Oblivious Investor

Next Saturday (3/27), I’ll be giving a presentation for the Detroit and Minnesota Bogleheads groups. If you’re interested, you can find the details on the Bogleheads event calendar page. The False Promise of U.S. Historical Returns from David Blanchett and Michael Finke A Simple Compliment Can Make a Big Difference from Erica Boothby, Xuan Zhao, and Vanessa K. Bohns

Rather than being taxed according to your tax bracket, they are taxed at the following rates: 0% tax rate if they fall below $80,800 of taxable income if married filing jointly, $54,100 if head of household, or $40,400 if filing as single or married filing separately. 15% tax rate if they fall above the 0% threshold but below $501,600 if married filing jointly, $473,750 if head of household, $445,850 if single, or $250,800 if married filing separately. His first $2,400 of long-term capital gains (i.e., those that fit under the $40,400 threshold) will be taxed at a 0% rate, and the remaining $1,600 will be taxed at a 15% rate. That is, this $1,000 of additional ordinary income is also causing another $1,000 of his long-term capital gains to be above the $40,400 threshold and therefore taxed at a 15% rate, so that causes another $150 of income tax.

This week Christine Benz took a deeper look at the assertion that women invest more conservatively than men do. It turns out, it’s not so clear-cut — and to the extent that there are differences, they don’t appear to be the result of gender-related risk preferences.

Using Retirement Account Dollars to Pay the Tax For cases in which dollars from the traditional IRA would be used to pay the tax on the conversion, it’s purely a question of marginal tax rate. That is, each year, for each dollar in the traditional IRA, you would ask what your current marginal tax rate would be if you converted that dollar right now, and you compare that to what the marginal tax rate would be for that dollar if you did not convert (i.e., what tax rate would be paid whenever the money comes out of the account later). If your current marginal tax rate is lower than the marginal tax rate you expect later on (i.e., whenever you would be distributing the dollars in question), then you’re buying out the government’s share at a bargain price (e.g., paying 15% now when you would otherwise be paying 25% later). The result of all of this is that, if you’re using taxable dollars to pay the tax, then, depending on time frame and expected rate of return, it might even be advantageous to do a Roth conversion if the current marginal tax rate is higher than you would expect it to be in the future.