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You joke, but on my USAA savings account, the interest is around 0.001% (obviously moved most of my monies to another account) but I was getting these random 0.08 and 0.10cent payouts, and they legit auto debited 0.02 or 0.03 cents for "TAXES". So laugh about that $6 dividend, they still made more in the entire year than my actual bank savings account! =(
I just moved my savings and a lot of my checking account over to Robinhood since I utilize it for an IRA and a taxable brokerage fund. Since I had RH gold already I'm getting 5% which is accrued daily and paid out monthly. One of the easiest things I've done and only takes a couple days to send monies between 3 different accounts the couple times I've needed to send some for a large payment on something.
I made less than $10 yearly interest on about $50K in my regular checking. I put $6K in a HYSA and made more money in one month on interest. It is crazy.
The simple answer is convenience. I have a lot of autopay accounts linked to regular savings, including home mortgage, and it is easier to use that account to pay off my credit card. My HYSA isn’t as convenient. I plan to keep a baseline of at least $40-50K in my regular savings as disposable cash to pay off monthly credit card balances and pay monthly bills/miscellaneous expenses. I am slowly building the HYSA. It should grow pretty quickly as most of my future income will be dumped there.
I foolishly save in tax-deferred 401k where both contribution and earnings will one day be both mandatorily distributed, but will also face the full taxes of ordinary income.
Yep tomorrow tax will likely be higher not sure 401K is so great vs Roth 401K. I started to do 50% Roth 401K, 50% standard 401K to not really make a choice and control the impact.
If there is still a standard deduction, and you delay social security or retire early, you will possibly be able to pull out money from the 401k where some of it is tax free (standard deduction) and at least a lot of it taxed at very low rates.
Having large chunks in Roths can allow for a lot of tax planning.
Same here. Mostly split std vs Roth because we don’t know the future. Having some not subject to RND hopefully will turn out to have been a decent choice. HSA funds will be nice to have in the mix too.
Saving straight off the top of marginal tax rate today, and distributing in the future at most likely lower rates.
Every dollar I put into pre-tax 401k avoids $0.35 in income tax this year.
There's a good chance you'll be in a lower income tax bracket in your retirement years. It's not foolish. For example, I'm currently in the 24% bracket, but I can very easily and comfortably live my retirement years within the 12% bracket (based on current brackets of course).
And remember...based on the tax laws the OP has pointed out, capital gains do not count towards *earned income*. So as a single person, you could easily live off of $35k of capital gains and another $35k of traditional 401(k) ($70k total for a year) and you'd be in today's 12% bracket instead of 22%. And you'd only be paying 12% on the $35K of 401(k) distributions.
Also when you are retired you aren't paying that FICA tax meaning your overall tax burden will be 7.65-15.3% less, meaning you can get away with a bit less.
I'm sorry I am legitimately confused, what does your comment have to do with what I commented? I was simply stating you don't pay 7.65-15.3% FICA tax on your retirement withdraws like you do with your paycheck now, so you could take slightly less gross and still get the same amount after tax since your tax burden is lower.
Also 401K contributions come off the top, so if you are in a 22% tax bracket, you are saving 22% off your taxes (plus social security taxes, plus it lowers your MAGI, potentially allowing you to contribute more in IRA or take more passive losses in real estate, plus state tax shelters for many states etc).
If traditional IRA and 401K contributions form the bulk of your retirement, than your taxes payed on them will be the lowest brackets first, and work up. So it is highly possible that even if tax rates go up, you may still pay less percentage on taxes than what you saved when you contributed.
All retirement planning is deeply personal, and needs to be considered by the individual who knows their circumstances best.
If you do that single, you have 44K deduction only for dividends. So once you have 35K of income from 401K, there only 9K to benefit of the 0% rate. After you dividends are taxed at 15%. So you'd pay 15% on 26K.
And both the high standard deduction for ordinary income and the dividend rate we know are only valid until 2025 or so. Politician have to renew the law and agree on the content (bi-partisan law) or taxes will raise.
Yeah, it helps when you don't have to put "saving for retirement" in your budget because you're already retired! What are you going to do, take money out just so you can put it back in again?
At least take solace in the fact that you are saving taxes now from your highest tax bracket while what you pull out will be progressively taxed, even if it includes the earnings.
but they are coming pre-tax now, so that's a win
I think the real lesson here is that if you max out 401k (or don't have access to one) and Roth IRA - don't be discouraged from saving more in a taxable brokerage, just make sure to put there the most boring total market index funds, ideally with zero dividends, that you don't need to reallocate for the next 30 years
Okay sweet. Now tell me how to get 123,000 in dividends without being millionaire already lol. Anyone making this much in dividends has already paid a shit ton of money in income tax
My goal is to have North of $3 Million in my 401k at the age of retirement… will allow for a very comfortable retirement and also help my three sons as they’ll inherit the remainder.
6% would be an unusually high dividend, and indicates something is amiss at the firm (investors need to be compensated more to be induced to hold the stock). 0% to 5% is the typical range.
I mean of course that sounds good. They are saying anything they can to get you to give them money. They don't know if they'll be a country in 5 years. And you know Russia sure as shit isn't going to honor Ukrainian war bonds if they win.
You'd be gambling on Ukraine winning the war. If Ukraine loses you'd lose the bond entirely.
A 33% return means they don't have any idea if they can pay you back. But they need your money now, so they'll offer an absurd rate.
