Original Message:
Sent: 10/3/2021 1:09:00 AM
From: Benjamin Sanchez
Subject: RE: Percentage of Gross
Hi Marc,
There's different schools of thought about investing. Before we get into the numbers, I'd like to note a point I heard recently. In a study I read, it made the point that regardless of which method of investing you do, the important thing is that you invest! As regularly as you can.
Let's lay out the assumptions first. Let's assume you invest $6,000 every year for 30 years. Your mutual funds get the average stock market return of 11% every single year for ease of math. You're in a 25% tax bracket.
Traditional IRA mutual fund: You'll save $45,000 in tax deductions over the 30 years. ($6,000 at 25% x 30 years.) Using an online compound interest calculator without background adjustments, you end up with $1,194,125. Your tax bracket of 25% means you pay $298,531 in tax. Minus the $45k you saved over the years, your tax amount is $253,531.
Roth IRA mutual fund: You have to make $8,000 to invest $6,000 with the tax bracket. Essentially you don't get the deduction, which means you have to pay an additional $45k in taxes over the years. You also had to make more ($60,000 over 30 years), which means you lose out on $105,000 total over the 30 year period. But you save $298,531 in taxes at the end. When all is said and done, you save $193,531 by choosing the Roth option - at the end of 30 years, not during that period.
Obviously this example won't hold up to real life exactly. The market doesn't make exactly 11% every year, nor is it likely one will invest exactly $6,000 a year for 30 years.
Again, what's best I think depends on the individual situation. The important thing to remember is, regular investing makes you a lot wealthier at retirement regardless of which method you choose.
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Benjamin Sanchez, RPT
Piano Technician / Artisan
(256) 947-9999
www.professional-piano-services.com
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Original Message:
Sent: 10-02-2021 21:10
From: Marc Abram
Subject: Percentage of Gross
"Clear as mud basically describes the entire tax system" Haha- indeed!
Unfortunately, I'm not sure your financial advisor is entirely correct. ;) Timeline really has nothing to do with it. It's all math and percentages. It seems like it might be more but that's if you compare say, $1000 in a Roth vs $1000 in a TIRA. That's a common way to think about it but really, for an apples to apples comparison, you need to start with the same untaxed money. Assuming 14%, your $1000 turns into $860 for your Roth (because you need to pay tax on it) vs the full $1000 for TIRA/SEP. Obviously the $1000 would grow more given the same % return but then it's taxed later. If the tax bracket is lower in retirement when taxes come due, you end up with more in your pocket with a TIRA. If the same tax bracket, then no difference. Yes, your TIRA is taxed, but it also grew more because it had a higher starting amount. The gov't wouldn't allow that much of a free lunch. Please check my math on this- I just fail to see how it can be any other way, but I'm happy to be schooled otherwise.
I'm sorry for going a bit off topic...
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Marc Abram
Highland MD
202-468-8270
Original Message:
Sent: 10-02-2021 19:14
From: Benjamin Sanchez
Subject: Percentage of Gross
Clear as mud basically describes the entire tax system, LOL!
The way my financial advisor explained it was this. For example, if we're talking about long term investments (10+ years), that follow the stock market average (11% rate of return), and you put in enough to bring your retirement to $1,000,000 (which mathematically is not difficult to do if you start early enough), then that one million is either tax free or taxed. Even if your tax bracket is lower, say 14 percentile, you'll pay $140,000 in taxes when you pull retirement. Or, you get to keep all the one million without giving any to congress. As she explained it, which is better depends on how much time you have, and if your projected amount would be big enough to justify paying the taxes now.
If anyone wants more details I'd like to refer you to my financial advisor. She knows way more about this stuff than I do and would be able to explain it better. PM me if you want her contact info.
