[Rhodes22-list] Tax Advice? 401k's

[Slim]

Thanks, Bill, very interesting although it sounds like financial gymnastics.
(Not that there's anything wrong with that.)  Where can I find out more
about this.  

Slim

On 11/12/06 8:44 PM, "Bill Effros" <bill at effros.com> wrote:

> Slim,
> 
> These things keep moving around, but it pays to watch them.
> 
> Here would be an example from a couple of years ago:
> 
> Borrow $100,000 at 0% interest.  (Harder now, but not impossible.)  Buy
> low yielding Municipal bonds at a discount.  (You get $110,000 worth of
> bonds for $100,000.)  The bonds pay tax free $3,300 a year.  You hold
> them for between 5 and 10 years, until maturity.  At that point they are
> redeemed by the municipality for $110,000.
> 
> Looking at the 10 year model for mathematical simplicity, you make
> $33,000 tax free, and $10,000 taxable--a $43,000 profit on money that
> was never taxed in the first place.  To make the whole thing tax free,
> you also buy some high yielding municipal bonds: $90,000 worth for
> $100,000.  These pay 10% interest for the last year before maturity.
> You get another $9,000 tax free, but write off $10,000 taxable income
> from the original bonds.
> 
> If you can work it all out, you make $42,000 tax free on both ends--this
> is probably more than $43,000 profit, pay tax on $10,000.
> 
> This is an example only.  There are kinks.  You are not allowed to
> borrow tax free money and invest it in triple tax free bonds.  So you
> borrow the money to pay for your new house, and use the money put aside
> for the new house to buy the bonds.  This is where it pays not to be all
> tied up by government pension rules.
> 
> It's work, but it's legal.  No tax on either end.  If you're smart, you
> keep reinvesting the dividends in more and more municipal bonds,
> arranging the purchases so that all of the taxable gains are offset by
> taxable losses.
> 
> You can get into this game for $10,000 plus a brokerage fee.  You must
> minimize purchases and eliminate sales so that the broker eats the least
> out of your profits.  Pick prosperous cities where there is virtually no
> fear of default.  Bail out if any city starts to wobble.  Pick revenue
> backed bonds (toll roads, bridges, etc. for even more safety) as opposed
> to general obligation bonds.
> 
> This example is extremely low risk, simple once you get the hang of it,
> and can be employed by people with modest means provided only that they
> have good credit ratings.  Actually using your credit responsibly will
> improve your credit rating over time as opposed to having a good rating
> and not using it.
> 
> There are 100s of legal devices like this one, but you must find one
> that works for you, and your investment money must be in a place where
> it is legal for you to invest it in ways like this.
> 
> Bill Effros
> 
> Slim wrote:
>> On 11/12/06 11:17 AM, "Bill Effros" <bill at effros.com> wrote:
>>  
>>   
>>> By not having money in 401ks I was able to make investments, using money
>>> that had never been taxed, in things that never will be taxed.
>>>     
>> 
>> Bill, what investments are those?  I don't have a 401k--I have a SEP which
>> is funded with pre-tax dollars and brings down my taxable net but it'll be
>> taxed when I draw from it.  My ROTH is the opposite.  But no tax on either
>> end?
>> 
>> Slim
>> 
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>>   
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