I believe that people who get screwed on tax in the US are people making between $100k and $200k. People making more than that can afford to pay the tax and people making below it have so many deductions and exemptions they pay very little.
I am going for my MBA now and will likely fall in that $100k to $200k range working 80 hours a week upon completion but be in $110k of debt. I get no student loan deductions, might not qualify for a traditional IRA deduction, and am basically screwed paying $20k of post-tax income to student loans for 10 years with no tax breaks. I would also likely be paying AMT and taxes on my "overly generous healthcare plan" when that new tax passes. NO THANKS UNCLE SAM!
My idea for a tax efficient lifestyle would involve getting a job with a government or non-profit in a management role and earning $50k per year and working 35 to 40 hours a week. With income-contingent repayment, I would only be paying around $3k to $5k per year in student loans and after 10 years of working for the non profit, the rest of the debt is excused since it's all federal loans. I also qualify for the full $2500 student loan interest deduction each year since all $5k I pay per year would be interest only. I can contribute to a 401k to push my income down further and require even less in student loan repayment. Some government positions contribute 10% of your income towards a retirement account and this is not counted against you.
Of course if I take the $100k per year job I would be making more money after taxes than the $50k job, but if you factor in the value of the student loan forgiveness then really I would be working 40 hours more per week at a higher stress job to make around $10k to $20k more post-tax per year. Screw that!
The benefit of only working 40 hours per week at my primary job means that I can have a couple small side businesses to fund my hobbies. For example, if I was into cars then I could get a side job repairing cars or flipping cars and then buy fun-car things for my "business" and have a profit-neutral side job that I pay no taxes on and get to buy fun things as a tax deduction.
During the 10 years required to work at the nonprofit to get the loan forgiveness, I should be able to save up some post tax money too. Perhaps I can afford to save 1/10 of a year's living expenses per year in addition to my normal retirement contributions. Then after 10 years I have enough saved up to live 1 year. I quit the low-paying job, take one year off, have a little vacation while I look for a high paying job. During this zero-income period I do a 401k conversion to a Roth IRA for $20k or so tax-free.
Then I take a (inflation adjusted) $100k per year job and do that for 5 years. I'll find a private company that does business with whatever government/nonprofit I worked for and they will value my previous job experience. Social Security is based on the last 5 years or so of your job, so by working the last 5 to 10 years at the $100k job, I get to maximize my SS benefits while minimizing what I pay into it over the course of my life.
This isn't meant as a blog post. If you want to comment on my plan, feel free. I would encourage people to post ways that they live a tax-efficient lifestyle or how they might plan to do so in the future.
If that involves working for 10 years for a non-profit or government agency, do it. If not, don't.
It is a bad idea to live your life in a way just to pay less taxes.
margolis
New Member
posted: Nov. 26, 2009 @ 2:51p
Social Security is not based on your last five years of work; it is based on the 40 years of highest earnings; you wouldn't have any student debt if you didn't get your mba. Whose fault was that?
You are losing touch, BBB. The title should have been "Living A Tax Efficient Lifestyle for Fun and Profit"
dshibb
Senior Member - 2K
posted: Nov. 26, 2009 @ 3:25p
I gave you green for a post that does actually detail the limited marginal benefit for making that extra 20-40K in that income range. But it would seem that if you spent the same amount of years trying to live a tax advantaged life as continually bettering your career, you would end up better. The higher goal should be to get up to that 200K area instead of focusing on holding yourself back because an extra 10K isn't that valuable to you at 90K income.
dshibb
Senior Member - 2K
posted: Nov. 26, 2009 @ 3:31p
Actually, an interesting discussion on this subject would be this.
