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Edit: As a child comment pointed out, the issue was a brokerage account I opened in addition to the Roth IRA. (The Roth IRA deposit limit is smaller than the 40

Edit: As a child comment pointed out, the issue was a brokerage account I opened in addition to the Roth IRA. (The Roth IRA deposit limit is smaller than the 401K deposit limit) /// The problem with that is there's often caveats. Ex: in grad school I did a summer internship, and put my profits into an IRA. Later on, I found out I could not use many free file software, because they considered handling the dividends my index funds had generated as a premium feature, even though I was below the income limit. Eventually I found out the AARP had a free tax prep program that did not have that restriction (nor was it limited to over 65s), but it took a lot of effort to avoid paying 50+ bucks just to process a tiny, tiny bit of tax because it was in the "wrong" category. IMHO it's not cool to nudge low income people to not save for retirement. If anyone else has had this frustration, bookmark this page: https://secure.aarp.org/applications/VMISLocator/searchTaxAideLocations.action https://secure.aarp.org/applications/VMISLocator/searchTaxAi...

jakelazaroff 8y ago
I don't think this is true. Under "What you need to get started" on the IRS's Free File information page [1]: > Forms 1099-DIV and Forms 1099-R, showing dividends and distributions from retirement and other plans paid to you during the year Note that there is a difference between a tax product's freemium tier (where they can upsell) and their Free File product (where they cannot). A big part of the problem here is that these companies do their best to make you conflate the two — and then hide the second one, so they can upsell unsuspecting taxpayers who don't know the difference. [1] https://www.irs.gov/e-file-providers/what-you-need-to-get-started https://www.irs.gov/e-file-providers/what-you-need-to-get-st...
- magicalist 8y ago
  Yeah, I think GP was fooled by TurboTax. See this twitter thread from ProPublica where you can't proceed in two scenarios without an upsell...because you aren't actually on the Free File page: https://twitter.com/propublica/status/1120404531433672705 https://twitter.com/propublica/status/1120404531433672705
asdfuadirea 8y ago
I'm confused. Income in an IRA isn't taxed, so that's not relevant for taxes. If you had post-tax investments then yes it's more complicated, but that has nothing to do with IRA/401k retirement savings?
- gsk22 8y ago
  I assume they meant a Roth IRA, which does tax deposits.
  - asdfuadirea 8y ago
    Growth/income in the Roth IRA is also tax-free (there'd be no point in the Roth otherwise).
  - dontbenebby 8y ago
    I may have mispoke. In addition to a Roth IRA, I also had a traditional brokerage account. It's my understanding even if you invest in index funds/ETFs, some of the stocks in the funds generate dividends and those can be taxable even if there's no capital gains tax on the growth in value of the index fund/ETF. Anyways, whether it was from the brokerage I opened or the IRA, I had a class of income that would have made me need to pay to file, even though my total income was below 65k. Another thing was foreign taxes paid (because some funds in one of your indexes are international). But they don't let you just say "listen, I'd rather skip the credit for those two whole dollars in taxes and not pay 50 dollars to file"
    - asdfuadirea 8y ago
      That's a rather big misstatement: most lower income people (most people in general actually) won't be investing post-tax, a 1099-DIV really is quite uncommon It's still a shitty and stupid situation... but that doesn't mean it's relevant for most free filers. You should be able to skip the foreign tax credit if you manually enter the 1099-DIV: simply enter foreign taxes paid field on the 1099-DIV as 0, and your tax software won't offer to credit it.
chrismeller 8y ago
Exactly this. Amount of income is actually quite a crappy measure for what should be free to file. If it’s flat W2 income with nothing else to consider then sure... When you start adding in all these other little side cases you’ve blown your argument. They literally take more effort (either on your part deciphering and completing, the CPA’s part deciphering and completing, or Turbotax’s part developing and validating). Yes you made practically nothing this year but it was in incredibly uncommon ways and that makes it more complex than a simple 1040EZ.
- jakelazaroff 8y ago
  Funding an IRA is "incredibly uncommon"?
  - chrismeller 8y ago
    If you’ve got only W2 income then a 401k would be much more common. A normal IRA is “common” as well, but not nearly as much so I’d argue. As another comment pointed out it could have been a Roth IRA, which has different rules. It could also have simply been some other oddity or quirk of the tax software at the time. None of the specifics negate anything related to complexity vs cost.
    - jakelazaroff 8y ago
      Unless you change jobs, in which case you might roll over your 401k into an IRA. I agree, though, that this is a digression from the broader argument, which is that the lack of an easy and unqualified free option (or automatic filing) by the IRS is a particularly egregious case of regulatory capture by the tax prep industry.
    - Raugharr 8y ago
      My company doesn't offer a 401K, does this mean I shouldn't be allowed to file taxes for free?
    - astura 8y ago
      You can have both an IRA and a 401(k) and contribute to both in any given tax year (up to limits set by the IRS for each individual account). In fact, you SHOULD have both since 401(k)s are hugely inflexible compared to IRAs so it makes sense to fund an IRA before a 401(k) unless you're getting a match on the 401(k) contributions. So if you want to save 10% for retirement and you get a 5% match on your 401(k) then it usually makes most sense to put 5% in the 401(k) to get the match and 5% in the IRA for control and flexibly. If you then want to bump up your your retirement contribution to 15% then 5% should go in the 401(k) and 10% into the IRA, staying within the legal IRA contribution limits. Once your IRA is maxed out, then the remaining should go into the 401(k) (until your 401(k) is maxed out, of course). 401(k) can also be rolled over to IRAs when you leave your employer, so even someone who only contributes to a 401(k) will usually end up with an IRA.
cmurf 8y ago
>IMHO it's not cool to nudge low income people to not save for retirement. It's not cool to NOT nudge low income people to save.