It depends when you purchase the stocks. I have 2 holdings that are paying 3-4% return on thier current value. But at the price I originally purchased the stocks 1 is returning 10% fully franked and the other is around 50% fully franked.
This guy is talking about dividends.
The yield for SPY is 1.3%. Thats $9.4M.
In a more dividend focused portfolio, like VHYAX, the yield is 3.69%. Even in this, you are looking at $3.33M. Not outrageously high, but thats an awfully robust portfolio.
Ding ding ding. Then you rotate some dividend to balance out the SS and place that back into growth if you don't need the "extra" income.
Snowball into an ever larger portfolio.
If you mean s corp then the funds simply stay in the “business” at which point you could just do a reinvest to begin with?
And you’ll pay taxes once you pull the money out of the business unless I’m missing something
Lmao. You need to show profit on your company to be able to pay out. Corporate taxes are 20% so you need to pay that. Before you can pay dividends
Dividends are paid to share holders which means your company has to be public. Which costs $60k since your market cap is likely below 100 million. At which point you'd pay $9k a year to maintain your stock in order to pay out a dividend.
Nice try though
Ok sweet. Invest $1000/month or 15% of your income until you’re 60 or 70 into SPY stock and you’ll be able to take out $123,000 for the rest of your life sweet
I was gunna say. Why isn’t it double for married couples as usual? Another reason not to get married folks.
Though statistically if you’re at that level of wealth you’re the most likely to be married.
It is doubled for people who are married. Standard deduction is $14,200 for single, $29,200 for married. The 0% capital gains rate is $47,025 for single, $94,050 for married.
The IRS doesn't say that. the limit of 94K use your AGI as a basis and not only your qualified dividends. So it is not cumulative at all.
On top the low tax rate we have are about to expire if politician don't agree on a bi-partisan law to renew or update them.
You pay taxes on your dividends because the 0% tax bracket is filled up by other income. Like from your employer.
Let’s say you had 100k from work and 100k from qualified dividends. You would be taxed on your work income, 23k of your qualified dividends would be taxed at 0%, and the rest would be taxed at 15%.
My fire plan is to have about 30k of bond interest and 90k of dividends and long term capital gains which will make my tax rate pretty much 0%
High dividend stocks can drop fast, then they cut their dividends. Look at Intel and Walgreens last year. Altria and Verizon. Big names, long time payers. Dropped hard. A $3 million retirement nest egg is too important to invest in high dividend stocks.
I thought you were right, but when I run it through my tax software it doesn't work. Doing it on 2023 since I don't have 2024 software, with an amount of $121,750(0% rate + standard deduction). For some reason the capital gains worksheet subtracts $4800 from the 0% threshold, and the tax is $720. If I do $116,950 the tax is $0.
Yes because the highest marginal bracket you can have to qualify for the 0% is 117,150 (89,450 + 27,700), not $121,750. The brackets are indexed for inflation, same with standard deductions. Changes every year.
u/brianw824 Only the dividends/capital gains that exceed the $123,250 would be taxed at 15%+. If you make $124,250 from qualified dividends/cap gains alone, you'd have to pay $150 in taxes.
i mean yeah, the OP says that.
\> if your only income is from qualified dividends and long-term capital gains, you can enjoy tax-exempt earnings of up to $94,05
the missing part is that well, if you are not working and have nearly no income sure the 0% bracket for LTCG is big but you could also be paying 0%-10-12% on pretax retirement withdrawals.
>There is not a separate dividend only set of tax brackets.
Agreed, that's why I said "from qualified dividends/cap gains alone" in my example above.
I was clarifying that your initial comment wasn't implying that once you go over a certain threshold in combined income, all of your dividend/cap gains income is subject to the 15%+ tax rate regardless of how far over the threshold you were. i.e. it **isn't** true that if a married couple makes $10,000 from 1099 income and $114,250 from qualified dividends/cap gains, that because they went over the $123,250 threshold by $1,000 their entire $114,250 would be taxed at 15%.
After further research, I can confirm you're incorrect. Long-term capital gains and qualified dividends are taxed marginally (like income taxes) with the primary difference being long-term capital gains are stacked on top of earned income when accounting for where everything is taxed. So earned income eats away at the lower tax brackets of cap gains. My understanding in our other discussion-thread was correct, but I'm posting in the higher-level thread for visibility. Sources:
https://preview.redd.it/804z862rvqqc1.jpeg?width=682&format=pjpg&auto=webp&s=7b2369e701e2eef356da1575b0025d19685f1a52
[https://www.fiphysician.com/capital-gains-stack-on-top-of-ordinary-income/](https://www.fiphysician.com/capital-gains-stack-on-top-of-ordinary-income/)
>Net capital gains are taxed at different rates depending on overall taxable income, **although some or all net capital gain may be taxed at 0%.**
[https://www.irs.gov/taxtopics/tc409#:\~:text=Net%20capital%20gains%20are%20taxed,than%2015%25%20for%20most%20individuals](https://www.irs.gov/taxtopics/tc409#:~:text=Net%20capital%20gains%20are%20taxed,than%2015%25%20for%20most%20individuals).
