I think you can, but it depends on the current plan. Some employers set up their plans so that they can directly accept rollovers. Most don’t.
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Thanks guys. If it matters, this is an Employee Stock Ownership Plan (ESOP), so slightly different than a 401k (for what it’s worth, I also had a Money Purchase Pension Plan with this company that I was able to transfer into my current company’s 401k when I made the switch). I work for a large firm with a vanguard 401k and the ESOP says I can move it to a 401k, so I’m 100% certain I can make that rollover if it’s the best option.
Good point, I didn’t even raise the option of rolling it into a Trad IRA and just leaving it there. My approach has been Trad 401k + Roth IRA combo to balance future tax risk (I basically think taxes have to go up in the future if we’re to survive as a nation, but also think, as you noted, they could fuck Roths over, so I’m hedging and going with both). But yea rolling into a Trad IRA and leaving it is def an option. I gotta look more at the income reqs on Trad IRAs, I dunno if I’ll get full tax benefit.
There is no limit on a Trad. But if your income is above a certain level you have to pay tax on it. It grows tax-free and it comes out as income. If you just keep it in a taxable acct, then it doesn’t grow tax-free and it comes out as CG. So there is not a whole lot of reason to do a non-deductible IRA unless you are going to backdoor it into a Roth.
That’s a better plan than paying a 10 percent penalty by taking a direct distribution. But from very brief reading on ESOP plans, I think he can roll it to an IRA and the income limit for deductible contributions shouldn’t matter, since it’s not an annual contribution, it’s a rollover. (He could still then do a Roth conversion and pay tax at that time, but wouldn’t have to pay the 10 percent penalty. Or he could hold it in the IRA and pay taxes in the future when he takes distributions.)
Yeah, you’re probably right. I was talking about the general case. I’ve got no idea how ESOPs work. But if that’s true, we can file that under my “not a whole lot of reason” qualifier.
Also as you suggest, my statement doesn’t really refer to rollovers.
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I’m gonna reply in this thread since it seems like we’re getting way off topic for the other one.
You might need to dumb this down a little more for me.
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Bolded doesn’t make any sense. I would assume that the stock has appreciated substantially over the basis at the time you take the loan. If the stock hasn’t appreciated, then there is no tax avoidance to be had.
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What does this mean: “put in a 40 percent margin”. I’m assuming it means they will loan you up to 40% of the value of your stonk. Is that right?
Yeah, I don’t see how a rate that high will allow even a rich person to make this work. Unless you die very quickly after taking the loan, paying 8% for a few years will be more costly than just paying LTCG and selling the stock. And it gets worse every year.
But even if we cut the rate down to 3 percent, you are still going to be behind if you carry the loan for a long enough period of time (unless, of course, the stock keeps appreciating). I can’t imagine that these strategies rely on stock appreciation as that is not really a given. But maybe they do, it’s not a terrible assumption if the time horizon is long enough.
They’re deducting the interest against a 40% tax rate and playing the long game on estate tax. This isn’t for random dudes with $2 million in a brokerage account, it’s for actual super rich people.
EDIT: Ok I think I completely misunderstood what you posted
Here’s a different question. How do they get to deduct the interest against income? What part of the tax code allows that?
I don’t know but I’ve done it. Think all interest used to be deductible then they dumped exemptions over the years but the interest for financial stuff stayed (like with mortgages)
If your stock is up 50 percent and you take out a loan at 50 percent loan to value, then the tax burden if you are forced to sell is going to be a helluva lot lower. If you get margin called because it means the stock has now traded down substantially.
I’m still not getting this part. Are you somehow able to deduct the loan amount against the gain? Is it counted as a deductible loss in some way?
Also I’m having a hard time understanding why you would be “forced to sell” in this scenario. If your stock goes up 50%, there is no need for a margin call. So why would one be forced to sell?
This is news to me. Does anyone deduct interest on auto loans? Did they ever?
No, I think you need to be set up in some structure so that the interest is a business expense. Disclaimer, I don’t make as much as LG. Not even in my imagination like Wil.
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Yes, I believe that all personal interest, including credit cards and auto loans, was deductible until the big 1986 tax reform.
I don’t think LG was writing off interest in 86, so I’m curious what he was talking about outside of mortgage and HELOC stuff.
Oh, sorry. Couldn’t pass up an opportunity to act smart about old tax rules.
I think he was just talking about having stock and, instead of selling it, taking out a margin loan with the stock collateralizing the loan. That margin interest is deductible for anyone, no complications required.
Yup, just posted this in a different thread. It’s completely indefensible.
More than 90% of the rooms would have no windows.
I think this answers Melkerson’s question. With the caveat I guess that you need have enough deductions to itemize, which I would assume anybody thinking about doing this easily would.