The Secure Act (taxing your IRAs and 401ks)

[Bateshorn 9,989]

So, double taxation isn't really a thing.  Not in the sense of it being a net negative or positive.  We double tax throughout the consumer system.  Objects are taxed at the commodity, manufacture, distribution, retail, and final purchase stages. We tax automobile's, property, boats, etc. annually.  There's no moral reason why something can't be taxed repeatedly. 

As I have said multiple times, taxes are a revenue generator tool for governments.  And they can be used to affect behavior (see the difference between low and high sin taxes). They are neither wrong or right, there are just another form of policy.  The body politic must assess their desirability via elections. 

The concept of "double taxation" in regards to estates is a creation of Heritage Foundation for it's wealthy donors.  This country has had broad support for inheritance taxes virtually from before the founding.  It's only in the last quarter-ish century that the term "death tax" has even been a thing.  

An inheritance tax is nothing more than a transfer tax.  You pay transfer taxes every day.  This one just happens to occur when one person passes from life and another assumes power over there estate.  Moreover, as currnetly constructed, the exemption means that NO taxes are paid on the amont under the exemption, at all, ever.  So if your parents leave you an $11 million estate, you pay tax on $1 million.

Edited December 31, 2019 by Bateshorn

[Bateshorn 9,989]

13 minutes ago, workswithseed said:

You don't if you have it on your private land, or if you don't drive it. Now, why is the private land still taxed?

Because if there wasn't the revenue to fund local police and courts, I could show up at your door, beat you senseless, take your land, and you would have no recourse as long as I could maintain physical possession of it.

Also, you are wrong:  In most states it is against the law to fail to register a car, even if you never intend to drive it.  Some states will be lax about enforcement, but if a cop drives by your drive way and your have an expired tag (even if the car has not been moved off the property) you can be fined. The state views automobiles, regardless of use, as taxable property.

Edited December 31, 2019 by Bateshorn

[Judge Roybeanbag 11,860]

11 minutes ago, Bateshorn said:

Because if there wasn't the revenue to fund local police and courts, I could show up at your door, beat you senseless, take your land, and you would have no recourse as long as I could maintain physical possession of it.

That’s the point I was trying to make earlier.  It seems extreme, but if you actually study history, before “territories” like Arizona, New Mexico etc became states it was pretty common for shit like that to happen.

[Bateshorn 9,989]

2 minutes ago, Judge Roybeanbag said:

That’s the point I was trying to make earlier.  It seems extreme, but if you actually study history, before “territories” like Arizona, New Mexico etc became states it was pretty common for shit like that to happen.

That's more or less the Yuma portion of Blood Meridian.

[bonnieblue 542]

Why is it always the case where people who are radically anti-tax (excepting the wealthy), never seem to understand taxes?

[bernorange 8,385]

1 hour ago, Bateshorn said:

... There's no moral reason why something can't be taxed repeatedly. ...

I suppose that entirely depends upon how you view property rights.

[Poolflood 845]

4 hours ago, Bateshorn said:

So, double taxation isn't really a thing.  Not in the sense of it being a net negative or positive.  We double tax throughout the consumer system.  Objects are taxed at the commodity, manufacture, distribution, retail, and final purchase stages. We tax automobile's, property, boats, etc. annually.  There's no moral reason why something can't be taxed repeatedly. 

As I have said multiple times, taxes are a revenue generator tool for governments.  And they can be used to affect behavior (see the difference between low and high sin taxes). They are neither wrong or right, there are just another form of policy.  The body politic must assess their desirability via elections. 

The concept of "double taxation" in regards to estates is a creation of Heritage Foundation for it's wealthy donors.  This country has had broad support for inheritance taxes virtually from before the founding.  It's only in the last quarter-ish century that the term "death tax" has even been a thing.  

An inheritance tax is nothing more than a transfer tax.  You pay transfer taxes every day.  This one just happens to occur when one person passes from life and another assumes power over there estate.  Moreover, as currnetly constructed, the exemption means that NO taxes are paid on the amont under the exemption, at all, ever.  So if your parents leave you an $11 million estate, you pay tax on $1 million.

