I’m like 99% sure it’s taxable if not spent on health care regardless of your age.
My bad. I was wrong. You can use it for whatever but you do have to pay taxes.
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Lol at me for reading these materials incorrectly and reading tax free instead of penalty free. Still a cherry deal I think, but not quite what I thought.
Well, just save those lasik and other receipts and you can at least use that amount tax-free for whatever.
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Is it really that hard to “use it up”? Don’t you all have health care expenses coming out the wazoo?
I don’t think you can use it for most insurance premiums, which is the major health care expenditure for most healthy people.
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my health care expenses most years are 0 or damn near 0 if you don’t count the insurance I pay for (and that’s pretty cheap)
You can also use it to pay certain Medicare premiums tax free starting at age 65. (Some supplemental Medicare policies are not eligible.)
USA #1 worker bees are mostly shielded from the insane cost of care by employer provided “insurance” and Obamacare subsidies. It is only when they get sick that they realize how useless that “insurance” is.
I’ve got a money/tax question.
My former company had an Employee Stock Ownership Plan. I just hit 5 years from departure and am now eligible for distribution of the balance of the account, and it’s more money than I expected (~$30k).
The options they give me are:
- Direct Rollover
- Cash payment
- Combination
My instinct is to take the direct rollover and dump it into my current 401k, which has decent investment options. I’d prefer to put it in an IRA to get slightly better investment options, but my only IRA is a Roth so I assume I’d have to pay taxes on it before I can move it into the Roth IRA. (Maybe another consideration: I’m above the income limit for Roth IRA contributions and have been considering starting a Traditional IRA to backdoor contributions to the Roth, but if I moved it to a Traditional to backdoor to a Roth I think I’d still have to pay taxes on this money, right?)
Anyways, we are (it’s like 99% me) attempting to save for a down payment on a house. It’s maybe a year or two away, and this money would go a long ways towards avoiding PMI, so I’m considering just taking it as a cash payment. My question there: does anyone know how this cash payment might be handled tax-wise? I assume it’d be considered income, but it’d be nice if it was considered LTCG. If it’s going to be considered LTCG I’d lean more towards taking the cash.
Any thoughts? Obv these situations are dependent on exact circumstances, so if there are other factors I should consider let me know.
Edit: some more googling seems to imply that taxes would be income tax + 10% (I’m younger than 59.5). Oof. Looks like rollover is best. Any thoughts between 401k vs Traditional vs Traditional-to-Roth vs Direct-to-Roth are welcome.
I didn’t think you could take money/stonks from a past 401k and roll it into a current one, but maybe that’s just me not understanding the tangled web that is the financial system.
If you take the cash, it should be LTCG. That only requires holding the asset for a year. You got that easy. But I would try to first roll it over into a tax-advantaged account of some sort, because depending on your income and other sources of savings, you might have a hard time putting a windfall of straight cash into a tax advantaged account. So, if you wanted to reinvest, it’d be with after-tax dollars, and you’d then still owe tax when you sell, too. For rolling over, and for me, I’d try to get it into a traditional IRA, because I expect to be paying more in income tax now than I would be when I’m drawing down on my savings. I also like the idea of taking advantage of the tax savings now rather than hoping the government doesn’t fuck over the Roth people sometime between now and 30 years from now.
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?