Hi! This is Danny Due, CFP with Budros, Ruhlin & Roe, Inc. in Columbus, OH and I look forward to answering your questions.
Hello Everyone - I'm Curt Weil, CFP, in Palo Alto, CA, with the Lasecke Weil Wealth Advisory Group, and I'm waiting for some good questions!
Hello, this is Annrose Isaac from Modera Wealth Management in Westwood NJ and I am ready for some interesting questions
Danny, Annrose, and Curt, ready for your first question from Ray?
Ray - regular corporate bonds pay interest that is taxable, just like bank interest. Depending on what you paid for the bond, you may have some portion of capital gain or loss. The calculation is not simple, and your brokerage firm will do it for you. You should be advised at the time of purchase about the potential for it.
By the way, Ray, bonds issued by states, cities, school districts, etc., known as municipal bonds, pay interest that is federal tax-free, and normally tax-free in the state that issued them - California bonds are state tax-free in California, but not in, say Wisconsin. The capital gain/loss idea applies to them also.
Ray, your question is not remedial at all. Keep in mind that some bonds may be exempt from some tax if they are issued by governments. Interest on Treasury's are free from state and local taxes while muni bonds may also be exempt from federal taxes.
Interest on US Treasury bonds and savings bonds are taxable on your federal return, but are tax-free at the state level.
Interest on municipal bonds are tax-free at the federal level. Municipal bond interest are tax-free at the state level if you invest in a bond issued in the same state in which you reside. Some municipal bonds are private activity bonds. Interest on private activity bonds is tax-free for the regular tax, but is taxable for the alternative minimum tax.
If you're ready, here's our next question from Joe Joe
While I'm not an expert on this, Nevada, Florida and Texas come to mind.
Thanks for sharing, Kristine
Alright, here's our next question from Mark
Mark - assuming that your Roth money has been in the account for more than five years, there is no penalty/tax-cost for withdrawing it.
Hello Mark, there are ordering rules for distributions from a ROTH IRA and contributions and deemed to be out first. Withdrawals of contributions are tax free
So assuming that you have contributed at least $30k to the ROTH the withdrawal could be tax and penalty free
Mark, one other consideration is that by withdrawing from the Roth, you would no longer enjoy 'tax free' growth in that account whereas the $30K invested in the property would be subject to tax when you sold the property.
Alright, ready for our next question from Meaghan?
Meaghan - your mutual fund distributed either dividends or capital gains which are taxable income. You must pay taxes on that income even if you reinvested it back into the mutual fund.
Meaghan - mutual fund companies must pay out most of their earnings - dividends and capital gains in order to avoid being taxed on them. So you must have gotten some dividends and/or capital gains distributions. They are taxable to you, even if you had them re-invested. Your tax rate is likely to be much less than the corporate rate, so this is not a bad deal.
Meghan, you it sounds like you may have received a 1099 from the mutal fund company. And the 1099 probabaly shows that you either received dividends or capital gains distributions from the fund. You have to report that as income on your tax return
Sorry I am late, took a detour into income
No problem, Debbie. We appreciate your help
Ready for our next question from Kirby?
Kirby, generally speaking stocks are better in taxable accounts because the dividends they pay and long term capital gains from selling the shares you have held for over a year are taxed at favorable tax rates....any where from 0% to 20% depending on your tax bracket
On the other hand bonds (which pay interest income) get taxed at your ordinary income tax rate depending on what type of bonds they are
Kirby - the longer you can defer taxes, the better; if not deferred, go for the lowest rate of taxation. So tax-free municipal bonds head the list, followed by stocks that produce qualified dividends, followed by stocks that grow and produce long-term capital gains. My answer is solely about taxation - I, personally don't think that bonds of any kind are very attractive right now.
When you're ready, here's our next question from Keith
Keith, assuming that your full retirement age is 66 your social security benefits will grow by 8% for every year that you defer taking your benefits up until age 70.
Keith, in addition to the 8% increase, you also get the cost of living increases.
Thanks, Keith. Glad we could help
Here's our next question from Irvin