John wrote:

- quote -

You can't DIRECTLY convert your 401K to a Roth IRA.

You have roll over the 401K to a conventional IRA, and
then convert it to a Roth IRA. But I don't think you're
thinking too much -- that seems a good idea.

Another possibility is paying your property taxes on time,
and contributing to your current 401K, and considering those
payments in calculating how much of your present 401K/IRA
to convert to a Roth IRA.

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jbradshaw777[at]yahoo.com (John) wrote:

- quote -

Note, however, that the earnings in the 401K are
tax-deferred. If you invest the money in an ordinary mutual
fund, you'll probably pay taxes every year on the
distributions (even if you reinvest them). However, there
are some "tax advantaged" mutual funds that avoid investing
in companies that pay dividends, and have low turnover to
avoid capital gains, so these can get benefits similar to
tax-deferred investing (maybe even better -- all the
withdrawals from the 401K are treated as ordinary income,
rather than capital gains).

--
Barry Margolin, barmar[at]alum.mit.edu
Level(3) Communications, Woburn, MA

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"Arthur L. Rubin" <ronnirubin[at]sprintmail.com> wrote:
- quote -

Thanks all! I am somewhat relieved taht at least a couple of
you seem to see my points and agree with me that
contributing to 401K may not be necessarily in my case. Just
to clarify a bit...
1. Like I said, I just started a new job. My net income this
year will be whatever I make from now till the end of the
year.
2. Of course my emplyer will not match 401K contribution
right away, as I am a new hire.
3. Contributing to 401K now means I don't pay taxes on them
'now', but I may still have to pay later when I withdraw
them. If I don't contribute, then I pay taxes now. But as
I said, because of my big mortgage interest and small
income taxes, all the taxes will be wiped out by the
deduction. Contributing to ROTH IRA makes sense though -
I will have to pay taxes now, but again, I can wipe it
out with deduction. Another option is to convert my
existing 401K to ROTH IRA -as I discussed in another
thread. This complicates things further. Am I thinking
too much?
4. I have not yet paid my property taxs for the next fiscal
year - or whatever you call it. I did pay one installment
this year, which is about $2,000, for the property tax
bills that I received last year. I am trying to figure
out if I should pay both installments of the bills that I
receive this year or wait till next year. I believe the
penalty is about 10%. So my penalty should be about 200.

If I am making big bucks, I probably wouldn't care about all
these. but.. I am not. So there you go.

John

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bradshaw777[at]yahoo.com (John) wrote:

- quote -

I can't tell you what you do without having a lot more
information about your financial status. How much income do
you have? What is the character of your income? How much
itemized deductions do you have? What is your filing status
and number of personal/dependent exemptions? One could then
at least see if AMT is an issue.

The tone of your post leads me to believe that you think of
401K contributions as a tax shelter. It isn't. It's a
retirement plan that includes a tax benefit. The first
thing you need to do is to decide if you want to save for
retirement. If yes, you then must decide how much you want
to save or can afford to save. Finally, you would then need
to decide on the method. E.g., 401K, IRA, taxable
investments, etc. A 401K tends to be a no-brainer if your
employer is matching all or some part of your contributions.
Lastly, each employer's 401K may have its own rules on
contributions as long as they don't violate federal law.

Alan
http://taxtopics.net

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"John" <jbradshaw777[at]yahoo.com> wrote:

- quote -

Wow.

Let's start with the observation that you shouldn't let your
tax obligation rule your life. There are perfectly sound
reasons to contribute to a 401k other than tax avoidance.
For example, your employer may match your contributions up
to 3%. And that would be a 100% immediate return on your
contribution.

As to delaying payment of your property tax, the simple
question occurs, "Would the penalty for late payment exceed
your income tax savings?" That may be the answer to your
question.

Then, from your comment that "the mortgage interest will
still be higher than the income" ... one can only assume you
will owe *no tax* under any circumstances for this year.
So, any payments which would be deductible next year and can
reasonably be postponed until then, sound like good sense
(with a not to aforementioned penalty issues).

But when you said, "You cannot deduct from 'property tax',
right?" ... you really started to lose me. If you mean
you've already paid your property taxes -- as your next
question implies -- then, the answer is "No."