How are products taxed multiple times through the distribution stream?  

[Bateshorn 9,989]

8 minutes ago, Poolflood said:

How are products taxed multiple times through the distribution stream?  

It depends on the business of course. Most business have sales tax exemptions, until they don't. It varies by state as well. But my point remains:  this absurd idea that as American's we only pay tax on something once, be it consumption or income based, is factually grounded in nothing. It really is just a matter of happenstance depending on the transaction.

It's one of the more appealing ideas behind a properly administered VAT:  it standardizes all of this and improves collection.  It's regressive, obviously, but it's clear and transparent. Again, taxes are a policy tool.  Nothing more. Nothing less.

[Judge Roybeanbag 11,860]

28 minutes ago, Poolflood said:

How are products taxed multiple times through the distribution stream?  

Well we build computer systems.  Sometimes we qualify as tax exempt,(selling to the US Govt for example)sometimes not.  The company making the circuit boards pays taxes on the materials used to build them.  Then we pay sales tax on the boards when we buy them.  Then someone pays sales tax when they buy the finished system from us.   So the materials in there have been taxed three times, generally.

[ftf82 491]

10 minutes ago, Judge Roybeanbag said:

Well we build computer systems.  Sometimes we qualify as tax exempt,(selling to the US Govt for example)sometimes not.  The company making the circuit boards pays taxes on the materials used to build them.  Then we pay sales tax on the boards when we buy them.  Then someone pays sales tax when they buy the finished system from us.   So the materials in there have been taxed three times, generally.

My understanding is that this isn't true. Most manufacturers are exempt from sales and use tax under the Texas Tax Code. Is this something unique to computer systems?

https://comptroller.texas.gov/taxes/publications/94-124.php

 

Edited December 31, 2019 by ftf82
link

[ftf82 491]

And from a consistency standpoint, not taxing the gain on an inherited IRA is not much different than the step up in basis that beneficiaries receive on other inherited assets (e.g., real property). Now we can argue whether from a policy standpoint that makes sense, but if someone were to use their IRA/SEP to purchase real estate do the beneficiaries have to liquidate the real estate holdings in 10 years?

[Judge Roybeanbag 11,860]

8 minutes ago, ftf82 said:

My understanding is that this isn't true. Most manufacturers are exempt from sales and use tax under the Texas Tax Code. Is this something unique to computer systems?

https://comptroller.texas.gov/taxes/publications/94-124.php

 

Sometimes that’s true, but not always depending on where you source your parts from.  

[Poolflood 845]

48 minutes ago, Judge Roybeanbag said:

Well we build computer systems.  Sometimes we qualify as tax exempt,(selling to the US Govt for example)sometimes not.  The company making the circuit boards pays taxes on the materials used to build them.  Then we pay sales tax on the boards when we buy them.  Then someone pays sales tax when they buy the finished system from us.   So the materials in there have been taxed three times, generally.

Point taken.  I stumbled over 

Quote

distribution, retail, and final purchase stages

Not really sure what final purchase stages are.   But sales tax should only be paid once for a finished product. 

[workswithseed 2,203]

6 hours ago, Bateshorn said:

Because if there wasn't the revenue to fund local police and courts, I could show up at your door, beat you senseless, take your land, and you would have no recourse as long as I could maintain physical possession of it.

Also, you are wrong:  In most states it is against the law to fail to register a car, even if you never intend to drive it.  Some states will be lax about enforcement, but if a cop drives by your drive way and your have an expired tag (even if the car has not been moved off the property) you can be fined. The state views automobiles, regardless of use, as taxable property.

Thanks, I didn't know that actually.

We know most people on this board don't like cops as it is. Personally, I'd be okay with a higher sales tax, but it's probably never going to happen.

[Judge Roybeanbag 11,860]

I think all of us would agree we don’t “like” paying taxes and there are a ton of improvements that could be made.  But they are necessary for a functioning society.  

[Guest Lobo]

Am I understanding that the so-called sin taxes can affect our behavior and consumption?  