The advantages of forgoing small salary increases in the 80-150K range in exchange for things that give you more leverage in getting serious income. How about instead of asking for the raise from 80K to 90K you demand your compensation in the form of substantial increases in responsibility. And the accumulating those increases in responsibility to leverage yourself in to either A) A new position paying vastly more or B) the same position but at a huge salary because you are now indispensable. This would allow you to keep your tax advantaged lifestyle early in your career and then a very quick leap to an income level where the increase in salary blows out the tax implications.
xerty
Senior Member - 2K
posted: Nov. 26, 2009 @ 3:43p
dshibb said: The advantages of forgoing small salary increases in the 80-150K range in exchange for things that give you more leverage in getting serious income. How about instead of asking for the raise from 80K to 90K you demand your compensation in the form of substantial increases in responsibility. Or more generally, realize that taxable wages are a tax-inefficient form of income (hard to minimize taxes on those, even through cleverness), and try to get your job to reward you in other ways that are valuable but more tax-efficient. How about asking the employer to contribute $35K to your 401k plan instead of salary? What about (discounted?) company stock or stock options instead of salary? All of these let you delay taxes while still getting paid, and let you both pick the timing of your tax liability (say during a year off, or during a no state-tax residency or a low Federal tax administration), effectively net your salary (from capital gains) against any investment losses you might have, etc.
Ilikeyourgf
Senior Member
posted: Nov. 26, 2009 @ 3:58p
tripleB said: I would encourage people to post ways that they live a tax-efficient lifestyle or how they might plan to do so in the future.
can we get back on topic... Your first 7 sentences were a bit much to read.
Xnarg
Senior Member - 5K
posted: Nov. 26, 2009 @ 7:51p
tripleB said: ...My idea for a tax efficient lifestyle would involve getting a job with a government or non-profit in a management role and earning $50k per year and working 35 to 40 hours a week...Do you mean "working" as in actually doing real work or "working" as doing a government job?
IMNHO, there's some conversion factor for real work hours versus government work hours, something along the lines of converting people years to dog years.
RS4Rings
Back in Rehab
posted: Nov. 26, 2009 @ 8:02p
Big reason for retiring was to live a tax efficient life, More import to me to keep my money instead of having it taken away.
So you are going to forgo $50k-$150k income per year to gain a $2500/year tax deduction and a one-shot loan forgiveness (which is entirely dependent on you lasting there for 10 years)?
It has nothing to do with efficiency, and everything to do with how much you value those extra 40 hours of free time each week. And I dont find it "efficient" to buy an extra 40 hours of free time per week at a cost of $50-60+ per hour, every hour, every week.
Government workers do have other tricks up their sleeve to reduce taxable income. I am costing out whether it is worth it to purchase additional retirement credit pre-tax, which would be in addition to the 457. Management employees where I work can contribute to both the 401(k) and 457, which allows for deferral of up to $33,000 in income (although they lose the match since they are non-union).
Glitch99 said: So you are going to forgo $50k-$150k income per year to gain a $2500/year tax deduction and a one-shot loan forgiveness (which is entirely dependent on you lasting there for 10 years)?
I dont have to work at the same job for 10 years. Just any government or non-profit job. I am specializing in healthcare management so 90% of those jobs are non-profit.
The one shot loan forgiveness is worth $150k over 10 years. The math is as follows. I would be paying approximately $20k per year for 10 years at 8% interest to pay off the loans. Or I pay $5k per year for 10 years based on income-contigent repayment and then get whatever balance after 10 years forgiven.
The $2500 tax deduction will also be 10 years worth because I get it every year for 10 years. I qualify for no deduction if I make $100k. Thats $25000 worth of deductions at the 25% bracket is worth about $6k.
Thus the value of working the nonprofit for 10 years is actually about $155k.
mtl325
Senior Member
posted: Nov. 26, 2009 @ 9:42p
for someone expecting a 100-200k job after an mba, I'd think you would have the situation modeled. Even using a tiny tiny discount rate of 5% you lose on the total. 110k in 10 years is only worth 65k at that rate. At a Capex rate discount of 12.5% you're looking at an NPV of 33.5k. That's not to say that there isn't a lot of benefits doing govt work. ex. TSP G fund.
