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Whats Fair When it Comes to Taxes?

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Old 10-21-2011, 04:29 PM   #31
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Re: Whats Fair When it Comes to Taxes?

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Originally Posted by 724Skinsfan View Post
What about everyone paying the same percentage from their income minus a basic living cost? Set the basic living cost at the current poverty level, which is around $22k. So if you earn $35k then you'll be taxed on only $13k.

It sounds like Herman Cain might be listening to you:

Under fire, Herman Cain tweaks 9-9-9 plan - Political Hotsheet - CBS News
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Old 10-21-2011, 06:59 PM   #32
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Re: Whats Fair When it Comes to Taxes?

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You may want to read the rules again. Its a hardship rule that allows the use of 401s for a down payment or last resort funding. Pay back is 5 to 30 yrs and can be as little as 60 days. I'll stand by my statement.

Rules for 401k Withdrawal for Home Purchase

The first rule of 401k withdrawal for home purchase is that you must be able to prove to the Internal Revenue Service (IRS) officials that you are going through a financial hardship. Secondly, you should be able to prove that it is your last resort of fulfilling your financial need. You should not have any other funds available, that could suffice your financial needs. Thirdly, you are not allowed to withdraw anything above your financial need. Meaning, if you are required to make a down payment of $10,000 and you cannot arrange for own contribution, then you are allowed to withdraw only $10,000 from your 401k account (provided you have enough balance in it.). The fourth rule is that you should have executed all other options of taxable loans, so that 401k withdrawal is your last option of raising funds for home purchase. After your withdrawal, you cannot contribute to your 401k account for a span of 6 months.

How to Purchase a Home Using a 401k Withdrawal

The 401k regulations explicitly state that 401k withdrawal can be made only for a purchase of a first home. You cannot use this money to make a down payment for your second home. The money withdrawn from 401k is taxable. One important thing to remember, while applying for early 401k withdrawal is that, although the law permits the early withdrawal from 401k, it is not mandatory for the employers to offer such a provision in their plan. Hence, inquire with your human resources department, to know the provision in your individual plan. Also, beware of the penalties you are subjected to, upon the withdrawn amount. A study of IRS regulations, regarding 401k withdrawal for home purchase, may give you a clear idea regarding the taxes and penalty for early withdrawal of 401k funds. At times, you may notice that after paying taxes and penalties, you are only left with considerably less amount than your exact need. Hence, you might anyway have to arrange for funds to cover up the difference.

Implications of 401k Home Purchase Withdrawal

Withdrawing from your 401k funds is definitely not the wisest of all options. For one thing, you lose out on a large sum from your retirement funds, which can make your post retirement life less than secure. You unnecessarily have to bear the burden of taxes and penalties. Besides, you lose out on interest that would have incurred on the withdrawn amount. Hence, you should choose this option only when all the other doors have closed. Borrowing against 401k account may seem to be a good alternative, as it is free of tax and penalties. Besides, the interest accrued from your loan goes back to your account. The repayment span may be anywhere between 5 to 30 years. However, if you lose your job, you will have to repay the loan in as little as 60 days. Failure on your part may lead to penalties and taxes. The loan amount will be then considered as an early withdrawal.

Thus, you should weigh your options wisely, and choose one which can secure your future while still sufficing your current need. Hope this article on 401k withdrawal for home purchase was resourceful.
By Ashwini Kulkarni Sule

What exactly is your statement? People don't pay back the money they from their 401k? You shouldn't take money from your 401k to buy a home?


There are two ways to buy a home with money from your 401k, a) hardship withdrawal which is a taxable event along with a 10% penalty if you are under the age of 59.5 or b) borrow up to 50% from your 401k investments. Like you mentioned hardship withdrawal is a last resort because of the cost associate with it and most people don't go that route. Additionally, before you can do a hardship withdrawal you must first borrow the maximum allowed from you 401k and that's what people typically do. Now if you're borrowing money for the sake of buying a car, the money has to be paid back within 5 years, if you're borrowing money to buy a home the law allows you to payback the money within 10 years or longer. Utlimatly what's available to you is determined by the employer's plan so not every 401k plan is the same. Some plans won't let you borrow, some won't let you contribute while you have an outstanding loan. Some allow for repayment flexibility, others don't.

You are right in that the balance is due within 60 days if you lose your job. This is a risk people should be aware of before they jump in. Then again, if you lose your job you may have other issues to worry about than a 10% penalty. For me it wasn't much of a risk because I have huge amount of money in stock options that I could tap into at any point and easily pay back the loan. I could have sold those options but I choose not to because, well, my stock option value tripped since that time.

Bottom line, don't take distribution from your 401k, borrow from it....401k borrowing is a financial instrument that should be used wisely. Just like anything else in life, you aught to know the risks. If people can't pay it back, that's their own retirement money they are cannibalizing.


Here's a study on the issue:
http://www.rand.org/pubs/working_pap...RAND_WR799.pdf

Last edited by saden1; 10-21-2011 at 07:02 PM.
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Old 10-22-2011, 09:32 AM   #33
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Re: Whats Fair When it Comes to Taxes?