[TwiceHorn 32,045]

2 hours ago, ftf82 said:

And from a consistency standpoint, not taxing the gain on an inherited IRA is not much different than the step up in basis that beneficiaries receive on other inherited assets (e.g., real property). Now we can argue whether from a policy standpoint that makes sense, but if someone were to use their IRA/SEP to purchase real estate do the beneficiaries have to liquidate the real estate holdings in 10 years?

It's really nothing more than a deferral. Everything in a non-roth is going to be taxed as income eventually. It's just a matter of now or later. 

I would assume that yes if an Ira holds real estate assets they would have to be liquidated come rmd time whether that time arises at 701/2 or because of inheritance. 

Edited December 31, 2019 by TwiceHorn

[NotActuallyALonghorn 4,999]

On 12/30/2019 at 3:44 PM, Bateshorn said:

I’m sorry you had to liquidate 10 million in land because you couldn’t pay the taxes and now only have, say 7 million in cash.   That must be hard for you. 
 

also,  the taxes were paid by the deceased,  who could do whatever they wanted with the assets in question. The potential beneficiary does not have ultimate say over the asset in question, and this no responibility for the taxes. Once it passes to the beneficiary it becomes their assets to spend as they see fit, but also they become responsible for paying taxes on gaining control of that wealth.

So you are in favor of policy that results in large multinational companies controlling our food supply instead of smaller family farms? Because it doesn't take a lot of land and equipment to hit that mark for what is an incredibly low margin business. There isn't exactly a plethora of family farmers who can afford to buy such an estate, so those folks are pretty much left with only the option to sell to the big guys. So, it sucks that your family has farmed that land to provide food for our country for generations, but it's simply worth too much for us to allow you continue to do so and remain financially afloat? Maybe we should at least provide some sort of exception where land that is in agricultural, forest, or wildlife use is valued at the rate it is economically possible to continue in said use regardless of whether or not the value of the land for other uses has increased. Yes, there would be "abuse" where companies who intend to developers land keep it in agriculture until they start developing it, but at least we would be protecting our local farmers.

[Bateshorn 9,989]

9 minutes ago, NotActuallyALonghorn said:

So you are in favor of policy that results in large multinational companies controlling our food supply instead of smaller family farms? Because it doesn't take a lot of land and equipment to hit that mark for what is an incredibly low margin business. There isn't exactly a plethora of family farmers who can afford to buy such an estate, so those folks are pretty much left with only the option to sell to the big guys. So, it sucks that your family has farmed that land to provide food for our country for generations, but it's simply worth too much for us to allow you continue to do so and remain financially afloat? Maybe we should at least provide some sort of exception where land that is in agricultural, forest, or wildlife use is valued at the rate it is economically possible to continue in said use regardless of whether or not the value of the land for other uses has increased. Yes, there would be "abuse" where companies who intend to developers land keep it in agriculture until they start developing it, but at least we would be protecting our local farmers.

Are you actually arguing that small family farmers are still a substantial part of the economy in this country? LOLOLOLOL.  I have ADM and  Cargill on line 2. Also, you can’t argue “yo, capitalism is a bitch, low wage income worker” on one hand and then turn around and argue “but we are an agrarian nation and should create special protections for our stewards of the land” on the other and have any sort of ideological consistency.  Unless you think there’s a special difference between those two.  Hmm....what could be the quiet part of that thought? 

also, there are clear exceptions for working farms and ranches in the estate tax. Keeping in mind ITS AN EXEMPTION.  So, your tiny family farmer,  even if they don’t qualify, only pays taxes on estate after the first $10 million.

Edited January 1, 2020 by Bateshorn

[SaucyJack 3,518]

3 hours ago, NotActuallyALonghorn said:

So you are in favor of policy that results in large multinational companies controlling our food supply instead of smaller family farms? Because it doesn't take a lot of land and equipment to hit that mark for what is an incredibly low margin business. There isn't exactly a plethora of family farmers who can afford to buy such an estate, so those folks are pretty much left with only the option to sell to the big guys. So, it sucks that your family has farmed that land to provide food for our country for generations, but it's simply worth too much for us to allow you continue to do so and remain financially afloat? Maybe we should at least provide some sort of exception where land that is in agricultural, forest, or wildlife use is valued at the rate it is economically possible to continue in said use regardless of whether or not the value of the land for other uses has increased. Yes, there would be "abuse" where companies who intend to developers land keep it in agriculture until they start developing it, but at least we would be protecting our local farmers.