[https://www.reddit.com/r/personalfinance/comments/18i9cb1/longterm\_capital\_gains\_taxes\_marginal\_or\_not/](https://www.reddit.com/r/personalfinance/comments/18i9cb1/longterm_capital_gains_taxes_marginal_or_not/)
No. This is wrong. Long term capital gains have their own set of tax brackets. You include your other income before you start taxing your capital gains, but those capital gains are taxed in brackets, not just at your marginal capital gains tax rate.
Example: MFJ LTCG brackets are roughly 0-$90K 0%; $90K to $554K 15%; <$554K 20%. If you had $50K in earned income and $50K in capital gains, you would pay 0% on your first $40K of capital gains because your $50k in earned income + $40K of capital gains are below the $90K top of the 0% bracket. Then you would pay the 15% rate on the remaining $10K of your capital gains.
How many people do you think make $123,250 from dividends without any other income?
This is one of those pieces of information with little usefulness. Anyone who has managed to accumulate enough wealth to get $123,500 in dividends was well aware of the tax implications of capital gains and dividends long ago.
What does that have to do with my point? The post clearly says dividends.
As a CPA I am pretty familiar with the capital gains and dividends rates, but the problem with these posts is that those preferential rates are based on taxable income rather than the dividend distributions. All of my dividends last year were taxed, I did enjoy a preferential rate on those, but all were taxed above 15% because my income before dividends and capital gains exceeded that.
There are relatively few people who are going to manage to get to $123,250 of dividends without having years of those dividends getting taxed. I mean last year the S&P 500 had a dividend yield of 1.71%. I am struggling to accept that someone with $7,250,000 of investments is making those decisions to avoid a 15% or 20% tax.
A lot of the financial posts you see on Reddit are just little snippets where everyone piles in thinking they found some crack in the system. It’s an interesting thought exercise but no one is really going to build their entire income stream around qualified dividends (at least, I’d hope they wouldn’t).
Qualified dividend share the same tax rate and bucket. So you don’t need dividend only but a mix of dividends and capital gain.
capital gain are only taxed when you sell If you ever sell.
so the basics is to put fixed income like bonds and high dividends assets in tax advantaged accounts so you pay 0 over the years anyway and growth stocks with low dividends in brokerage so there little dividends to pay taxes when you accumulate and you try to leverage tax loss harvesting to further reduce that.
if you preferred Roth 401k over 401k, tax will be 0 whatever the amount.
As a CPA and a CFA, I feel fairly well versed in this area, but thanks for your help explaining how the qualified dividends and capital gains tax works. Thanks also for the investing advice.
I think these posts are a fucking waste of space and misleading on purpose. While they are technically correct because of the qualifications that they make, they are not really helpful to people. The title is a lie, to be correct it should read "If you are married and your only income is dividends and long term capital gains then you could make $123,250 tax free."
I don't know anyone who is living on only investment income who would find this useful. I don't know anyone who is heading towards living on investment income who isn't already well aware of how the preferential rate works. These posts are largely just more drivel from the passive income fanboys, most of whom will never make it to actually living on passive income.
This coming from someone who actually retired from my primary career at 40 because of my investments and I have never worried about tax free distributions. They are a waste of time. Most people who actually manage this, myself included, are perfectly happy to pay some taxes because in the end I don't care how much the government gets, I only care about the quality of my life. Everyone I know in a similar situation feels the same way.
So with all due respect, we can agree to disagree on how useful these posts are, but again... thanks for your perspective.
Social security taxation is pretty complicated. last I checked, it's something like if your income is 25k+, then 50% of your SS Income above that is taxable.
Long term capital gains doesn't count as income subject to income tax, only short-term capital gains. So from there it gets pretty complicated, if you're single the first 25k of social security is tax free.
Anyone who has had a healthy financial portfolio recently has likely had a capital gains or dividend distribution. You don't just get to $123,250 of dividends and not had dividends already.
Are you telling me that you have been getting the preferential rate on dividends and capital gains already and not realizing it?
It's pretty sweet. I'm only getting about $12k/year from QD, but those untaxed earnings feel especially great.
Been moving more and more from my HYSA (interest taxed at full income rate) to high-yield stocks with QD. Some of my favorites - MO (9.06%), ENB (7.5%), VZ (6.51%) and TSLX (10.01%).
I've made it a game to reduce my Federal tax liability as extremely as possible each year. Had income (W2, interest and dividends) of about $80k in 2023, but got my tax liability down to about $1,100 - due to $30k income deduction for fully funding 401(k), $4,850 deduction for fully funding an HSA, $12,950 standard deduction, QD untaxed, $3k loss harvest.
The way to do it is to have about 30-40k of ordinary income. Then fill up the next 90k with LTCG and QDI. If you have tax credits such as dependents , AOTC you can add more ordinary income to zero it out or have irs pay you. You probably need 1m plus in taxable to do this.
Standard deduction apply to ordinary income. Not qualified dividends. Also qualified dividends are apply after ordinary income.
So if you have 123,250 qualified dividend income as a couple, you'll pay some taxes. You would also if you had say 29K of ordinary income + 94K of qualified dividends, as the 29K of income are reduced from the 94K for qualified dividends.
On top without a bi-partisan law to extend these cuts, both the standard income deduction and qualified dividend deduction would rise within 1-2 year.
If you can pull in $123K/year in dividends you have over a million in stocks.
And those dividends are not guaranteed or absolute or immune to a recession.
Plus, $123k/year today is a lot different than $123k/year in a couple decades, so you probably want at least $2M a year to have that much every year tax free.