T-IRA phases out starting at 52k, and the student loan deduction phase out begins at 55k. Therefore, the perfect income for your situation is 54,500 because the student loan deduction is top line. However, once you hit 105k, 7.5% appears back in your paycheck due to maxing out SS.
You also missed one big govt. incentive. At 110k-250k levels of income, Uncle Sam really likes marriage. After getting married this year, our total taxes will go down over 10k this year. That's a combo of reducing top marginal bracket and getting the student loan deduction back. And on top of that I'll be able to do a roth this year.
Xnarg said: tripleB said: ...My idea for a tax efficient lifestyle would involve getting a job with a government or non-profit in a management role and earning $50k per year and working 35 to 40 hours a week...Do you mean "working" as in actually doing real work or "working" as doing a government job?Claiming that
tripleB said: Thus the value of working the nonprofit for 10 years is actually about $155k.Right, I agree that its a pretty significant chunk of change.
But you are also sacrificing up to $1.5-million in salary over the same period in order to collect that $155,000 benefit.
Glitch99 said: tripleB said: Thus the value of working the nonprofit for 10 years is actually about $155k.Right, I agree that its a pretty significant chunk of change.
But you are also sacrificing up to $1.5-million in salary over the same period in order to collect that $155,000 benefit.
How do you get 1.5M in salary over 10 years? That assumes I can make $150k more per year working private industry than I can make as a government worker. If you can show me a job where I can make $200k starting out with an MBA at 30 years old in this economy then sign me up!
The reality is that I can likely make $500k to $700k more working privately depending on if I get promoted during those 10 years but after taxes it will be closer to $300k to $500k to work twice as many hours under more stress with lower job security.
The marginal after-tax value of working privately versus government, counting my student loan forgiveness and added deductions is about $20k per year to work an extra 40 hours a week * 50 weeks is 200 hours. $20k/200 hours is $100 per hour. That's a nice chunk of change but I dont know if it's really worth it.
mtl325 said: You also missed one big govt. incentive. At 110k-250k levels of income, Uncle Sam really likes marriage. After getting married this year, our total taxes will go down over 10k this year.
Getting married for financial gain would be like cutting off my legs so I qualify for disabled rates on the train.
tripleB said: Glitch99 said: tripleB said: Thus the value of working the nonprofit for 10 years is actually about $155k.Right, I agree that its a pretty significant chunk of change.
But you are also sacrificing up to $1.5-million in salary over the same period in order to collect that $155,000 benefit.
How do you get 1.5M in salary over 10 years? That assumes I can make $150k more per year working private industry than I can make as a government worker. If you can show me a job where I can make $200k starting out with an MBA at 30 years old in this economy then sign me up!
The reality is that I can likely make $500k to $700k more working privately depending on if I get promoted during those 10 years but after taxes it will be closer to $300k to $500k to work twice as many hours under more stress with lower job security.Remember, you started this thread under the premise of comparing a $50k public sector job with a $100-200k job in the private sector. And if you want to consider today's economy, you have to consider that a 'secure' $50k government job might be rather hard to come by....
But even considering a $500k net gain over 10 years, for 20,800 more hours of work. That's still $24/hour, the same rate as that $50k/year government job. PLUS, for year 11 you'd be building from a much higher salary.
katx said: Xnarg said: tripleB said: ...My idea for a tax efficient lifestyle would involve getting a job with a government or non-profit in a management role and earning $50k per year and working 35 to 40 hours a week...Do you mean "working" as in actually doing real work or "working" as doing a government job?Claiming that
do not do real work is an undeserving and unfair insult.
Postal workers should not be included on that list
mchas
Senior Member
posted: Nov. 27, 2009 @ 12:05a
Spending 110K to *hopefully* get a 100K/year job working 80 hours a week sounds pretty stupid to me. You might as well have taken the 50K/year 40 hour a week job to begin with and saved a lot of hassle.
This is one of the main reasons why I decided to skip the MBA.