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Your last post said it was smart to use your 401 then I showed the rules that its only to be use as a hardship use. My point was if your that hard up its probably not the best time to buy a home.
I told, most people take out a loan and there is no need for a hardship withdrawal. I said to you can't conclude the wisdom of it without knowing an individuals circumstance. Not everyone is in the same boat and I gave myself as an example. You don't have to be hitup for money to take money from your 401k.
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Old 10-25-2011, 01:56 PM   #34
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Re: Whats Fair When it Comes to Taxes?

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Umm, you're required by law to pay back that money within 10 years....and the consequences for not doing so is that it will be treated as a withdrawal with you owing Uncle Sam taxes on the distribution plus a 10% penalty on top of it.

Do you have statistics that shows most people don't pay back and that you are right?
awww ****. i took out 10k from my 401k a couple years ago . . . id did take the money out to keep the power on, allow us to move to a smaller cheaper place . . .i hope i checked off the "hardship" box.
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Old 10-27-2011, 04:05 PM   #35
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Re: Whats Fair When it Comes to Taxes?

Editorial from Aruthur Laffer on 999:

Arthur B. Laffer: Cain's Stimulating '9-9-9' Tax Reform - WSJ.com
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Old 11-28-2011, 02:47 PM   #36
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Re: Whats Fair When it Comes to Taxes?

You may not like 999, but this is a really good video that explains the bigger issues with our tax code:

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Old 12-07-2011, 04:35 PM   #37
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Re: Whats Fair When it Comes to Taxes?

Here is an example of " sharing the wealth" , as it looks like Great Britian is heading to a return of the 3 day week again Britain is facing return of three-day week - UK Politics - UK - The Independent . BRITAIN: On a Three-Day Work Week - TIME .

Last edited by budw38; 12-07-2011 at 04:38 PM. Reason: spelling
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Old 12-07-2011, 05:24 PM   #38
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Re: Whats Fair When it Comes to Taxes?

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Art Laffer is a moron. I wouldn't listen to a word he says, in fact I'd do the opposite.

PS he still hasn't paid the penny to Schiff (1st clip):
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Old 12-13-2011, 09:15 PM   #39
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Re: Whats Fair When it Comes to Taxes?

^ I like Peter Schiff a lot (and not just for his first name) and hes clearly a really smart articulate dude. But Laffer was one of the many "smart" economist in the vast majority that were completely caught off guard with the economic collapse.

Im not say that makes his opinion any better, but he was wrong when everyone else was wrong. 2008 was a true "black swan" event (maybe even the originator of the term?) with more interwoven complexity then the US tax code so i cant really fault a guy for not seeing it coming. He is a of an arrogant ahole so from a personal standpoint, i dont like him either.
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Old 12-13-2011, 09:26 PM   #40
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Re: Whats Fair When it Comes to Taxes?

Has anyone been paying attention to this whole payroll tax showdown?

The payroll tax is 6.2% and is a transparent tax in the sense that its deducted by law from our paychecks. In 2010 it was temporarily reduced for stimulus purposes by 2% to 4.2% which put an extra $1,000 dollars in the pockets of a family making 50k/year. Payroll taxes directly funds programs that for the most part directly benefit the person who pays the tax in the form of SS, Medicare and stuff like that.

The Congress just sent their extension to the Senate. The Republican Congress, however, stuck some "candy" in their bill in the form of a pipeline oil project that Obama wants to put off until after the election. Its pretty much obvious that Obama is going to allow the pipeline project because the Unions are demanding it, but he wants to wait. Environmentalist dont want it because they just dont like that kind of stuff and Obama cant afford to lose the Green Vote (i just came up with that term, but im sure its not an original...)

The whole pipeline thing is just some bs waste of time. The real details of the bill are that it would be payed for the payroll tax by capping pay to federal workers, increasing Medicare premiums for those making over 80k, and by cutting out or turning off one of those "magnets" to illegals by not allowing the Child Tax Credit to illegal immigrants.

Digression: I had no idea illegal immigrants could get refundable credits!!! What the hell is going on in this country!

In addition to a couple other minor things the bill would also put in a schedule to slowly reduce the max unemployment benefits from the current 99 weeks (almost 2 years!!) to 59 weeks (just over a year!), and also allow states to drug test people that collect unemployment (bad for TW & Davis) and other crazy things like banning welfare debit cards at casinos and strip clubs, bad for this guy:
(my strip club DJ voice is almost as good and just as creepy, fyi)

The Democrats would rather fund the bill by having the rich pay for it. To me that would be inherently unfair. Payroll taxes directly benefit the people who pay for them (for the most part), so to have another person pay for it just seems absolutely backwards, at least to me. Good old class warfare i guess.

But heres the problem. When the 2% reduction kicked in everyone noticed it, because there was extra money in our pay checks and everyone likes that. But it wasnt much money and it came over the course of 24 or more pay checks for most of us, and by now most people take it for granted and dont really remember getting the bonus. So if people just get hit with a 2% reduction in pay starting next year there will be a little bit of a shock. People will be pissed and see it as a new tax and not just that the bonus period is over.