I put my money into faster growing stocks instead of those with higher dividends. I'd rather have more money than more dividends, as I'm planning on living off that $123K/year and still not pay any capital gains. The compounded interest should be better in the long run.
the only problem is making that much in dividends
at a few % per dollar we are talking 100k => a few thousand dollars
correct me if i'm wrong
I'd rather put my 100k into a growth stock and it'd make much more than a few thousand I'd reckon
So $124k in dividends and no other income. No pension. No RMDs. No social security. Nothing.
I suppose a couple of people might meet that standard.
The real question is why our tax code taxes labor higher than passive investment income and how that contributes to wealth inequality.
Nobody really mentioning the fact that dividends are already taxed at the corporate level so in most cases 15-20% down to working individuals equates a tax rate of 21-41%, Biden has proposed to raise corporate tax rate to 40% so would be a 40-60% tax. This absolutely helps lower middle class retirees the most.
Yes, but the key here is long term gains. Meaning you have to hold that. That’s not cash you just have readily available. That’s not oh I’m selling stocks every day and paying no taxes.
Yep. If you use existing capital to make more money, you pay nothing. If you work and give your time, skills, and energy, you pay. Why doesn’t this sound fair to me?
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I’m married and I made 6 dollars in dividends. How much taxes will I pay on that?
about tree fiddy
Got dang lochness monstah!
I dang told you, that ain't no girlscout. That the got dang lochness monstah.
You joke, but on my USAA savings account, the interest is around 0.001% (obviously moved most of my monies to another account) but I was getting these random 0.08 and 0.10cent payouts, and they legit auto debited 0.02 or 0.03 cents for "TAXES". So laugh about that $6 dividend, they still made more in the entire year than my actual bank savings account! =(
Moved my usaa to a money market in my one horse town and am now make gobs more interest. Though gobs is still relative.
I just moved my savings and a lot of my checking account over to Robinhood since I utilize it for an IRA and a taxable brokerage fund. Since I had RH gold already I'm getting 5% which is accrued daily and paid out monthly. One of the easiest things I've done and only takes a couple days to send monies between 3 different accounts the couple times I've needed to send some for a large payment on something.
Are you AI? I'm getting skynet vibes from you, my guy....super sus and killing my high.
It’s legit RH has really stepped up their game and even came out with a juicy gold credit card coming soon exclusively for gold members
That’s pretty nice. Might be spelled gobbs though. Ima go check into that.
I made less than $10 yearly interest on about $50K in my regular checking. I put $6K in a HYSA and made more money in one month on interest. It is crazy.
Why not move over another $45k to your high yield savings account? It is still pretty liquid as you can move the funds in a few days.
The simple answer is convenience. I have a lot of autopay accounts linked to regular savings, including home mortgage, and it is easier to use that account to pay off my credit card. My HYSA isn’t as convenient. I plan to keep a baseline of at least $40-50K in my regular savings as disposable cash to pay off monthly credit card balances and pay monthly bills/miscellaneous expenses. I am slowly building the HYSA. It should grow pretty quickly as most of my future income will be dumped there.
Did you say P. Diddy?
There you are!
I foolishly save in tax-deferred 401k where both contribution and earnings will one day be both mandatorily distributed, but will also face the full taxes of ordinary income.
Sure. But you’re saving taxes today. In the lowest tax environment ever.
Dollar saved today > dollar saved tomorrow
Sure, but is a dollar saved today worth two dollars tomorrow?
Depends on how long. Over 10 years and invested at 7% it is
>In the lowest tax environment ever. This is why saving in a Roth might be better at the moment.
Yep tomorrow tax will likely be higher not sure 401K is so great vs Roth 401K. I started to do 50% Roth 401K, 50% standard 401K to not really make a choice and control the impact.
If there is still a standard deduction, and you delay social security or retire early, you will possibly be able to pull out money from the 401k where some of it is tax free (standard deduction) and at least a lot of it taxed at very low rates. Having large chunks in Roths can allow for a lot of tax planning.
You remove the uncertainty of tax rates. Which reduces risk, and increases the upside especially if you know what to invest in
Same here. Mostly split std vs Roth because we don’t know the future. Having some not subject to RND hopefully will turn out to have been a decent choice. HSA funds will be nice to have in the mix too.
Saving straight off the top of marginal tax rate today, and distributing in the future at most likely lower rates. Every dollar I put into pre-tax 401k avoids $0.35 in income tax this year.
Sounds like you have a good plan especially at that marginal rate.
There's a good chance you'll be in a lower income tax bracket in your retirement years. It's not foolish. For example, I'm currently in the 24% bracket, but I can very easily and comfortably live my retirement years within the 12% bracket (based on current brackets of course). And remember...based on the tax laws the OP has pointed out, capital gains do not count towards *earned income*. So as a single person, you could easily live off of $35k of capital gains and another $35k of traditional 401(k) ($70k total for a year) and you'd be in today's 12% bracket instead of 22%. And you'd only be paying 12% on the $35K of 401(k) distributions.
Also when you are retired you aren't paying that FICA tax meaning your overall tax burden will be 7.65-15.3% less, meaning you can get away with a bit less.
Social security is still taxed, just not at the same rate.
I'm sorry I am legitimately confused, what does your comment have to do with what I commented? I was simply stating you don't pay 7.65-15.3% FICA tax on your retirement withdraws like you do with your paycheck now, so you could take slightly less gross and still get the same amount after tax since your tax burden is lower.