Curious - what job do you think you can get that is $100k-200k working 80 hours with an MBA? Biz dev pays $80-120k and you rarely work more than 45-50 hours, and you don't even need an MBA. I don't think management consultants work more than 50 hours either these days (let alone make more than 100k), and wall st is dead.
7890 said: katx said: Xnarg said: tripleB said: ...My idea for a tax efficient lifestyle would involve getting a job with a government or non-profit in a management role and earning $50k per year and working 35 to 40 hours a week...Do you mean "working" as in actually doing real work or "working" as doing a government job?Claiming that
do not do real work is an undeserving and unfair insult.
Postal workers should not be included on that list
CDC scientists? That was a good one!
Xnarg
Senior Member - 5K
posted: Nov. 27, 2009 @ 10:02a
katx said: Xnarg said: tripleB said: ...My idea for a tax efficient lifestyle would involve getting a job with a government or non-profit in a management role and earning $50k per year and working 35 to 40 hours a week...Do you mean "working" as in actually doing real work or "working" as doing a government job?Claiming that
do not do real work is an undeserving and unfair insult.You've obviously never dealt with government workers in the DMV, USPS, city maintenance, etc.. Of course there are some who do their share, but the government employment system is stacked against performance in favor of longevity and keeping ones head down. Ask anyone in the roles you mention if that's the case.
One of my neighbors works in FBI anti-terrorism. Before that the worked on organized crime. His complaints about government lethargy are routine - he puts in a lot of effort IN SPITE of the way government groups work, not because of them.
You mention the CIA - look how they've been treated - maligned, underfunded, used as a political tool and whipping boy. It's no wonder that morale continues to drop there and in the NSA.
I recall when the City of Pasadena, CA, outsourced their sidewalk repair program. I had a friend then who had been in charge of one of their in-house crews. He was really shaken up because his new outside crews were roughly 10X more productive, with the same quality level, as his former in-house workers. His old city crew would pour 1 yd of concrete in the time it would take an outside group to pour 10 yds.
You may notice that people often have no hesitation to malign workers in many industries, such as petroleum, banking, and insurance or those workers at places like Wa1mart - where is the sense of fairness for them?
If you feel a need to take this subject further off topic, you might consider starting a new thread.
I've explored this option, and an NPO is generally not willing to make any changes to their 401a structure. I've also tried to negotiate for vacation days at discounted rate compared to my proposed salary increase, but that also didn't work. Sometimes they will only give you the money; taxes be damned.
dshibb said: Actually, an interesting discussion on this subject would be this.
The advantages of forgoing small salary increases in the 80-150K range in exchange for things that give you more leverage in getting serious income. How about instead of asking for the raise from 80K to 90K you demand your compensation in the form of substantial increases in responsibility. And the accumulating those increases in responsibility to leverage yourself in to either A) A new position paying vastly more or B) the same position but at a huge salary because you are now indispensable. This would allow you to keep your tax advantaged lifestyle early in your career and then a very quick leap to an income level where the increase in salary blows out the tax implications.
Mickie3 said: 7890 said: katx said: Xnarg said: tripleB said: ...My idea for a tax efficient lifestyle would involve getting a job with a government or non-profit in a management role and earning $50k per year and working 35 to 40 hours a week...Do you mean "working" as in actually doing real work or "working" as doing a government job?Claiming that
do not do real work is an undeserving and unfair insult.
Postal workers should not be included on that list
CDC scientists? That was a good one!"Do you even have a college degree? And if yes, do you even work as a scientist? My guess is, no and no."
lotusgardener
Broke Member
posted: Nov. 27, 2009 @ 1:05p
If you can work 10 years at 50k and pay ~50k towards student loans, you can easily pay off 110k of SL in under 5 years making >100k. Sure you don't get that deduction or the forgiveness, but it's the same concept because for those 5 other years, your earning your own interest on that money.
heynoel
Senior Member
posted: Nov. 27, 2009 @ 1:17p
tripleB said: Glitch99 said: tripleB said: Thus the value of working the nonprofit for 10 years is actually about $155k.Right, I agree that its a pretty significant chunk of change.
