I wanted to vet this idea with the forum. I know that readers of MJ are not in the save, slave and retire frame of mind. You build your wealth with a value-laden business that makes CENTS - and you use the market to maintain your wealth, and provide some 5% interest to live from, and you sit on cash to say "F U" to the slowlane and pay cash when opportunities come up or to avoid BS.
(Hey! BTW tax advice is very individualized, so follow a plan that's best for you, I'm not a tax advisor and don't play one on TV, and replies to this are not tax advice, and laws can change by the time you read this, do your own homework)
IRA:
You pay taxes at least once on this money. Roth, you pay your tax now, let's say 30% for state and federal. Traditional, you pay later...potentially 30-40% federal/state tax bracket. You're paying taxes on a higher amount because of the tax-free compounding. Overall, depending on where you are in your tax brackets, Let's say that net over net, money in an IRA will provide a 10+% net advantage depending your normal bracket.
Dividends:
You pay regular income tax on unqualified dividends and capital gains at 30-40% depending your tax treatment, and then generally 20% tax on qualified dividends. Still generally a 10% net advantage?
If you reinvest dividends and wait to pull them as income, from my understanding this is not taxed until you actually sell the reinvested principle. So if you don't plan on withdrawing principle unless you're taking significant gains or rebalancing at good reasons.
Doesn't long-term reinvested dividends wash out with the benefits of an IRA from a tax perspective? Except you can use the principle/ dividends at no penalty today vs. waiting until you're 59.5 years old?
You're still paying tax one way, and I tend to believe that with social security, medicaid, obamacare, student loan bailouts, car loan bailouts, that for my generation (I'm 32 going on 33 years old) taxes will be the same, or higher 20-30 years from now (or inflation will be higher which is usually answered with higher interest rates on dividend income/higher value of dividend-producing assets). Even if I make more, my write-offs may be more in terms of what is actually claimed, so I'm not counting on a higher tax rate either as per Roth treatment.
Am I missing something obvious with my analysis that they are essentailly a wash with one another? I figure this group would be the best to offer their critiques.
(Hey! BTW tax advice is very individualized, so follow a plan that's best for you, I'm not a tax advisor and don't play one on TV, and replies to this are not tax advice, and laws can change by the time you read this, do your own homework)
IRA:
You pay taxes at least once on this money. Roth, you pay your tax now, let's say 30% for state and federal. Traditional, you pay later...potentially 30-40% federal/state tax bracket. You're paying taxes on a higher amount because of the tax-free compounding. Overall, depending on where you are in your tax brackets, Let's say that net over net, money in an IRA will provide a 10+% net advantage depending your normal bracket.
Dividends:
You pay regular income tax on unqualified dividends and capital gains at 30-40% depending your tax treatment, and then generally 20% tax on qualified dividends. Still generally a 10% net advantage?
If you reinvest dividends and wait to pull them as income, from my understanding this is not taxed until you actually sell the reinvested principle. So if you don't plan on withdrawing principle unless you're taking significant gains or rebalancing at good reasons.
Doesn't long-term reinvested dividends wash out with the benefits of an IRA from a tax perspective? Except you can use the principle/ dividends at no penalty today vs. waiting until you're 59.5 years old?
You're still paying tax one way, and I tend to believe that with social security, medicaid, obamacare, student loan bailouts, car loan bailouts, that for my generation (I'm 32 going on 33 years old) taxes will be the same, or higher 20-30 years from now (or inflation will be higher which is usually answered with higher interest rates on dividend income/higher value of dividend-producing assets). Even if I make more, my write-offs may be more in terms of what is actually claimed, so I'm not counting on a higher tax rate either as per Roth treatment.
Am I missing something obvious with my analysis that they are essentailly a wash with one another? I figure this group would be the best to offer their critiques.
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