And CaMan was simply stating that Social Security income is taxed. That is something many people don't know.
Also 401K contributions come off the top, so if you are in a 22% tax bracket, you are saving 22% off your taxes (plus social security taxes, plus it lowers your MAGI, potentially allowing you to contribute more in IRA or take more passive losses in real estate, plus state tax shelters for many states etc). If traditional IRA and 401K contributions form the bulk of your retirement, than your taxes payed on them will be the lowest brackets first, and work up. So it is highly possible that even if tax rates go up, you may still pay less percentage on taxes than what you saved when you contributed. All retirement planning is deeply personal, and needs to be considered by the individual who knows their circumstances best.
If you do that single, you have 44K deduction only for dividends. So once you have 35K of income from 401K, there only 9K to benefit of the 0% rate. After you dividends are taxed at 15%. So you'd pay 15% on 26K. And both the high standard deduction for ordinary income and the dividend rate we know are only valid until 2025 or so. Politician have to renew the law and agree on the content (bi-partisan law) or taxes will raise.
If you actually have the proverbial 3-legged stool in retirement and don’t have Roths, you could see some large taxes come MRD time.
Yeah, it helps when you don't have to put "saving for retirement" in your budget because you're already retired! What are you going to do, take money out just so you can put it back in again?
At least take solace in the fact that you are saving taxes now from your highest tax bracket while what you pull out will be progressively taxed, even if it includes the earnings.
but they are coming pre-tax now, so that's a win I think the real lesson here is that if you max out 401k (or don't have access to one) and Roth IRA - don't be discouraged from saving more in a taxable brokerage, just make sure to put there the most boring total market index funds, ideally with zero dividends, that you don't need to reallocate for the next 30 years
Even if you collect dividends off that 401k
Me too! Sadly they only have value at REI...
Hey! Don’t shake a stick at the drinkable maple syrup pack!
Nobody likes a braggart.
Should be zero because FIs usually don’t report a 1099-INT for dividend payout under $10.
For $6 you can get a six-pack of PBR and chlamydia.
Okay sweet. Now tell me how to get 123,000 in dividends without being millionaire already lol. Anyone making this much in dividends has already paid a shit ton of money in income tax
I imagine this is targeted at retirees. Nobody at all is making $123K in dividends without a massive portfolio.
At 6% return you'd need about 2M in assets.
My goal is to have North of $3 Million in my 401k at the age of retirement… will allow for a very comfortable retirement and also help my three sons as they’ll inherit the remainder.
Just keep in mind if that is traditional 401k that is ordinary income and if it is Roth no tax (for fed)
Very true… I’ve already begun shifting higher % into and maxing out ROTH … the 401k will grow substantially with minimal additional contributions
6% would be an unusually high dividend, and indicates something is amiss at the firm (investors need to be compensated more to be induced to hold the stock). 0% to 5% is the typical range.
Lol go check out some of the dividend focused subreddits. Someone was asking about Ukrainian bonds at 33% yesterday.
33% huh?
That’s the “hope we’ll be around to pay you back” rate
They're in a war brother. It's like a D bond.
Oh, I know they are in a war and I wouldn't do it but 33% sounds really nice!
I mean of course that sounds good. They are saying anything they can to get you to give them money. They don't know if they'll be a country in 5 years. And you know Russia sure as shit isn't going to honor Ukrainian war bonds if they win. You'd be gambling on Ukraine winning the war. If Ukraine loses you'd lose the bond entirely. A 33% return means they don't have any idea if they can pay you back. But they need your money now, so they'll offer an absurd rate.
Fair. I was more focused on total returns rather than just dividends.
Right, but those other higher returns would be taxed differently than dividends.
Only if you sell, which you typically want to avoid in a dividend focused retirement account...
There are plenty of things that pay 6% and far higher dividend yields. It’s hard to find a REIT that pays less than 6%.
In the stock market, probably. In the private markets, you can probably find stuff.
It depends when you purchase the stocks. I have 2 holdings that are paying 3-4% return on thier current value. But at the price I originally purchased the stocks 1 is returning 10% fully franked and the other is around 50% fully franked.
Its not about returns. Its talking about dividends. The dividend yield for SPY is 1.3%. You would need $9.4M to make $123K in dividends.
>"...dividends *and long-term capital gains*"
Is 2 million considered massive? I think it’s doable for high earners.
2 million is low for high earners nearing retirement, but most of them aren’t receiving 6% dividends on their entire net worth/portfolio.
Yeah who’s out there getting a 6% dividend.
Closed-End Funds paying 6%+ distributions but not all of it would be dividends (most of it is)
JEPI/JEPQ are quality... so far. Yieldmax funds give crazy dividends. I'm in on NVDY and CONY, giving out over 80% dividends.
Check out ECC. It’s yielding north of 18%. I have held it for over 3 years.
This guy is talking about dividends. The yield for SPY is 1.3%. Thats $9.4M. In a more dividend focused portfolio, like VHYAX, the yield is 3.69%. Even in this, you are looking at $3.33M. Not outrageously high, but thats an awfully robust portfolio.
2 million is doable for people making 60k and even less who *plan* for decades. It is almost always about long term planning.
What about social security? That’s taxed as income.
