, beyond their existence.Tomfoolery posted:Your funds in a 457 can go up in smoke if your employer goes bankrupt - something to consider My understanding is that this only applies to 457(b) non-governmental plans, but if you have information that states otherwise I would love to see it.
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Dec 7, 2015 19:39
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