Its an election year for Obama and i think most people will blame Obama for not extending the bonus period even though he will end up having a chance at signing the bill. Obama will blame Congress (who is also up for election), but who knows how effective that will be. Plus the Congress will be able to say we gave Obama and the Democrat Senate a bill but they vetoed it.

At the end of the day i think the 2% reduction will continue but who knows what concession Obama and the Democrats are going to have to make?? The other option would be something thats may be more effective but doesnt make our "leaders" look good. They could enact the Making Work Pay Credit (refundable too, maybe even to illegals). The problem with Credits is that people dont really understand them or attribute credit for them to the correct politicians, all they know is they got a big refund one year but not another.
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Old 12-13-2011, 11:47 PM   #41
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Re: Whats Fair When it Comes to Taxes?

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^ I like Peter Schiff a lot (and not just for his first name) and hes clearly a really smart articulate dude. But Laffer was one of the many "smart" economist in the vast majority that were completely caught off guard with the economic collapse.

Im not say that makes his opinion any better, but he was wrong when everyone else was wrong. 2008 was a true "black swan" event (maybe even the originator of the term?) with more interwoven complexity then the US tax code so i cant really fault a guy for not seeing it coming. He is a of an arrogant ahole so from a personal standpoint, i dont like him either.
In retrospect it wasn't that complex. Schiff had it pegged almost as if he was a time-traveler. So many in that industry get caught up in a mental way that doesn't allow them to constructively think and analyze. PS didn't seem to have that problem and didn't seem to think his position was very outlandish. He simply looked at the data and connected the dots...everyone else looked at the data and started drawing their own dots to support their deeply held hopes that evrything was going to be awesome forever.
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Old 12-15-2011, 09:45 AM   #42
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Re: Whats Fair When it Comes to Taxes?

I thnk its more complex then people make it out to have been. I also think that its Peter Schiff did more then just connect the dots of data, he dug into the data and found out how wrong or poorly put together it was. However you are 100% right that so many got caught up in a way that didnt allow them to think constructively. I think our schools should teach kids to be more constructive and critical thinkers that arnt affaird to think outside the box go against the social grain and verify data before using it form their arguments. Also have you read the Big Short by Michael Lewis? Awesome book by an amazing writer.
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Old 12-15-2011, 11:08 AM   #43
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Re: Whats Fair When it Comes to Taxes?

mlmpetert,

You'd be supprised what the illegals get. Personally all our relatives were illegal or immagrents but at this point in time there are laws against simply walking into this country with out permission and staying longer then your allowed to. For me the bigger issues are;

1- are they paying into Social Security and Medicade? If they are being paid under the table as most are so the business does not have to report them or get into trouble for hiring illegals then what happens to the illegals when they are too old to work or are in their 60', 70's or 80's and need medical attention? Who's paying that? We are. You and me. They pocketed their money early and when their too old to work the rest of us who did pay into the system will be supporting them.

2- I'm a citizen. I assume most of us here are. Whether you were born here or not you are or have gotten your citizenship. What benifits do you have over some one who is not a citizen? I'll tell you, as of right now there is only one benifit that I know of. Maybe there are more and I'm missing them but I know of one. You can vote. Woo hoo. I've always felt their was a big difference between Citizen rights and Human rights. Being a Citizen gives you all the benifits of the Constitution, Human rights simply means we won't let you bleed to death, or die due to lack of medical attention. But no, people have muddied the waters and legal or illegal you get all benifits of the constitution, except voting because you have to register which means you have to prove your a legal citizen.
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Old 12-15-2011, 11:10 AM   #44
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Re: Whats Fair When it Comes to Taxes?

Back on track, I've said it before and it was not popular but fair is everyone paying the same % of what they earn. Whether you earn $20,000 or millions, if everyone paid the same % then no one should be complaining.
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Old 12-22-2011, 03:46 AM   #45
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Re: Whats Fair When it Comes to Taxes?

Really, there will be NO end to this debate. People care about being treated well first, being treated "fairly"--and there are many ways to define "fairly"-- second. Note: "treated well" is not the same a "being well", although they are tied closely together in these matters, but that's a different messy matter altogether.

Fairness could be that an "equal chunk" be taken out of someone. That could be by percentage or a flat tax.

Fairness could be defined as "[more] equal" utility(happiness, pleasure, etc) derived from that extra dollar saved.

Even if everyone agrees on what a "fair" tax is, there's the other part of the system: Who gets the dibs on the goods and services produced from those taxes. Let's assume everyone pays a flat percentage of taxes and that is "fair". Folks can then debate all day about who gets that collected money back in the form of goods, services, and handouts in a similar manner.

Heck, even the whole system can be critiqued. If a regressive tax were imposed, would it really be unfair if most of the money gets back into the hands of the taxpayers' who paid them in the form of goods and services?
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