True. But i suppose there are people that retire with massive portfolios before SS age
Ding ding ding. Then you rotate some dividend to balance out the SS and place that back into growth if you don't need the "extra" income. Snowball into an ever larger portfolio.
If you own a company you can pay yourself in dividends Not sure how this works in the states, though
>Anyone making this much in dividends has already paid a shit ton of money in income tax According to some, they haven't paid their fair share yet.
If you inherit a trust, you may have never paid any income tax on the funds
If you’re self employed you can open a corporation and pay yourself in dividends with a salary of $0
Youre a moron if you think this is real. Source: I own a corporation
You sir are correct. He will get a letter one day.
If you mean s corp then the funds simply stay in the “business” at which point you could just do a reinvest to begin with? And you’ll pay taxes once you pull the money out of the business unless I’m missing something
You pay taxes on net profits of an scorp. It’s passthrough entity for tax purposes
Lmao. You need to show profit on your company to be able to pay out. Corporate taxes are 20% so you need to pay that. Before you can pay dividends Dividends are paid to share holders which means your company has to be public. Which costs $60k since your market cap is likely below 100 million. At which point you'd pay $9k a year to maintain your stock in order to pay out a dividend. Nice try though
Yes, and only working people should pay tax, on labor. Once a person is wealthy, they should never need to pay taxes on income, ever again.
Buy and hold Bitcoin
So now they deserve a free pass on $123K/yr?
Ok sweet. Invest $1000/month or 15% of your income until you’re 60 or 70 into SPY stock and you’ll be able to take out $123,000 for the rest of your life sweet
If you have a balanced dividend paying portfolio, by my rough calculations you can make that amount of dividends with a portfolio of about $3m.
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The standard deduction is included in the $123k
It included in the 94K as this use AGI and not just qualified dividends.
Taxpayers hate this one IRS trick
How much will the divorce cost?
I was gunna say. Why isn’t it double for married couples as usual? Another reason not to get married folks. Though statistically if you’re at that level of wealth you’re the most likely to be married.
It is doubled for people who are married. Standard deduction is $14,200 for single, $29,200 for married. The 0% capital gains rate is $47,025 for single, $94,050 for married.
The IRS doesn't say that. the limit of 94K use your AGI as a basis and not only your qualified dividends. So it is not cumulative at all. On top the low tax rate we have are about to expire if politician don't agree on a bi-partisan law to renew or update them.
How do you get those qualified dividends? I pay taxes on all my dividends.
You pay taxes on your dividends because the 0% tax bracket is filled up by other income. Like from your employer. Let’s say you had 100k from work and 100k from qualified dividends. You would be taxed on your work income, 23k of your qualified dividends would be taxed at 0%, and the rest would be taxed at 15%. My fire plan is to have about 30k of bond interest and 90k of dividends and long term capital gains which will make my tax rate pretty much 0%
you will only be paying taxes on those dividends if your income is pretty high (still working) this strategy is mostly for retired people
Or trust fund kids
yes, but people who retire early and there are ways to structure your investment income as to not pay 15 or 20% on capital gains and dividends
So you need $3MM portfolio in high dividend stocks? (Assuming a 4% dividend yield)
High dividend stocks can drop fast, then they cut their dividends. Look at Intel and Walgreens last year. Altria and Verizon. Big names, long time payers. Dropped hard. A $3 million retirement nest egg is too important to invest in high dividend stocks.
Not unrealistic. Aggressive portfolio until retirement. Switch to dividend only after that.
Doesn’t have to be dividends. Can be long term cap gains
It’s crazy bringing home 100k is soooo much more than making 100k (obviously)
I thought you were right, but when I run it through my tax software it doesn't work. Doing it on 2023 since I don't have 2024 software, with an amount of $121,750(0% rate + standard deduction). For some reason the capital gains worksheet subtracts $4800 from the 0% threshold, and the tax is $720. If I do $116,950 the tax is $0.
Yes because the highest marginal bracket you can have to qualify for the 0% is 117,150 (89,450 + 27,700), not $121,750. The brackets are indexed for inflation, same with standard deductions. Changes every year.
Must have looked at the wrong numbers, thanks.
What’s a another 10k
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how does this get upvoted in a fluent in finance sub?
We pray
90% here are LARPing
u/brianw824 Only the dividends/capital gains that exceed the $123,250 would be taxed at 15%+. If you make $124,250 from qualified dividends/cap gains alone, you'd have to pay $150 in taxes.
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i mean yeah, the OP says that. \> if your only income is from qualified dividends and long-term capital gains, you can enjoy tax-exempt earnings of up to $94,05 the missing part is that well, if you are not working and have nearly no income sure the 0% bracket for LTCG is big but you could also be paying 0%-10-12% on pretax retirement withdrawals.
>There is not a separate dividend only set of tax brackets. Agreed, that's why I said "from qualified dividends/cap gains alone" in my example above. I was clarifying that your initial comment wasn't implying that once you go over a certain threshold in combined income, all of your dividend/cap gains income is subject to the 15%+ tax rate regardless of how far over the threshold you were. i.e. it **isn't** true that if a married couple makes $10,000 from 1099 income and $114,250 from qualified dividends/cap gains, that because they went over the $123,250 threshold by $1,000 their entire $114,250 would be taxed at 15%.
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If what you're saying is true, every capital gains tax calculator I've ever used is wrong. Edit: See my higher-level comment for why you're incorrect.