How much are we talking about in govt subsidy (socialism/welfare)? 

 

Pres DJT (11/17/19):

Our great Farmers will recieve another major round of “cash,” compliments of China Tariffs, prior to Thanksgiving. The smaller farms and farmers will be big beneficiaries. In the meantime, and as you may have noticed, China is starting to buy big again. Japan deal DONE. Enjoy!

 

[SaucyJack 3,518]

3 hours ago, NotActuallyALonghorn said:

So you are in favor of policy that results in large multinational companies controlling our food supply instead of smaller family farms? Because it doesn't take a lot of land and equipment to hit that mark for what is an incredibly low margin business. There isn't exactly a plethora of family farmers who can afford to buy such an estate, so those folks are pretty much left with only the option to sell to the big guys. So, it sucks that your family has farmed that land to provide food for our country for generations, but it's simply worth too much for us to allow you continue to do so and remain financially afloat? Maybe we should at least provide some sort of exception where land that is in agricultural, forest, or wildlife use is valued at the rate it is economically possible to continue in said use regardless of whether or not the value of the land for other uses has increased. Yes, there would be "abuse" where companies who intend to developers land keep it in agriculture until they start developing it, but at least we would be protecting our local farmers.

[NotActuallyALonghorn 4,999]

4 hours ago, SaucyJack said:

How much are we talking about in govt subsidy (socialism/welfare)? 

 

Pres DJT (11/17/19):

Our great Farmers will recieve another major round of “cash,” compliments of China Tariffs, prior to Thanksgiving. The smaller farms and farmers will be big beneficiaries. In the meantime, and as you may have noticed, China is starting to buy big again. Japan deal DONE. Enjoy!

 

Naw, I'm not in favor of most of our farm subsidies. I doubt they really do much in the grand scheme of things because the market reacts to them. Without them our food would be more expensive and farmers would be running the same slim margins. And if you are having to buy the land, you are doing good to pay for the land and equipment without being able to set aside anything for yourself unless you have the capital to buy a huge spread and take advantage of the economies of scale. When you tell someone they have to cough up a few million just in order to keep running their parents' farm, there is a huge chance that it will either be bought up by huge farming corporations or split up into smaller and smaller plots, which comes with negative ecological and environmental effects. I was not aware that large scale factory farms and environmental/ecological damage was part of the progressive platform. Or were you just posting a picture of yourself and your lover?

[TexArcher 38,889]

On 12/31/2019 at 9:06 AM, Bateshorn said:

The concept of "double taxation" in regards to estates is a creation of Heritage Foundation for it's wealthy donors.  This country has had broad support for inheritance taxes virtually from before the founding.  It's only in the last quarter-ish century that the term "death tax" has even been a thing.  

Exactly.  

If a dad wants to give his son a million dollars, $15k is exempt and the rest is taxable.

But if a dad dies and gives his son a million dollars through his will, now the whole amount is tax-free.

Why?

But we're so strapped for cash that we need to get rid of the stretch IRA provision that helps many in the middle class catch up on their own retirement savings?  I work with clients on this stuff and at least 3/4 of the people I sit down with are behind.

And by forcing people to liquidate a beneficiary IRA in 10 years instead of over the bene's lifetime, have they even realized that they're actually taking money out of the IRS coffers in every year past year 10?  What are we gonna do about that?  Ooh, I know, let's tax baby formula and diapers and make people buy sidewalk permits if they want to walk in public.  Anything to keep Carlton from having to buy a smaller boat with daddy's inheritance money.  

[Judge Roybeanbag 11,860]

46 minutes ago, TexArcher said:

Exactly.  

If a dad wants to give his son a million dollars, $15k is exempt and the rest is taxable.

But if a dad dies and gives his son a million dollars through his will, now the whole amount is tax-free.

