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Yond Cassius posted:There are a few edge cases where you can, in fact, be screwed by making more money, and if you're working in a university I wouldn't be surprised if someone (or someone's parents) has/have been. Usually they involve the cutoffs for large tax deductions or credits, and a lot of those have to do with tuition. Right around $52,000 and $80,000 there are a couple booby-traps where making an extra $1 can cost you, depending on your exact tax situation, and there's one at $80,000 where that buck that can cost you $1000 or more. Tuition credits don't work like that. They phase out over the course of thousands of dollars of income. Virtually every income tax benefit works like this. I can't think of any situations where a person will end up with more net cash through income tax savings by forgoing a raise. Maybe at the state level (just because of how hosed up certain states' codes are) but not at the federal. Situations where raises can hurt you generally revolve around assistance programs, which are by and large hosed up. Engineer Lenk posted:Well, there's always the AMT... AMT doesn't work like that either. Admiral101 fucked around with this message at 20:19 on Jul 13, 2013 |
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Jul 13, 2013 20:16
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Yond Cassius posted:The credits are phased out in small increments, yes, but the tuition deduction, a really heavy hitter in the "crap, made too much money" tax sweepstakes, has a hard cutoff. It's weird that way, and like I said, it's a fairly unusual edge case. You'd have to be in the position of not qualifying for the credits but (otherwise) qualifying for the deduction. The credit phase-outs are much more minor, but you can find some situations where the intersection between IRA tax deductions and tuition credits means paying (slightly) more money in taxes than your raise/bonus is technically worth. It'd be less than $100 difference, and I think usually less than $20. It does have a phase out, just not as gentle of one. The the phaseout goes from 4,000 deduction->$2,000 deduction-> -0- deduction. It definitely doesn't cost the taxpayer "$1,000 or more". At its worst, it'd be roughly $500. Situations where the tax cost is material virtually don't exist. Droo posted:The affordable care act subsidies will function like that and have an extreme effect if you make $1 too much (could be $10k in extra cost if you go a dollar over). I'd be interested in reading more about this if you can provide some kind of source. Are you referring to the penalty? Because the only time a penalty doesn't come into play is if you make so little money that you don't even have to file a federal tax return (and you'd have to have enormous amounts of income to hit a 10k penalty). Admiral101 fucked around with this message at 22:18 on Jul 13, 2013 |
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Jul 13, 2013 22:14
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A lot of people in this thread who seem to not understand the difference between a loan from your 401k vs an early distribution from your 401k. Specifically: Nail Rat posted:Not really. If you take a 10k loan out of a 20k IRA, then you pay it back with money that's been taxed, it will be taxed again when you retire. That the distribution itself isn't taxed doesn't change the fact you're ultimately getting taxed twice on the amount you take out. What are you talking about? You get a deduction for contributing to the 401k (or IRA) initially. Taking a loan has no tax effect. The ultimate retirement distribution is taxed. There is no double taxation in this. Admiral101 fucked around with this message at 17:38 on Sep 24, 2014 |
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Sep 24, 2014 17:31
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LorneReams posted:In all the important parts, it's treated the exact same way. Do you have some kind of citation for this? Loans from 401ks are not subject to early distribution taxes or penalties. http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Loans#3 Specifically: quote:Loans are not taxable distributions unless they fail to satisfy the plan loan rules of the regulations with respect to amount, duration and repayment terms, as described above. In addition, a loan that is not paid back according to the repayment terms is treated as a distribution from the plan and is taxable as such.
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Sep 24, 2014 17:43
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LorneReams posted:They liquidate the accounts and give you the money. Your repayments "restore" those amounts (at market values, so hope the market tanks right after your loan!). Yes - because keeping the money as opposed to repaying it makes it no longer a loan. I'm baffled how you consider getting $X amount of money for Y amount of days with no tax liability or penalty consequences to be functionally the same as an early 401k distribution which taxes you at the marginal rate plus a 10% penalty.
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Sep 24, 2014 17:48
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BigDave posted:Why would someone take out a 401k loan anyway? That always seems like the dumbest thing someone can do, yet it seems like I'm always meeting someone who's done it or is going to. Because you'll be paying a vastly lower interest rate to your own 401k as opposed to paying a higher rate to the credit card company. It's not a bad idea. The problem comes in because people who are in debt far enough to warrant taking loans from their 401k generally aren't going to be consistent in paying back their 401k loan. Which is when Bad Things Happen. A better move would be to roll the credit card debt onto another credit card that's offering the 0% APR for a year deal - assuming you have a credit score that can get you that.
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Sep 24, 2014 18:48
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StrangersInTheNight posted:Well then quit bitchin' that your greedy and potentially illegal setup doesn't allow you to be even more greedy in other ways. Geez. I'm going to go ahead and guess this guy is an owner that has his business set up as an s-corp and has an accountant that forgot to tell him that it's required for him to take a wage.
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Sep 29, 2014 04:19
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