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Benjamin Sanchez, RPT
Piano Technician / Artisan
(256) 947-9999
www.professional-piano-services.com
Original Message:
Sent: 10-02-2021 13:06
From: Marc Abram
Subject: Percentage of Gross
Benjamin,
I've always heard that the guiding information on whether to contribute to a Traditional IRA vs a Roth IRA is what your tax bracket is now compared to what it will be in retirement when you need to withdraw. For most, retirement income is quite low compared to their working years, so their tax bracket is lower in retirement, favoring a Traditional/SEP IRA. If tax brackets are the same before and after retirement, then it's a wash- you either pay the taxes up front (Roth) or defer until later (TIRA/SEP).
All things being equal, the growth of the money doesn't change- you just either paid the taxes on it before or after. In the case of the Roth, if you want to put $750 in, you really started with $1000, paid 25% (or whatever) in taxes and had $750 left to contribute. With a TIRA, you put the full $1000 in with no taxes paid. During your retirement, when it comes back out, you'll then pay the 25% (or hopefully less).
Growth is the same. Say your money doubled. Roth = $1500, no taxes need to be paid upon withdrawl. TIRA = $2000; if taxes need to paid then it's $1500 (25% tax) upon withdrawl (same as Roth), but hopefully if one is in a lower tax bracket, the amount might be $1600 or $1800 for example.
Now sometimes, one can max out their SEP, after which they can then also contribute to a Roth (depending on income), and that's a great idea.
Clear as mud? ;) Hope this helps someone.
Marc
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Marc Abram
Highland MD
202-468-8270
Original Message:
Sent: 09-30-2021 17:35
From: Benjamin Sanchez
Subject: Percentage of Gross
I would recommend a Roth over traditional IRA if you can. Assuming you have more than 10 years before you plan on pulling from the retirement account, you'll end up with more money if you pay the taxes on the contributions now rather than later. And if you have 20 years or more, the difference could easily be worth six figures. If you put it in a traditional IRA, the contributions and growth will be essentially tax deferred but not tax free. With a Roth IRA, the contributions will be taxed now but the growth will be tax free. Which is better depends on how long you plan to leave the money before using it.
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Benjamin Sanchez, RPT
Piano Technician / Artisan
(256) 947-9999
www.professional-piano-services.com
Original Message:
Sent: 09-30-2021 02:18
From: David Love
Subject: Percentage of Gross
Estimated tax payments include self employment taxes.
Social security maxes out at a certain level so you should always pay as little in taxes as you can legally. That includes maxing retirement contributions into a SEP IRA if you can which are pretax payments to yourself. A lifetime of retirement contributions if managed reasonably well will always exceed what social security will contribute to your retirement.
But, of course, talk to your financial planner if you have a good one.
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David Love RPT
www.davidlovepianos.com
davidlovepianos@comcast.net
415 407 8320
Original Message:
Sent: 09-30-2021 01:53
From: David Dewey
Subject: Percentage of Gross
Don't forget that as a self-employed person, you pay an employee's share of the SSI tax AND the employer's portion too. And if you work your books to minimize your income tax, your eventual Social Security returns will also be diminished. There's always a "catch-22"!
David Dewey
Original Message:
Sent: 9/29/2021 10:04:00 PM
From: David Love
Subject: RE: Percentage of Gross
If you're not incorporated then just pay your estimated taxes on time and don't worry about it. If you are planning to incorporate then talk to an accountant about the best way to structure your compensation.
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David Love RPT
www.davidlovepianos.com
davidlovepianos@comcast.net
415 407 8320
Original Message:
Sent: 09-29-2021 08:37
From: Greg Junker
Subject: Percentage of Gross
I highly recommend establishing an LLC, taking about 1/3 from gross for salary. This way, you are eligible to receive added perks, such as tax benefits and the 2 recent PPP SBA forgivable loans. You can save $$$, and your business is very well organized.
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Greg Junker
Greg Junker's Piano Shoppe, LLC
Belleville IL
618-971-9595
Original Message:
Sent: 09-28-2021 23:21
From: Cobrun Sells
Subject: Percentage of Gross
I'm curious how is everyone who is self-employed (1-man field/shop technician) here paying themselves? Percentage of gross revenue? Salary? Hourly?
What percentage of gross would be a reasonable owner's compensation (or take-home pay)?