Why?

But we're so strapped for cash that we need to get rid of the stretch IRA provision that helps many in the middle class catch up on their own retirement savings?  I work with clients on this stuff and at least 3/4 of the people I sit down with are behind.

And by forcing people to liquidate a beneficiary IRA in 10 years instead of over the bene's lifetime, have they even realized that they're actually taking money out of the IRS coffers in every year past year 10?  What are we gonna do about that?  Ooh, I know, let's tax baby formula and diapers and make people buy sidewalk permits if they want to walk in public.  Anything to keep Carlton from having to buy a smaller boat with daddy's inheritance money.  

Pos rep for "Carlton".  

[Nice Guy Eddie 13,723]

If we wanted to add in provisions about taking out double taxation from the estate tax, I think that should be discussed.  But I think the vast majority of estates have never been taxed at least at the federal level.  If you remove the estate tax, then most of the wealth is never taxed.

 

[sidis 10,011]

On 12/31/2019 at 10:02 AM, workswithseed said:

You don't if you have it on your private land, or if you don't drive it. Now, why is the private land still taxed?

Man, haven’t checked in on this board In a while. Some things will just never change. Jesus Christ. 

Edited January 6, 2020 by sidis

[HRSchenker 2,335]

On 12/30/2019 at 11:31 AM, TexArcher said:

Roths are great, but they have much lower contribution limits and some people make too much to qualify for a Roth at all.

Roths only have limits for direct contributions. The income limits don't really apply to the totality of having a Roth IRA since you can max out a traditional IRA and roll the assets over. You only lose the ability to write off the contributions on your taxes.

[Enchubben 5,600]

On 12/31/2019 at 2:26 PM, Judge Roybeanbag said:

Well we build computer systems.  Sometimes we qualify as tax exempt,(selling to the US Govt for example)sometimes not.  The company making the circuit boards pays taxes on the materials used to build them.  Then we pay sales tax on the boards when we buy them.  Then someone pays sales tax when they buy the finished system from us.   So the materials in there have been taxed three times, generally.

This in Texas? If so, that is absolutely factually wrong. And if these companies are paying tax in that manner, please let me know so I can fix their shit. 

The company building the circuit boards qualifies as a manufacturer and purchases qualifying equipment to produce them, tax free. The circuit board materials themselves are purchased tax free for resale.  If you are reselling the boards as TPP to an end consumer (likely) you should not be paying sales tax either, as you are buying them for resale.The end consumer may or may not be paying tax as they may qualify for a use based exemption. 

Every state in the nation that imposes a sales tax offers a resale exemption to effectively tax the end user of a taxable good or service to avoid double taxation. Some states have exclusions or qualifications to that resale exemption that allow for double tax or cascading of tax under certain circumstances, but that’s rare.  In the event that it does happen, most of the time it’s because morons don’t administer the tax correctly.

VAT’s while similar, and also regressive, impose tax all throughout the supply chain when value is added by utilizing a credit mechanism (think outputs less inputs). Still, the full value of the item is only taxed once, and sometimes never.  Now the VAT tax base (what it’s imposed on) is typically greater, as well as the rate to compensate for lack of income taxes.
 

[TexArcher 38,889]

11 hours ago, HRSchenker said:

Roths only have limits for direct contributions. The income limits don't really apply to the totality of having a Roth IRA since you can max out a traditional IRA and roll the assets over. You only lose the ability to write off the contributions on your taxes.

The point was that the IRA limit, for traditional or Roth, is $6k compared to the $19k limit for a 401k.  So "just do a Roth instead" doesn't quite work.

And yes, a traditional IRA can be converted into a Roth, but all earnings are taxable immediately.  So it's not the same as starting with a Roth in the first place and getting tax-free earnings.  Even if you convert every single year, you're losing some of the benefit (and the compounding on that).

[HRSchenker 2,335]

7 hours ago, TexArcher said:

The point was that the IRA limit, for traditional or Roth, is $6k compared to the $19k limit for a 401k.  So "just do a Roth instead" doesn't quite work.

