7 ms·

I assume they meant a Roth IRA, which does tax deposits.

by gsk22 8y ago

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.
  - dontbenebby 8y ago
    Many people's companies don't offer 401ks. The limit for IRAs is lower than that for 401ks. It is very common to open a brokerage account if you had more than 5500 you wanted to put away. (Ex: grad student who interns in the summer, contractor with boom and bust pay cycle, or any worker in a company that doesn't offer a 401k) >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. I'm not sure it's legal to lie about the contents of the 1099-DIV, even if the lie is to the government's benefit :)
  - Consultant32452 8y ago
    Am I correct in understanding that interest paid to deposits at a credit union get you a 1099-DIV? And wouldn't that mean virtually everyone who banks at a credit union would get that form? Also, anyone who owns savings bonds or CDs. Those are out of fashion these days, but many people still get them. Your point stands that these are still not the majority of the population, I just wanted to add some more pathways a person might get such a tax form.
    - dontbenebby 8y ago
      That may have been what caused it as well. It was a while back and my memory is fuzzy. I've since optimized my investment strategy (small amount in checking, rest in investments) The IRS doesn't require institutions to generate 1099s for <10 dollars in interest.
    - astura 8y ago
      >Am I correct in understanding that interest paid to deposits at a credit union get you a 1099-DIV? No, income from interest paid on deposit accounts is reported on form 1099-INT, not 1099-DIV. 1099-DIV is for dividend income. 1099-INT for interest income. They are are reported different places on your tax form. Nowadays most people don't get 1099-INTs from their banks or credit unions because interest rates are so low most people are making no more than $1-$2 a year in interest because rates are so low and financial institutions aren't required to issue 1099-INTs for interest income below $10. I used to get them from my credit union back in high school when rates were higher.
      - ryandrake 8y ago
        All it takes to generate $10 in interest is $1000 in a 1% savings account or $500 in a 2% CD. Anyone with even this small a savings will be issued a 1090-INT, no?
        astura 8y ago
        No because rates aren't 1-2% in a typical savings account from a standard bank. If you want 1-2% interest you'll have to have a "high interest savings account" which have historically been online-only offerings and most people really can't be bothered to open up a new account and manage multiple accounts and do the transfers. For example, if you had $20,000 in a Chase savings account AND had a "Premier Relationship" with them then you'd get an interest rate of 0.04%, or a whopping $8 in interest for the year. https://www.chase.com/personal/savings/interest-savings/interest-rates https://www.chase.com/personal/savings/interest-savings/inte... Its worth noting that rates have gone up significantly in the last year and a half, at one point it got to the point where checking accounts and savings accounts had the same interest rates at many banks and many people stopped using savings accounts entirely at that point.
astura 8y ago
Capital gains and dividends in a Roth IRA is not taxed either. They clearly mean they ALSO had a taxable brokerage account that generated dividends; saying they contributed to an IRA was an (unintentional) misdirect.
- dontbenebby 8y ago
  Yes, I've been upfront about the error, acknowledged it, and I've edited the original post. I still stand by my assessment it's not cool to nudge people not to save. There are many people who'd like to save, but don't have 401ks. (Ex: students doing internships, contractors, or people working in the service industry) The limit for a 401k is ~18k IIRC and ~5500 for an IRA IIRC. If you had say, 10k from a summer internship, you'd put the difference in a normal, taxable brokerage. Having a brokerage account does not mean one is affluent.
  - ryandrake 8y ago
    To be pedantic, the total pre-tax 401(k) contribution limit in 2019 is $19k ($25k if you’re over 50). But the total defined contribution limit (employer+employee, including after-tax) is $56k. So if you were so inclined (and fortunate to have the income) you could sock away $56k through an employer plan, including pretax, company match, and post-tax. IRA (traditional and Roth) contribution limit in 2019 is $6k. Source: https://www.irs.gov/newsroom/401k-contribution-limit-increases-to-19000-for-2019-ira-limit-increases-to-6000 https://www.irs.gov/newsroom/401k-contribution-limit-increas...
  - jonathonlui 8y ago
    If you're self-employed (e.g. contractor) can set up a SEP-IRA and do "employer" contributions in addition to the regular "employee" IRA contribution. Another option is a "solo" 401k account but there's more paperwork involved.

