Investing For Dummies. Eric Tyson
Чтение книги онлайн.

Читать онлайн книгу Investing For Dummies - Eric Tyson страница 29

Название: Investing For Dummies

Автор: Eric Tyson

Издательство: John Wiley & Sons Limited

Жанр: Личные финансы

Серия:

isbn: 9781119716518

isbn:

СКАЧАТЬ

      

Because annuity contributions aren’t tax-deductible, and because annuities carry higher annual operating fees to pay for the small amount of insurance that comes with them, consider contributing to one only after you’ve fully exhausted your other retirement account investing options. Because of their higher annual expenses, annuities generally make sense only if you have 15 or more years to wait until you need the money.

      Choosing retirement account investments

      When you establish a retirement account, you may not realize that the retirement account is simply a shell or shield that keeps the federal, state, and local governments from taxing your investment earnings each year. You still must choose which investments you want to hold inside your retirement account shell.

      When you invest outside of tax-sheltered retirement accounts, the distributions on your money (for example, dividends) and realized gains when you sell are subject to taxation. So the non-retirement account investments that make sense for you depend (at least partly) on your tax situation.

      

If you have money to invest, or if you’re considering selling current investments that you hold, taxes should factor into your decision. But tax considerations alone shouldn’t dictate how and where you invest your money. You should also weigh investment choices, your desire and the necessity to take risk, personal likes and dislikes, and the number of years you plan to hold the investment (see the section “Choosing the Right Investment Mix,” later in the chapter, for more information on these other factors).

      Figuring out your tax bracket

      You may not know it, but the government charges you different tax rates for different parts of your annual income. You pay less tax on the first dollars of your earnings and more tax on the last dollars of your earnings. For example, if you’re single and your taxable income totaled $50,000 during 2020, you paid federal tax at the rate of 10 percent on the first $9,875, 12 percent on the taxable income above $9,875 up to $40,125, and 22 percent on income above $40,125 up to $50,000.

      Your marginal tax rate is the rate of tax that you pay on your last, or so-called highest, dollars of income. In the example of a single person with taxable income of $50,000, that person’s federal marginal tax rate is 22 percent. In other words, he effectively pays a 22 percent federal tax on his last dollars of income — those dollars earned between $40,125 and $50,000. (Don’t forget to factor in the state income taxes that most states assess.)

Knowing your marginal tax rate allows you to quickly calculate the following:

       Any additional taxes that you would pay on additional income

       The amount of taxes that you save if you contribute more money into retirement accounts or reduce your taxable income (for example, if you choose investments that produce tax-free income)

Singles Taxable Income Married Filing Jointly Taxable Income Federal Tax Rate
Less than $9,875 Less than $19,750 10%
$9,875 to $40,125 $19,750 to $80,250 12%
$40,125 to $85,525 $80,250 to $171,050 22%
$85,525 to $163,300 $171,050 to $326,600 24%
$163,300 to $207,350 $326,600 to $414,700 32%
$207,350 to $518,400 $414,700 to $622,050 35%
More than $518,400 More than $622,050 37%

      Knowing what’s taxed and when to worry

      Interest you receive from bank accounts and corporate bonds is generally taxable. U.S. Treasury bonds pay interest that’s state-tax-free. Municipal bonds, which state and local governments issue, pay interest that’s federal-tax-free and also state-tax-free to residents in the state where the bond is issued. (I discuss bonds in Chapter 7.)

      To help pay for the Affordable Care Act (Obamacare), taxpayers with total taxable income above $200,000 (single return) or $250,000 (joint return) from any source are also subject to a 3.8 percent extra tax on the lesser of the following:

       Their net investment income, such as interest, dividends, and capital gains; net investment income excludes distributions from qualified retirement plans

       The amount, if any, by which their modified adjusted СКАЧАТЬ