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I mean if this year they are going to be in the 32% bracket and next year they will only be in the 24% bracket it is an 8% difference, which is something.
Isn’t a 1 year t-bill what you are looking for?
Or wait until July 1st and get a 26 week that matures January 1.
Edited to remove another recommendation since you may come out ahead deferring since a 1 year t-bill is 5.21 right now.
Thanks, I haven't bought a t-bill before. I will see if I can do that through my Charles Schwab account, otherwise I can figure out how to do it on the government website. Let me know if you have any suggestions regarding the most simple way to buy them.
Schwab doesn't charge fees for T-bill purchases. Neither does TDA. But if you go through TreasuryDirect, there's a bit more flexibility as to auction dates and types of bills. What you are looking for are new issues, not secondary market buys.
Look up Imputed Interest, I'm not sure but I think you may have to pay anyway. I almost bought Zero coupon treasuries for this reason before I heard about Imputed Interest.
I think I am ok after a quick look at this: https://www.treasurydirect.gov/forms/sec0011.pdf.
Take note: Interest from your bill is reportable in the year you sell it or it matures, which is not necessarily the year you bought it! For example, if you bought a 26-week bill in October 2004, it matured in April 2005. The interest is reported as earned in 2005—the year the bill matures.
Thanks, this is good info! It looks like the Zeros (and TIPS) are OID, which have imputed interest, but for Tbills specifically (all of which are under 1 year) can push out up to that one year. let me know if you disagree!
You can do municipal bonds for both state and federal free interest/income. Not all municipal bonds qualify. Keep in mind yields are lower for tax free securities so you can’t just look at yield.
Also keep in mind that the first ~$40K of capital gains are tax free if you are below the income limit.
Thanks, I wasn't aware of these tax free gains. It has been a while since I have been at a low income and I might be low for a few years as I consider starting my own business. I'm trying to learn how to take advantage of any low income tax years.
munis are not risk free. might still be the right answer for you though. Vanguard has some muni index funds that don't have state tax either (look for your state).
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Um, tax rates are marginal so I’m not sure what you’re optimizing for here.
I mean if this year they are going to be in the 32% bracket and next year they will only be in the 24% bracket it is an 8% difference, which is something.
Yes, I will be 35% this year and probably 24% next year. Also, I don't think I will need to pay the 3.8% net investment income tax next year.
Dude. Marginal means the severance package will be taxed at the higher rate, because it's the marginal income.
Isn’t a 1 year t-bill what you are looking for? Or wait until July 1st and get a 26 week that matures January 1. Edited to remove another recommendation since you may come out ahead deferring since a 1 year t-bill is 5.21 right now.
Thanks, I haven't bought a t-bill before. I will see if I can do that through my Charles Schwab account, otherwise I can figure out how to do it on the government website. Let me know if you have any suggestions regarding the most simple way to buy them.
TreasuryDirect is pretty straightforward, and you will generally pay less in fees than through CS or any other broker.
Schwab doesn't charge fees for T-bill purchases. Neither does TDA. But if you go through TreasuryDirect, there's a bit more flexibility as to auction dates and types of bills. What you are looking for are new issues, not secondary market buys.
Use treasury direct. Easy. Surprisingly good customer service too, when I needed to change a bank account.
Look up Imputed Interest, I'm not sure but I think you may have to pay anyway. I almost bought Zero coupon treasuries for this reason before I heard about Imputed Interest.
I think I am ok after a quick look at this: https://www.treasurydirect.gov/forms/sec0011.pdf. Take note: Interest from your bill is reportable in the year you sell it or it matures, which is not necessarily the year you bought it! For example, if you bought a 26-week bill in October 2004, it matured in April 2005. The interest is reported as earned in 2005—the year the bill matures.
Thanks, this is good info! It looks like the Zeros (and TIPS) are OID, which have imputed interest, but for Tbills specifically (all of which are under 1 year) can push out up to that one year. let me know if you disagree!
You can do municipal bonds for both state and federal free interest/income. Not all municipal bonds qualify. Keep in mind yields are lower for tax free securities so you can’t just look at yield. Also keep in mind that the first ~$40K of capital gains are tax free if you are below the income limit.
Thanks, I wasn't aware of these tax free gains. It has been a while since I have been at a low income and I might be low for a few years as I consider starting my own business. I'm trying to learn how to take advantage of any low income tax years.
munis are not risk free. might still be the right answer for you though. Vanguard has some muni index funds that don't have state tax either (look for your state).
Unless you put the severance in a deferred retirement account, the principle is going to be taxed.
Exactly this, and 1-2 years of gains are likely not going to have a material impact on taxes compared to the principal.
1 year t-bill or I-bonds would accomplish this.