I assume they meant a Roth IRA, which does tax deposits.

by 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.
- dontbenebby 8y ago
  Many people's companies don't offer 401ks. The limit for IRAs is lower than that for 401ks. It is very common to open a brokerage account if you had more than 5500 you wanted to put away. (Ex: grad student who interns in the summer, contractor with boom and bust pay cycle, or any worker in a company that doesn't offer a 401k) >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. I'm not sure it's legal to lie about the contents of the 1099-DIV, even if the lie is to the government's benefit :)
- Consultant32452 8y ago
  Am I correct in understanding that interest paid to deposits at a credit union get you a 1099-DIV? And wouldn't that mean virtually everyone who banks at a credit union would get that form? Also, anyone who owns savings bonds or CDs. Those are out of fashion these days, but many people still get them. Your point stands that these are still not the majority of the population, I just wanted to add some more pathways a person might get such a tax form.
  - dontbenebby 8y ago
    That may have been what caused it as well. It was a while back and my memory is fuzzy. I've since optimized my investment strategy (small amount in checking, rest in investments) The IRS doesn't require institutions to generate 1099s for <10 dollars in interest.
  - astura 8y ago
    >Am I correct in understanding that interest paid to deposits at a credit union get you a 1099-DIV? No, income from interest paid on deposit accounts is reported on form 1099-INT, not 1099-DIV. 1099-DIV is for dividend income. 1099-INT for interest income. They are are reported different places on your tax form. Nowadays most people don't get 1099-INTs from their banks or credit unions because interest rates are so low most people are making no more than $1-$2 a year in interest because rates are so low and financial institutions aren't required to issue 1099-INTs for interest income below $10. I used to get them from my credit union back in high school when rates were higher.
    - ryandrake 8y ago
      All it takes to generate $10 in interest is $1000 in a 1% savings account or $500 in a 2% CD. Anyone with even this small a savings will be issued a 1090-INT, no?
      - astura 8y ago
        No because rates aren't 1-2% in a typical savings account from a standard bank. If you want 1-2% interest you'll have to have a "high interest savings account" which have historically been online-only offerings and most people really can't be bothered to open up a new account and manage multiple accounts and do the transfers. For example, if you had $20,000 in a Chase savings account AND had a "Premier Relationship" with them then you'd get an interest rate of 0.04%, or a whopping $8 in interest for the year. https://www.chase.com/personal/savings/interest-savings/interest-rates https://www.chase.com/personal/savings/interest-savings/inte... Its worth noting that rates have gone up significantly in the last year and a half, at one point it got to the point where checking accounts and savings accounts had the same interest rates at many banks and many people stopped using savings accounts entirely at that point.

astura 8y ago

Capital gains and dividends in a Roth IRA is not taxed either. They clearly mean they ALSO had a taxable brokerage account that generated dividends; saying they contributed to an IRA was an (unintentional) misdirect.

dontbenebby 8y ago
Yes, I've been upfront about the error, acknowledged it, and I've edited the original post. I still stand by my assessment it's not cool to nudge people not to save. There are many people who'd like to save, but don't have 401ks. (Ex: students doing internships, contractors, or people working in the service industry) The limit for a 401k is ~18k IIRC and ~5500 for an IRA IIRC. If you had say, 10k from a summer internship, you'd put the difference in a normal, taxable brokerage. Having a brokerage account does not mean one is affluent.
- ryandrake 8y ago
  To be pedantic, the total pre-tax 401(k) contribution limit in 2019 is $19k ($25k if you’re over 50). But the total defined contribution limit (employer+employee, including after-tax) is $56k. So if you were so inclined (and fortunate to have the income) you could sock away $56k through an employer plan, including pretax, company match, and post-tax. IRA (traditional and Roth) contribution limit in 2019 is $6k. Source: https://www.irs.gov/newsroom/401k-contribution-limit-increases-to-19000-for-2019-ira-limit-increases-to-6000 https://www.irs.gov/newsroom/401k-contribution-limit-increas...
- jonathonlui 8y ago
  If you're self-employed (e.g. contractor) can set up a SEP-IRA and do "employer" contributions in addition to the regular "employee" IRA contribution. Another option is a "solo" 401k account but there's more paperwork involved.