OT: 529 change proposal

[FlyerInHi]

[quote=livinincali] Taking away a tax benefit isn’t unconstitutional, it’s why I like to stay far away from deferred benefits promised by governments. They are under no obligation to keep those promises and the people that made those promises are long gone by the time they come due.[/quote]

That doesn’t make any sense. Any deferment of taxes is worth something and worth doing. Time value of money.

[UCGal]

The idea of changing the rules mid-course is inheritantly unfair… Perhaps – if this passes, they’d write is to 529’s are frozen to new contributions, and the old rules apply. (She says hopefully….)

That said – it might work out ok for me. My income is super low, so I’m back in the 15% bracket.

Ironically, I just put this months contributions into the kids 529’s yesterday. I might open a separate investment account and put the money in there. It’s not like the 529 is invested differently than I’d invest it – Vanguard index funds….

[Coronita]

[quote=FlyerInHi][quote=livinincali] Taking away a tax benefit isn’t unconstitutional, it’s why I like to stay far away from deferred benefits promised by governments. They are under no obligation to keep those promises and the people that made those promises are long gone by the time they come due.[/quote]

That doesn’t make any sense. Any deferment of taxes is worth something and worth doing. Time value of money.[/quote]

That deferment comes at a price. Those funds can only be used for a certain purpose and they cannot be withdrawn without a penalty (at least the gains portion)…

I doubt this will pass since thankfully the GOP is already objecting to it.. BUT, if they are going to change the rules, then there should be an option to withdraw penalty free as well (you just pay the capital gains taxes on it)…

But the idea that this is a “wealth tax” is just absurd.

http://www.utsandiego.com/news/2015/jan/22/obama-idea-to-trim-college-savings-plans-hits-gop/

“Middle-income families that have worked hard and saved to send their children to college should receive our support, not a new tax bill to pay for (Obama’s) agenda,” said Rep. Lynn Jenkins, R-Kan.

Jenkins said she supports the American Opportunity Tax Credit, but said the $2,500 limit doesn’t come close to covering the annual cost of a college education.

“I have two kids in college. It’s about $20,000 per kid, at a minimum,” Jenkins said. “Where are we supposed to get the rest?”

Thank you Jenkins…Well said. Shear lunacy at the white house. I want what he’s smoking there..

[FlyerInHi]

As a concept, I don’t see why tax deferment should be avoided, even though deferment might not be permanent.

You defer taxes as long as you can, and pay taxes when they come due. You still benefit from paying later rather than sooner.

[Coronita]

[quote=FlyerInHi]As a concept, I don’t see why tax deferment should be avoided, even though deferment might not be permanent.

You defer taxes as long as you can, and pay taxes when they come due. You still benefit from paying later rather than sooner.[/quote]

In concept, think of the case that your tax rate is higher later what it is now…For example, suppose Hillary is president in 2024 and she decides that LT capital gains rate should be 30% for everyone. Because obviously everyone things capital gains should be taxed at a higher rate…

Or if the 529 plan is like an IRA, withdrawals would be taxed more like ordinary income, not LT capital gains. And that will depend on your tax bracket. (Granted, obama says in case of the 529 plan, it would be taxed at your kid’s rate…which likely is your tax rate because of the kiddie tax)

Reality is, it’s not so simple as that. It depends also on whether you plan on buying/selling during that period when you are invested…. Buying/selling in a tax deferred account doesn’t incur taxes on gains during that time. So conceivably, if you do well, more of your money compounds each year than if you buy/sell in a normal account and have to pay capital gains/dividends along the way… So it depends…

For me, I just wouldn’t want to tie my money into a limited use account, if it was just a tax deferral. partly because I also anticipate in my future, my income will be more than my wage incomes now…

[SK in CV]

[quote=UCGal]The idea of changing the rules mid-course is inheritantly unfair… Perhaps – if this passes, they’d write is to 529’s are frozen to new contributions, and the old rules apply. (She says hopefully….)

That said – it might work out ok for me. My income is super low, so I’m back in the 15% bracket.

Ironically, I just put this months contributions into the kids 529’s yesterday. I might open a separate investment account and put the money in there. It’s not like the 529 is invested differently than I’d invest it – Vanguard index funds….[/quote]

Changing the rules mid-course would be unfair. That’s not the proposal. The proposal (which isn’t finalized) would only apply to new contributions. Distributions related to prior contributions would continue to be treated as they are under current law.

All this hand wringing is for nothing. Tax laws change almost every year. New benefits appear, and old ones disappear. There has almost never been an unfair retroactive change to federal tax law. With extraordinarily minor exceptions, changes have been prospective only.

[Coronita]

[quote=SK in CV] There has almost never been an unfair retroactive change to federal tax law. With extraordinarily minor exceptions, changes have been prospective only.[/quote]

Uh?

California Proposition 30 came pretty close, right?

[FlyerInHi]

flu, with tax deferment, you have $xxx times your tax rate more money to invest. That money compounds over time.

There is no evidence of disruptive tax policies. Changes are usually phased-in, and for income over a certain amount.

All else being equal, there’s no reason to pass on deferring taxes.

[SK in CV]

[quote=flu][quote=SK in CV] There has almost never been an unfair retroactive change to federal tax law. With extraordinarily minor exceptions, changes have been prospective only.[/quote]

Uh?

California Proposition 30 came pretty close, right?[/quote]

See bolded words.

[an]

[quote=SK in CV][quote=flu][quote=SK in CV] There has almost never been an unfair retroactive change to federal tax law. With extraordinarily minor exceptions, changes have been prospective only.[/quote]

Uh?

California Proposition 30 came pretty close, right?[/quote]

See bolded words.[/quote]
Why the distinction? If democrats have super majority in both house and senate and the presidency, what make you think it’ll be anything different than CA?

[Coronita]

.

[jeff303]

[quote=AN]Why the distinction? If democrats have super majority in both house and senate and the presidency, what make you think it’ll be anything different than CA?[/quote]

Because no concrete proposal exists to retroactively nerf Roth IRAs or 401ks, only politically motivation supposition and innuendo? Because doing so would be massively unpopular across the spectrum and would amount to political suicide?

[an]

[quote=jeff303][quote=AN]Why the distinction? If democrats have super majority in both house and senate and the presidency, what make you think it’ll be anything different than CA?[/quote]

Because no concrete proposal exists to retroactively nerf Roth IRAs or 401ks, only politically motivation supposition and innuendo? Because doing so would be massively unpopular across the spectrum and would amount to political suicide?[/quote]I’m not talking about this proposal. Again, why the distinction between federal tax law vs CA tax law? Why is it any different? If Democrats have super majority in both chambers and the presidency, why would it be any different between federal vs CA?

[FlyerInHi]

[quote=AN]
Why the distinction? If democrats have super majority in both house and senate and the presidency, what make you think it’ll be anything different than CA?[/quote]

Because Federal law is for the whole country and a lot more consistent.

State and local laws are more on the local level for good reasons — the very reason we have a Federal system, so that new ways of doing things can be first tested at the local level.

The introduction of the Federal income tax to pay for WWI was a “game changer”. Then we had the New Deal. But since then, Federal policy has been incremental, often to lower taxes, not increase them.

[livinincali]

[quote=FlyerInHi]
That doesn’t make any sense. Any deferment of taxes is worth something and worth doing. Time value of money.[/quote]

Taking a deferment of taxes now is worth doing. I.e a 401K or IRA contribution. A Roth IRA/401K where you don’t get a tax benefit now but potentially get a better tax benefit in the future may or may not be worth doing. It depends if you can count on that future tax benefit. I think the odds are you probably can’t but it is a risk.

[Author]

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