And yes, a traditional IRA can be converted into a Roth, but all earnings are taxable immediately.  So it's not the same as starting with a Roth in the first place and getting tax-free earnings.  Even if you convert every single year, you're losing some of the benefit (and the compounding on that).

Top statement is a fair point but the bolded is not true assuming you do the conversion correctly. I have never paid taxes on earnings from a traditional to roth conversion and I won't pay a dime once I get to withdraw (assuming current law stays the same but you just never know). If you know someone who is paying taxes on that then they are doing something very very wrong. 

[Nice Guy Eddie 13,723]

Can you explain how you’re converting from traditional to Roth without paying taxes?  Weren’t your original contributions tax deductible? 

[Loco 3,754]

14 minutes ago, Nice Guy Eddie said:

Can you explain how you’re converting from traditional to Roth without paying taxes?  Weren’t your original contributions tax deductible? 

this^

[TexArcher 38,889]

4 hours ago, HRSchenker said:

Top statement is a fair point but the bolded is not true assuming you do the conversion correctly. I have never paid taxes on earnings from a traditional to roth conversion and I won't pay a dime once I get to withdraw (assuming current law stays the same but you just never know). If you know someone who is paying taxes on that then they are doing something very very wrong. 

No, it's true.  I'm a financial advisor.  Even if you didn't take the tax deduction on the traditional IRA contribution (which you likely couldn't anyway if you're ineligible for a Roth), you still owe taxes on whatever the traditional IRA has earned between the contribution time(s) and the Roth conversion.  It wasn't in a Roth yet.  And that does ding compounding, etc.

 

[ChiTownDoc 21,341]

On 12/31/2019 at 9:02 AM, workswithseed said:

You don't if you have it on your private land, or if you don't drive it. Now, why is the private land still taxed?

Legit lol. 
 

And it’s taxed because whether you like it or not, Uncle Sam is protecting your private land.  Are they doing a good job?  That’s a whole other question.  But that’s the why question answered.  

Edited January 18, 2020 by ChiTownDoc

[HRSchenker 2,335]

1 hour ago, TexArcher said:

No, it's true.  I'm a financial advisor.  Even if you didn't take the tax deduction on the traditional IRA contribution (which you likely couldn't anyway if you're ineligible for a Roth), you still owe taxes on whatever the traditional IRA has earned between the contribution time(s) and the Roth conversion.  It wasn't in a Roth yet.  And that does ding compounding, etc.

 

That's the problem. Most who do Roth conversions do it either same day or next day depending on the institution so there wouldn't be growth. Doesn't really make sense to contribute then grow if a Roth is your plan in the end. Let it grow tax free in the Roth and you owe nothing to the IRS.

 

6 hours ago, Nice Guy Eddie said:

Can you explain how you’re converting from traditional to Roth without paying taxes?  Weren’t your original contributions tax deductible? 

If you make too much money then you can't deduct contributions into a traditional IRA but you can't directly contribute to a Roth IRA. All you have to do is contribute nondeductible funds and then roll it over. You owe taxes on the contributions divided by the balance on the traditional IRA at the end of the year. If you do it properly in 2020 it will be $6000/$0. Cant divide by zero. Zero taxes.

[TwiceHorn 32,045]

Just now, HRSchenker said:

That's the problem. Most who do Roth conversions do it either same day or next day depending on the institution so there wouldn't be growth. Doesn't really make sense to contribute then grow if a Roth is your plan in the end. Let it grow tax free in the Roth and you owe nothing to the IRS.

 

If you make too much money then you can't deduct contributions into a traditional IRA but you can't directly contribute to a Roth IRA. All you have to do is contribute nondeductible funds and then roll it over. You owe taxes on the contributions divided by the balance on the traditional IRA at the end of the year. If you do it properly in 2020 it will be $6000/$0. Cant divide by zero. Zero taxes.

Note bene that an "overstuffed IRA" like this is not exempt from creditor claims under Texas and most state laws.

I'm not sure that's a good reason not to do it, but it's something to be aware of and you probably don't want to mix an overstuffed IRA with one that isn't to preserve creditor protection on the one that isn't.