But you are also sacrificing up to $1.5-million in salary over the same period in order to collect that $155,000 benefit.
How do you get 1.5M in salary over 10 years? That assumes I can make $150k more per year working private industry than I can make as a government worker. If you can show me a job where I can make $200k starting out with an MBA at 30 years old in this economy then sign me up!
The reality is that I can likely make $500k to $700k more working privately depending on if I get promoted during those 10 years but after taxes it will be closer to $300k to $500k to work twice as many hours under more stress with lower job security.
The marginal after-tax value of working privately versus government, counting my student loan forgiveness and added deductions is about $20k per year to work an extra 40 hours a week * 50 weeks is 200 hours. $20k/200 hours is $100 per hour. That's a nice chunk of change but I dont know if it's really worth it.
your math is off here. 40 hrs a week x50 weeks is 2000 hours. so 2000 hours to make $20k means it is 10 bucks an hour. I don't think you will find a job that requires 80 hours a week sustained except for surgical residencies, and that is limited to a few years.
katx said: Mickie3 said: 7890 said: katx said: Xnarg said: tripleB said: ...My idea for a tax efficient lifestyle would involve getting a job with a government or non-profit in a management role and earning $50k per year and working 35 to 40 hours a week...Do you mean "working" as in actually doing real work or "working" as doing a government job?Claiming that
do not do real work is an undeserving and unfair insult.
Postal workers should not be included on that list
CDC scientists? That was a good one!"Do you even have a college degree? And if yes, do you even work as a scientist? My guess is, no and no."
Then you are wrong (several times) and wrong. Obviously, you have never worked with or known anyone who really knows the inside of that ruse...... errrrr I mean institute of science.
the noteworthy part of this post is that people are willing to pay 100-200k to someone who can't figure out that OP is suboptimal on their own. i think that should answer once and for all whether MBA is 'worth it' or not!
DTASFAB
Senior Member
posted: Nov. 27, 2009 @ 4:34p
theman2 said: It is a bad idea to live your life in a way just to pay less taxes. Tell that to Tony Soprano.
It depends on one's ability to live comfortably on a relatively small income combined with the level of desire to not be exploited by the government. Most people will say that making $200K a year and being in a higher tax bracket is a nice problem to have. Others undoubtedly disagree.
Mickie3 said: katx said: Mickie3 said: 7890 said: katx said: Xnarg said: tripleB said: ...My idea for a tax efficient lifestyle would involve getting a job with a government or non-profit in a management role and earning $50k per year and working 35 to 40 hours a week...Do you mean "working" as in actually doing real work or "working" as doing a government job?Claiming that
do not do real work is an undeserving and unfair insult.
Postal workers should not be included on that list
CDC scientists? That was a good one!"Do you even have a college degree? And if yes, do you even work as a scientist? My guess is, no and no."
Then you are wrong (several times) and wrong. Obviously, you have never worked with or known anyone who really knows the inside of that ruse...... errrrr I mean institute of science. So you think there are no scientists at CDC? If that is not what you are saying, then please elaborate.
Let's keep this thread on-topic. All topics after this point must be on the subject of living a tax efficient lifestyle. Off-topic messages on CDC scientists and postal workers will be removed.
wallet2skinny
New Member
posted: Nov. 28, 2009 @ 2:37a
I guess nobody asked the question yet: What school will you be attending? If it's not a top 10-15 ranked school, forget getting hired. You're wasting your time and your money.
JaneiR36
Senior Member
posted: Nov. 28, 2009 @ 7:56a
The recession won't last forever. I got a Masters during a dry job market, and years and years later that's a degree I'll continue to have to my name. So long as you've selected a marketable degree I don't feel the current economic situation should dictate whether or where you elect to study.
Skipping 14 Messages...
mikef07
Senior Member - 3K
posted: Dec. 1, 2009 @ 9:25a
Crazytree said: You should see my taxes for 2009... I'm going to get mounted.
But hey... at least I'll qualify for a big mortgage payment.
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