jakelazaroff 8y ago

I don't think this is true. Under "What you need to get started" on the IRS's Free File information page [1]: > Forms 1099-DIV and Forms 1099-R, showing dividends and distributions from retirement and other plans paid to you during the year Note that there is a difference between a tax product's freemium tier (where they can upsell) and their Free File product (where they cannot). A big part of the problem here is that these companies do their best to make you conflate the two — and then hide the second one, so they can upsell unsuspecting taxpayers who don't know the difference. [1] https://www.irs.gov/e-file-providers/what-you-need-to-get-started https://www.irs.gov/e-file-providers/what-you-need-to-get-st...

magicalist 8y ago
Yeah, I think GP was fooled by TurboTax. See this twitter thread from ProPublica where you can't proceed in two scenarios without an upsell...because you aren't actually on the Free File page: https://twitter.com/propublica/status/1120404531433672705 https://twitter.com/propublica/status/1120404531433672705

asdfuadirea 8y ago

I'm confused. Income in an IRA isn't taxed, so that's not relevant for taxes. If you had post-tax investments then yes it's more complicated, but that has nothing to do with IRA/401k retirement savings?

gsk22 8y ago
I assume they meant a Roth IRA, which does tax deposits.
- asdfuadirea 8y ago
  Growth/income in the Roth IRA is also tax-free (there'd be no point in the Roth otherwise).
- dontbenebby 8y ago
  I may have mispoke. In addition to a Roth IRA, I also had a traditional brokerage account. It's my understanding even if you invest in index funds/ETFs, some of the stocks in the funds generate dividends and those can be taxable even if there's no capital gains tax on the growth in value of the index fund/ETF. Anyways, whether it was from the brokerage I opened or the IRA, I had a class of income that would have made me need to pay to file, even though my total income was below 65k. Another thing was foreign taxes paid (because some funds in one of your indexes are international). But they don't let you just say "listen, I'd rather skip the credit for those two whole dollars in taxes and not pay 50 dollars to file"
  - asdfuadirea 8y ago
    That's a rather big misstatement: most lower income people (most people in general actually) won't be investing post-tax, a 1099-DIV really is quite uncommon It's still a shitty and stupid situation... but that doesn't mean it's relevant for most free filers. You should be able to skip the foreign tax credit if you manually enter the 1099-DIV: simply enter foreign taxes paid field on the 1099-DIV as 0, and your tax software won't offer to credit it.

chrismeller 8y ago

Exactly this. Amount of income is actually quite a crappy measure for what should be free to file. If it’s flat W2 income with nothing else to consider then sure... When you start adding in all these other little side cases you’ve blown your argument. They literally take more effort (either on your part deciphering and completing, the CPA’s part deciphering and completing, or Turbotax’s part developing and validating). Yes you made practically nothing this year but it was in incredibly uncommon ways and that makes it more complex than a simple 1040EZ.

jakelazaroff 8y ago
Funding an IRA is "incredibly uncommon"?
- chrismeller 8y ago
  If you’ve got only W2 income then a 401k would be much more common. A normal IRA is “common” as well, but not nearly as much so I’d argue. As another comment pointed out it could have been a Roth IRA, which has different rules. It could also have simply been some other oddity or quirk of the tax software at the time. None of the specifics negate anything related to complexity vs cost.
  - jakelazaroff 8y ago
    Unless you change jobs, in which case you might roll over your 401k into an IRA. I agree, though, that this is a digression from the broader argument, which is that the lack of an easy and unqualified free option (or automatic filing) by the IRS is a particularly egregious case of regulatory capture by the tax prep industry.
  - Raugharr 8y ago
    My company doesn't offer a 401K, does this mean I shouldn't be allowed to file taxes for free?
  - astura 8y ago
    You can have both an IRA and a 401(k) and contribute to both in any given tax year (up to limits set by the IRS for each individual account). In fact, you SHOULD have both since 401(k)s are hugely inflexible compared to IRAs so it makes sense to fund an IRA before a 401(k) unless you're getting a match on the 401(k) contributions. So if you want to save 10% for retirement and you get a 5% match on your 401(k) then it usually makes most sense to put 5% in the 401(k) to get the match and 5% in the IRA for control and flexibly. If you then want to bump up your your retirement contribution to 15% then 5% should go in the 401(k) and 10% into the IRA, staying within the legal IRA contribution limits. Once your IRA is maxed out, then the remaining should go into the 401(k) (until your 401(k) is maxed out, of course). 401(k) can also be rolled over to IRAs when you leave your employer, so even someone who only contributes to a 401(k) will usually end up with an IRA.

cmurf 8y ago

>IMHO it's not cool to nudge low income people to not save for retirement. It's not cool to NOT nudge low income people to save.