- quote -

Your description of the situation is enough to give anyone a headache.
<Grin
Bill

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"John" <jbradshaw777[at]yahoo.com> wrote

- quote -

Yes. If you can afford to do so (you can do without the
money), then make a 401K contribution in some amount.

- quote -

It would all depend on the amount of penalty (not
deductible). Is the penalty less than the potential tax
savings? If so, then it's probably worth the risks. If the
penalty is more than the potential tax savings, then you're
making a mistake.

- quote -

And in the meantime, you'll lose on the chance for the
earnings that this years contributions will generate, and
all the earnings that THAT growth will generate over the
years.

- quote -

Sure, in the services your county/city provide to you.

- quote -

Making decisions based on the tax impact isn't always the
best thing to do.

--
Paul A. Thomas, CPA
taxman at negia.net

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John wrote:

- quote -

Remember that unemployment is taxable, so you MAY have
other income. Also, you're PAYING your mortgage, so
that you have must have SOME resources, which may be
earning (taxable) interest.

- quote -

Probably not. You might consider contributing to a Roth IRA.
Your assertion that you can only make changes every 6 months
is, or would be, part of the 401k plan, not IRS regulations,
so that we can't say whether that's accurate. I consider
it unlikely, though, or at most to the extent that you
cannot within 6 months of another change, rather than
there are windows every 6 months in which you can make
a change.

I THINK employers are still allowed to restrict 401k
eligibility to those employees with one year of service,
so this may not be a problem.

- quote -

I hesitate to recommend illegal actions, but, assuming
you would have no taxable income without paying the
property tax this year, your tax savings on your 2004
taxes are likely to exceed your non-deductible penalty.

--
This account is subject to a persistent MS Blaster and SWEN
attack. I think I've got the problem resolved, but, if you
E-mail me and it bounces, a second try might work. However,
please reply in newsgroup.

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"John" <jbradshaw777[at]yahoo.com> wrote:

- quote -

If the employer offers a match you should always try and
meet that number. Otherwise you are leaving part of income
on the table.

The impact of the property tax deduction is to lower your
taxable income. If you are in the bottom bracket, 15%, every
$100 deduction lowers your tax bill by $15. So the net
benefit of the delay plus the penalty has to be greater than
paying on time

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"John" <jbradshaw777[at]yahoo.com> wrote:

- quote -

[snip]

The problem with not contributing to the 401k is that you
cannot make it up in a later year {the so called catch up
provisions do not require under contribution in prior
years.}.

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"John" <jbradshaw777[at]yahoo.com> wrote:

- quote -

John, you are not the only one confused by your tax situation!

You probably will not receive much response due to elusiveness
and vagueness of your information.

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jbradshaw777[at]yahoo.com (John) wrote:

- quote -

The main purpose of contributing to a 401K or IRA should be
to save for retirement. You get tax free compounding of the
dividends in the retirement plan.

- quote -

I suppose that's a possible limitation, but none of the 401K
plans I've ever participated in had such a restriction.
Maybe you're confusing it with your company's medical
benefits, which often allow changes only during certain
enrollment periods (unless there's a significant change to
your life situation, such as getting married or having a
baby).

- quote -

I don't know what the penalty for late payment of your
property tax is, but you need to do the math to figure out
whether the penalty is more or less than the tax savings
you'll get when you take the deduction next year.

--
Barry Margolin, barmar[at]alum.mit.edu
Level(3) Communications, Woburn, MA

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Hello,

I am a little overwhelmed by my tax situation and could use
some help. I will be starting on a new job which will give
me my only source of income this year. I have to decide

1. Should I contribute to the 401K?

2. Should I pay the property tax on my house this year, or
should I pay them next year(assuming I will still have my
job, of course) together with the penalty.

My goal is to fully utilize the deduction from mortgage
interest that I have paid this year.

If I don't contribute to the 401K this year, the mortgage
interest will still be higher than the taxable income. So,
is there any reason that I should still contribute to 401K
this year? Will I be able to contribute at the beginning of
next year? I seem to recall you can only change your
contribution percentage every 6 months.

It seems to be reasonable to postpose the 2 installments of
property tax payment till next year, even though I will have
to pay penalty on the 1st installment. This is because that
in all likelyhood I will have more federal taxes to deduct
from next year. You can not deduct from 'property tax',
right? Is there any way to get back the property tax that
you paid?

God, this is complicated and is giving me a headache.
Thanks in advance!

John

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