Sunday, April 17, 2011
Happy Tax Day!
This year I had to write a check because I rolled my 401(k) into a Roth IRA, generating a lot of taxable income that had no withholding. To give an example, say I put $5k into my IRA each year for the past 20 years. Say it grew to $200k. By rolling it into a Roth IRA, I am taking that $200k in taxable income for 2010, and so have to pay state and federal taxes on that, but then it will increase, hopefully, tax free. I'm basically betting on rising taxes for investments, as this makes sense if you think tax rates will be higher in the future than currently. Of course, I'm also betting the government won't reneg on the Roth IRA terms and tax me again. Interestingly, I'm finding that my state tax payment is about 1/3 my federal. Then I have property taxes of about 2% of my assessed house value for my city, which basically rigs the rate vs. assessment so that my payment is constant.