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

[Bill Effros]

Slim,

Get a copy of JK Lasser's Tax Guide for 2007.

It is no harder to read than Schillinger's Music Guide.

Do not attempt to read it straight through.

Go to the index--find situations you think may be like your own--look at 
the examples.

Go back to it over and over.  Develop tax saving strategies you think 
will work for you, based on what you read.  Get a smart accountant!  
(Don't confuse an accountant with a bookkeeper--you are smart enough to 
do your own bookkeeping.)  Run your ideas past your accountant for 
legality, safety, and an opinion as to whether the strategies you 
develop make sense for you and your financial situation.

Don't use any strategy that doesn't make sense to you.

Never base your financial strategies on tax gimmicks--they can be taken 
away as fast as they are offered.

But if tax advantages come along, on top of already sensible earning 
opportunities, don't hesitate to take advantage of them.

Bill Effros

Slim wrote:
> 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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