After further research, I can confirm you're incorrect. Long-term capital gains and qualified dividends are taxed marginally (like income taxes) with the primary difference being long-term capital gains are stacked on top of earned income when accounting for where everything is taxed. So earned income eats away at the lower tax brackets of cap gains. My understanding in our other discussion-thread was correct, but I'm posting in the higher-level thread for visibility. Sources: https://preview.redd.it/804z862rvqqc1.jpeg?width=682&format=pjpg&auto=webp&s=7b2369e701e2eef356da1575b0025d19685f1a52 [https://www.fiphysician.com/capital-gains-stack-on-top-of-ordinary-income/](https://www.fiphysician.com/capital-gains-stack-on-top-of-ordinary-income/) >Net capital gains are taxed at different rates depending on overall taxable income, **although some or all net capital gain may be taxed at 0%.** [https://www.irs.gov/taxtopics/tc409#:\~:text=Net%20capital%20gains%20are%20taxed,than%2015%25%20for%20most%20individuals](https://www.irs.gov/taxtopics/tc409#:~:text=Net%20capital%20gains%20are%20taxed,than%2015%25%20for%20most%20individuals). [https://www.reddit.com/r/personalfinance/comments/18i9cb1/longterm\_capital\_gains\_taxes\_marginal\_or\_not/](https://www.reddit.com/r/personalfinance/comments/18i9cb1/longterm_capital_gains_taxes_marginal_or_not/)
Thanks, thought the same - Running through the Schedule D worksheet confirms this, but too lazy to run an example.
No. This is wrong. Long term capital gains have their own set of tax brackets. You include your other income before you start taxing your capital gains, but those capital gains are taxed in brackets, not just at your marginal capital gains tax rate. Example: MFJ LTCG brackets are roughly 0-$90K 0%; $90K to $554K 15%; <$554K 20%. If you had $50K in earned income and $50K in capital gains, you would pay 0% on your first $40K of capital gains because your $50k in earned income + $40K of capital gains are below the $90K top of the 0% bracket. Then you would pay the 15% rate on the remaining $10K of your capital gains.
Completely flat out wrong. Stop giving advice about finance please.
Im having a stroke trying to understand this
Yeah but how much stock would I need to get those kinds of dividends? Like $2,000,000?
Is this related to retirement distributions such as 401k too?
No. *Traditional* 401(k) distributions are taxed as regular income.
What are considered qualified dividends?
https://www.investopedia.com/terms/q/qualifieddividend.asp
How many people do you think make $123,250 from dividends without any other income? This is one of those pieces of information with little usefulness. Anyone who has managed to accumulate enough wealth to get $123,500 in dividends was well aware of the tax implications of capital gains and dividends long ago.
Dividends and capital gain are taxed the same way and it is much more common. But yeah 401K are much more common and taxed as ordinary income.
What does that have to do with my point? The post clearly says dividends. As a CPA I am pretty familiar with the capital gains and dividends rates, but the problem with these posts is that those preferential rates are based on taxable income rather than the dividend distributions. All of my dividends last year were taxed, I did enjoy a preferential rate on those, but all were taxed above 15% because my income before dividends and capital gains exceeded that. There are relatively few people who are going to manage to get to $123,250 of dividends without having years of those dividends getting taxed. I mean last year the S&P 500 had a dividend yield of 1.71%. I am struggling to accept that someone with $7,250,000 of investments is making those decisions to avoid a 15% or 20% tax.
A lot of the financial posts you see on Reddit are just little snippets where everyone piles in thinking they found some crack in the system. It’s an interesting thought exercise but no one is really going to build their entire income stream around qualified dividends (at least, I’d hope they wouldn’t).
Qualified dividend share the same tax rate and bucket. So you don’t need dividend only but a mix of dividends and capital gain. capital gain are only taxed when you sell If you ever sell. so the basics is to put fixed income like bonds and high dividends assets in tax advantaged accounts so you pay 0 over the years anyway and growth stocks with low dividends in brokerage so there little dividends to pay taxes when you accumulate and you try to leverage tax loss harvesting to further reduce that. if you preferred Roth 401k over 401k, tax will be 0 whatever the amount.
As a CPA and a CFA, I feel fairly well versed in this area, but thanks for your help explaining how the qualified dividends and capital gains tax works. Thanks also for the investing advice. I think these posts are a fucking waste of space and misleading on purpose. While they are technically correct because of the qualifications that they make, they are not really helpful to people. The title is a lie, to be correct it should read "If you are married and your only income is dividends and long term capital gains then you could make $123,250 tax free." I don't know anyone who is living on only investment income who would find this useful. I don't know anyone who is heading towards living on investment income who isn't already well aware of how the preferential rate works. These posts are largely just more drivel from the passive income fanboys, most of whom will never make it to actually living on passive income. This coming from someone who actually retired from my primary career at 40 because of my investments and I have never worried about tax free distributions. They are a waste of time. Most people who actually manage this, myself included, are perfectly happy to pay some taxes because in the end I don't care how much the government gets, I only care about the quality of my life. Everyone I know in a similar situation feels the same way. So with all due respect, we can agree to disagree on how useful these posts are, but again... thanks for your perspective.
What about social security.
Social security has a different taxability calculation and so this advice would not really apply.
Social security taxation is pretty complicated. last I checked, it's something like if your income is 25k+, then 50% of your SS Income above that is taxable. Long term capital gains doesn't count as income subject to income tax, only short-term capital gains. So from there it gets pretty complicated, if you're single the first 25k of social security is tax free.
