10000%. The people that get screwed the worst on taxes are people making like $200K+ from W2 jobs. They’re making enough to get into a high tax bracket but aren’t accumulating the kind of wealth you need to gain from the tax code.
People making low enough don’t pay much and people living off of long term capital gains barely pay anything… it’s part of my retirement strategy honestly. The first I think $75K of long term capital gains per year is tax free (for a couple), so that’s pretty much comparable to making $100K if not a little more if you were at a W2 job. The most you pay on around $400K in long term capital gains is like 15% vs 35% if you were making that at a W2 job. It’s a huge amount of money.
I’ll try to find it but I remember reading an article talking about how small business owners could funnel a lot of money per year into some sort of self directed retirement account that is pre-tax, so it comes off of your income. Not sure if her business is setup in a way that it would apply to her but let me see if I can find it. I want to say you could do $40-50K per year like that… it goes into retirement savings but takes away from what the company “made” that year and brings what you owe in taxes down quite a bit if I remember right. I don’t remember all the details though, I’ll see if I can find it
Everything that the business uses becomes a business expense, which cuts down on profits. Cell phone, internet, office furniture, computers, software, yadda, yadda, yadda.
It looks like an Individual 401K might be the best thing for us. The wife makes 50K, so with that plan, we could deposit 19K for her as an employee plus another 12K as the employer.
31K tax-free into retirement sounds pretty damn good! We have enough cash-flow through my work to not worry about putting basically her whole paycheck into retirement, so I think that’d probably be wise. So sick of taxes draining our income.
Sounds good. Yeah that will help for sure… esp if you can save the money and don’t need it. Better to go to a retirement account than the gov’t.
We do 50% on my wife’s (max the company allows) because she has some uncommon retirement plan rules that make it where we can do up to $55K a year on hers. Then I do whatever mine works out to to max out everything there is. Just do it as early as you can, I wish had saved more earlier… even small amounts would be a lot by now.
That’s exactly the same type of breakdown we’ll have! I only need to contribute 2.5% to get the full 8.5% from my employer, so I’ll do that. We’ll put $31K into my wife’s solo 401, that 2.5% into my work 401k, and whatever is left over into a Roth IRA in my name. At what age did you start making retirement contributions? We started about a year ago (I’m 28).
Hmm, I started my first “real” job at 24, had to be there a year before you were eligible so that’s 25. I think 26-27 I finally did just the basic 3% to get the 3% match. I did the shitty high fee fund that the sales person from NY Life told me to do though, def regret that one. They took 5% off the top of everything I put in for several years and had annual fees on top of that until I figured it out. One year the market was up like 20% on average and I lost money. I got my income up to 6 figures when I was 30 but still didn’t go crazy with savings for another 2-3 years after that… wish I could go back and save all the money I spent on cars and car parts but it is what it is now. That + all the gains since then would make it quite a bit of money.
8.5% match for putting in 2.5% is awesome though, most places here match 3% on 3% or 6 and 6. Mine was 1% match for a while but it’s at 6% right now, thankfully. There’s a lot of debate on which buckets to fill up first between 401K, Roth, etc. but I think just getting all you can in any of them is way better than most people do. Any way you look at the math of trying to decide which is better, you have to make assumptions about how much you’ll need to pull out each year and future tax code, so IMO no one really knows for sure.
Damn, that match is terrible! Glad to have the setup we do (and glad you have a good one too). We are lucky for many reasons, brother.
Sounds like you still were pretty on top of things, even though your plans weren’t great and you weren’t as dialed in as you are today. I bet you still got some nice returns. You were obviously much more on the ball than most 20-somethings. Some of my friends are unbelievably bad with money. It’s sad. They’re stressed all the time and just don’t get it.
Yeah, it makes no sense. Most people if they could get a few months ahead and forget they had that extra money, they’d be a lot better off. At least there would be a buffer then and they would’t be stressed about every little thing. I had an ex that was the worst about it… she’d get a $2-3K bonus and spend it all. Then her dog would get sick and I’d literally have to loan her money so she could pay the vet. I’m like just save ONE bonus and forget you have it and it’ll be there when you need it
We had a party here in March and some friends were complaining they were down like $5K on their retirement accounts when the market dropped like 25% or something crazy like that. We were like uhhhh we’re down enough to buy a house, haha. And we were buying every share we could while it was down so far while half of them were talking about selling. So dumb. Obviously we weren’t telling people that but still, it’s pretty much the American way. Start out with college debt, finance a car and then buy a house that’s as much as you can afford and then be a slave to debt for the next 20-30 years. Then retire maybe for a few years, then die, it’s depressing. I’m not against college or borrowing for a house given all the tax perks, avoiding rent, etc. but people need to be smarter about it.
I love it! That’s an incredible rant, brother, and I’m 100% there with you. We’re surrounded by mind-blowing incompetence in the realms of finance and health. People have no idea how little they know.
Yes hire a good accountant that works primarily with people that do her profession so they know the write offs and loop holes. When I was doing Real Estate in NYC and my income was 150k+ I went from paying 36% to 17% by hiring a better accountant. I paid like $300 to save thousands. Also, 150-200k in NYC is not that much so it ain’t bragging. I lived in a 350 sqft apt for fuck sake.
Agree. They pay more total dollars than most people. They receive about the same befits as lower payers. In a sense this isn’t fair. At the same time many high earners IMO don’t deserve that high pay. I’m one of them. My job as an engineer is less strenuous than the production workers who make much less than me, but I get paid much more. I think this is amplified the higher the incomes gets in most cases. The progressive tax system addresses this issue a bit.
One important lesson I’ve learned is hard work doesn’t always equal high pay. Rare skills, getting a bit of luck can make a huge difference.
Your opinion isn’t relevant to the pay rate of skilled workers; the market sets that. Highly skilled workers contribute more marketable value to an organization than do unskilled workers. In addition to that there is the issue of scarcity. Anyone can be trained to work a production line; not everyone has the personality configuration and/or educational background necessary for information work or, perhaps in your case, differential equations.
Put another way, physical strenuousness isn’t relevant to the value of the work product. Unless you’re generating electricity by turning a treadmill, I guess. Although it is relevant to the rate of compensation, as all other variables being equal, including pay, workers will opt for the least strenuous roles, so worker behavior on the supply side of the market contributes to setting the rate of compensation as well. This is why oil field welders are frequently compensated as well or better than professional engineers, for example.
I acknowledged that rare skills (shortage of supply) somewhat determine pay rate (many times connections play a huge role among other things).
With something like a flat tax rate, the poor become poorer generally. Poverty creates lots of negatives for society (even for the rich). IMO having a progressive tax system addresses these negatives a bit. The wealthy get something in return for their higher contribution (a better society). Is it the fairest thing? Probably not, but IMO we have overall better outcomes in society with it.
Yeah, from a logical fairness point of view, flat rate makes a lot of sense to me. From a real world, what type of society do you want to live in perspective, progressive makes more sense IMO.