I just want to add that over the last 35 years or so corporate profits have taken a larger share of the economy while labor has taken less of a share. This has probably affected stock prices in a positive way.
I think this is going to reverse someday. There are many factors. One is the baby boomers are going to retire. That shrinks the labor pool. I don’t remember how big the younger generation is going to be.
Two… I see that companies are starting to raise their wages… Like Walmart. SF has mandatory minimum wages built in over the next few years. Seattle does too, right?
These changes don’t necessarily mean corporate profits are going to grow less. People spend the money. The economy grows. Corporate profits still increase. Stock prices do ok.
I think it is easier to have more in net assets so your returns can be less than being in a situation where you need higher returns. There are no guaranteees.
Busdriver11, your tax rate is what you should pay. It costs money to run this country. It always has.
Obviously your average federal income tax rate is not 39 percent.
As far as investing goes, it is your net return after taxes that count. Maybe after inflation too.
I am hoping to buy these muni bonds today. I haven’t received an answer yet. I am going to receive an after tax return of 3.5 percent a year for 12 years.
That is not awesome. But, my tax rate is zero.
I would rather make 8 percent a year with a 50 percent tax rate. I don’t care about the taxes if the returns are high enough. Maybe I should call Dave Ramsey.
Thanks for sharing the last bit of analysis. I found it helpful, practical and based on more than conjecture.
I think that much marketing is done using the fear factor about policy change, but it’s better to understand one’s situation first. That’s time best spent.
I might have told this story here before, and if I did, I apologize, but I’m old
My father was an immigrant who came to the US at 50, not speaking much English, with kids and a wife. He mopped stairs at night in order to get a rent reduction, and he worked during the day as a clerk. He improved his financial position through the years, and he retired not rich, but having put kids through college full-pay and having a comfortable retirement.
He wasn’t a fool, and he didn’t want to pay any more in taxes than he had to. One year, he came to me and very proudly told me that he had paid more in taxes this year than he had made, total, the previous year. He was forever grateful that this country had given him a second chance and he never begrudged paying his fair portion.
I like what you said about Business Insider, that seems about right, but I hadn’t thought of it that way.
I don’t subscribe. I pick and choose and tend to google topics that are germane to me. I read more for policy and if it doesn’t apply to my situation, I tune it out. I’m trying to simplify and don’t find much entertainment value in debate. I’m more of a pulse taker. Wire services would make me crazy. But following business news is less irritating than following “regular” news most days.
On a majority of days, I agree with the fisherman in the story. I think my child would also, so that makes my task simpler in the long run.
Also, I read somewhere (only briefly because none of this applies to me), that Roth 401(k) allows Roth contributions without regard to income limits. So, you should take that into consideration if you are prevented from making Roth IRA contributions but if your employer offers a Roth 401(k). Just keep reading to make sure you have considered that.
@AttorneyMother, that is exactly what has me debating this issue now. My company does offer a Roth 401k, but I thought it had income restrictions like Roth IRAs. Apparently not, and that is how I could roll into a Roth IRA upon retirement or leaving the company. Someone please correct me if I am wrong.
If it’s your company plan, your best source is the Summary Plan Description (get it from your HR department if you don’t have it). That is supposed to explain in layman’s terms how the plan works and you are constrained by what your plan allows.
As far as rolling it over later, there is a wealth of info online. I’m sure that Bogleheads’ Wiki or something can explain it better than I, so I will bow out here.
Thanks, @AttorneyMother, for the reminder about the SPD. There are no income limits mentioned. Our plan also provides for an In-Plan Conversion to the Roth 401k, but I think I may leave my pre-tax arrangements as they stand, and add a Roth via new contributions.
Thanks for all the valuable information in this thread.
Not that I see. Are you hinting at something specific that I may be missing? Although I have emailed our plan administrator to find out how matching and profit sharing contributions are allocated if I have both Roth and Traditional 401ks.
@college4k, no, it’s not unusual that it wouldn’t be there. It’s not a common option, but can be lucrative when it is. It’s the basis of the Mega Backdoor Roth.
The custodian (?) for the 401k plan at my company doesn’t allow after-tax contributions. So, I may switch custodians.
What matters for investment decisions is the marginal rate and not the average rate of taxation. If you are at the 39.6% marginal rate and you pay state tax and the 3.8% Obamacare tax, you could easily be at 50%. I feel similarly to @IxnayBob’s father. In some years, I pay lots of tax. I feel as if I am paying for the right to live in a country that has allowed me to be successful. But, I do wish the money I’m paying would go toward improving our educational and physical infrastructure to make our population more competitive.
The custodian (?) for the 401k plan at my company doesn’t allow after-tax contributions. So, I may switch custodians.
What matters for investment decisions is the marginal rate and not the average rate of taxation. If you are at the 39.6% marginal rate and you pay state tax and the 3.8% Obamacare tax (I think), you could easily be at 50%. I feel similarly to @IxnayBob’s father. In some years, I pay lots of tax. I feel as if I am paying for the right to live in a country that has allowed me to be successful. But, I do wish the money I’m paying would go toward improving our educational and physical infrastructure to make our population more competitive.