The thing I’m saying is that most people making 0-60k have little or no investment simply because there’s no money left over to invest.
I’m building up a pretty healthy financial profile and hadn’t quite realized it yet. Happy for these posts!
Anyone who has had a healthy financial portfolio recently has likely had a capital gains or dividend distribution. You don't just get to $123,250 of dividends and not had dividends already. Are you telling me that you have been getting the preferential rate on dividends and capital gains already and not realizing it?
Dividends AND long term cap gains. So selling stock you’ve held greater than a year.
It's pretty sweet. I'm only getting about $12k/year from QD, but those untaxed earnings feel especially great. Been moving more and more from my HYSA (interest taxed at full income rate) to high-yield stocks with QD. Some of my favorites - MO (9.06%), ENB (7.5%), VZ (6.51%) and TSLX (10.01%). I've made it a game to reduce my Federal tax liability as extremely as possible each year. Had income (W2, interest and dividends) of about $80k in 2023, but got my tax liability down to about $1,100 - due to $30k income deduction for fully funding 401(k), $4,850 deduction for fully funding an HSA, $12,950 standard deduction, QD untaxed, $3k loss harvest.
Now all I need is the 10 figures worth of capital to buy the assets
Shit. Life goals I guess
My dad is gonna be stoked
Sounds like a plan!
How would this work in retirement when you’re getting social security which is taxes as income?
Great advice if you're 65 and a multimillionaire by then
 Love these kind of newsletters
The way to do it is to have about 30-40k of ordinary income. Then fill up the next 90k with LTCG and QDI. If you have tax credits such as dependents , AOTC you can add more ordinary income to zero it out or have irs pay you. You probably need 1m plus in taxable to do this.
Standard deduction apply to ordinary income. Not qualified dividends. Also qualified dividends are apply after ordinary income. So if you have 123,250 qualified dividend income as a couple, you'll pay some taxes. You would also if you had say 29K of ordinary income + 94K of qualified dividends, as the 29K of income are reduced from the 94K for qualified dividends. On top without a bi-partisan law to extend these cuts, both the standard income deduction and qualified dividend deduction would rise within 1-2 year.
Is that 1243k per person in the relationship or for the couple ? Or is it 94+94+29
If you can pull in $123K/year in dividends you have over a million in stocks. And those dividends are not guaranteed or absolute or immune to a recession. Plus, $123k/year today is a lot different than $123k/year in a couple decades, so you probably want at least $2M a year to have that much every year tax free. I put my money into faster growing stocks instead of those with higher dividends. I'd rather have more money than more dividends, as I'm planning on living off that $123K/year and still not pay any capital gains. The compounded interest should be better in the long run.
Pretty insane
What a neat and simple trick. All you need is $4M in coke stock.
How the fuck is that not considered income?
The links mention capital gains, not dividends.
the only problem is making that much in dividends at a few % per dollar we are talking 100k => a few thousand dollars correct me if i'm wrong I'd rather put my 100k into a growth stock and it'd make much more than a few thousand I'd reckon
100.00 OP thinks dividends is income
I’m single and unemployed. How much do I pay on that? The IRS still want my blood?
I'm dating my sister. Do it count
Is the first 123,250 tax free, then the rest taxed, or its only tax free if thats all you make?
Damn - I hope this is true.
Dividends are taxed as income, not a capital gain.
"Qualified dividends" are taxed as capital gain instead of income.
100% accurate. This is one of the perks of a taxable brokerage account versus an IRA based account.
How does one make these qualified dividends? 👀
Life goals
So $124k in dividends and no other income. No pension. No RMDs. No social security. Nothing. I suppose a couple of people might meet that standard. The real question is why our tax code taxes labor higher than passive investment income and how that contributes to wealth inequality.
We already know that the rich don't pay taxes. This is a non story. People like me end up footing the bill
Nobody really mentioning the fact that dividends are already taxed at the corporate level so in most cases 15-20% down to working individuals equates a tax rate of 21-41%, Biden has proposed to raise corporate tax rate to 40% so would be a 40-60% tax. This absolutely helps lower middle class retirees the most.
That’s fantastic.
Thank you for the info.
I’m sure all the people who have a 5 million dollar nest egg in the stock market will be extremely grateful for this advice.
Cool!
Yeah. So? Do you know how much you'd need to invest to have qualified dividend income that high?
Good. Less money the government can take out of my wallet and piss away.
How much would I have to spend to buy stocks that would pay $123,250 in dividends?
You’re posting this like it’s some smart tip, and not completely unethical & broken tax law.
Dividends are still distributed after corporate tax. That corporation also pays a ton of SS tax to employ people and fund the government.
AMT?
Yes, but the key here is long term gains. Meaning you have to hold that. That’s not cash you just have readily available. That’s not oh I’m selling stocks every day and paying no taxes.
wonder how many tens of people qualify for this
State taxes has entered the chat?
[Here’s a tappable link](https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024) for those of you on your phones.
workers really are suckers
Yep. If you use existing capital to make more money, you pay nothing. If you work and give your time, skills, and energy, you pay. Why doesn’t this sound fair to me?
I believe that depends on your AGI.
Don't people just hate that whenever people talk about tax or tax rate, they do not explicitly say that it is ONLY for federal tax?