Actionable Optimal Tax Life Planning ST4US INV4US

By pjain      Published June 4, 2020, 10:26 p.m. in blog Fin-Plan-Strategy   

Part of Tax Series Tax Planning 101 - Retirement Planning and Taxes Series

How to (Legally) Never Pay Taxes Again by understanding Different Kinds of Taxes

Capital Gains go from 40% to 15%

  • Warren Buffet said he pays less tax than his secretary. This is mainly because he has been growing his income for decades tax free, and then going to give lots to charity (eg Gates foundation) without paying any tax whatsoever.

  • Capital Gains Tax Rates for 2020

  • 0% for AGI $0-$80,000
  • 15% for $80,001 - $496,600
  • 20% for $496,601+

  • Think long term for investing Capital Gains

  • Own things you can hold for LONG time eg ETFs

  • Capital Gain Harvesting over time to get

  • Retired couples can manage Long term unrealized gains over time to keep under $80,001
  • Say they have a 2% dividend, and 100% gain on $500,000 principal over 20 years to be $1 million now. By selling it off over many years to keep the realized gain less than $80,000 per year, they will get to pay NO TAXES at all!

3. Collectibles have high 28% tax bracket!

Don't live in High State Tax area - like CA, NY, NJ, IL - best are TX,WA,FL

Tax Efficient Salary Deferring and Investing - defer $75,100 per year tax free

  • 401k - $19,500 of salary can be deferred for decades
  • In addition $6,500 per person (50+ additional $1000)

  • IRA

  • $6,000 per person (50+ additional $1000)

  • HSA

  • $3,550/$7,100 per year as couple (50+ additional $1,000 individual)

So if you manage it properly every year a couple can tax free remove from your income (if over 50) - 2*($19,500 + $7,500 + $7,000 + $3,550) or $75,100 per year!

  • If you invest that - you can compounding it every year tax free!

Withdrawing Money Tax free

HSA management

401k, IRAs - Do the ROTH Conversion Ladder

  • After a 5 year waiting period you can convert most of your retirement money tax free!

  • Consider if you have $200,000 in your traditional IRA and $0 in your Roth IRA to start with in Year 0

  • Since the standard deduction is $24,800 for a couple, convert TAX FREE to that amount
  • Then the rules of ROTH IRAs allow you to withdraw it including any gains, etc. after 5 years in the account TAX FREE
Year IRA Roth IRA Roth Withdrawal 5yr
1 200k 24.8k
2 175.2 24.8k
3 150.4 24.8k
4 125.6 24.8k
5 100.8 24.8k
6 76 24.8k 24.8k + gains on it?
7 51 24.8k 24.8k + gains on it?
8 26 24.8k 24.8k + gains on it?
9 1,2 1.2k 24.8k + gains on it?
  • Over time, you can pre-plan all this from say your 65yr retirement age to 85yrs - even if IRAs have $1m+
  • Note if you move say $1m+ from IRAs to Roth IRAs by doing this, you can have $1m+ in estate left tax free.

Tax Loss Harvesting


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