Tax on Capital Gain, Interest, & Dividend from regular $
(Please read the Disclaimer first. If you disagree, please stop reading my blog).
- We pay at least 30%~39% federal income tax.
- We pay 10% CA state income tax.
Conclusion
- So if we receive 13% interest return on promissory notes, we can keep only about 7.5% after taxes... There doesn't seem a way out to lower tax rate on the interest.
Solution1
- We can use regular money for long term (> 12 mo.) equity based investment. Long term capital gain is taxed at lower rate.
- We can use regular money for CA municipal bond funds or ETFs (no tax). However, the Fed may raise the rate soon so every strong economic report will hurt the face value of CA muni. Otherwise it's relative stable. Generally speaking, bonds are two edged sword with the following characteristics:
- bonds are excellent weapon during contracting economy (recessions). Not only they offers high yields but the crashing stock market will push up bonds real value. Long bonds have the best value while short-term bond rates will drop along with the FOMC discount rate.
- Vice versa, bonds would come to bite the investors when the economy turns around and starts the expansion. The inflation picks up and the Fed raises the federal discount rate. The long bond rates are quite stable and the short-term bonds are more sensitive to FOMC's hikes.
- Inverted yield scenario
Solution2
We can invest with our IRA money. After we resign from one company, we don't necessary have to roll the old 401k plan to the new company's 401k.- We can opt out for a rollover IRA at a brokerage firm for trading stocks, ETFs, options, futures, etc...
- If we don't feel we have the time, expertise, or the guts to play, we can convert to a Self-Directed IRA for real estate or other alternative investments. In SD-IRAs, we have the following options
- Residential real estate—including apartments, single family homes, and duplexes
- Commercial real estate
- Undeveloped or raw land
- Real estate notes (mortgages and deeds of trusts)
- Promissory notes
- Private limited partnerships, limited liability companies, and C corporations
- Tax lien certificates
- Foreign currencies
- Oil and gas investments
- Publicly traded stocks, bonds, mutual funds (see our Brokerage Information)
- Private stock offerings, private placements
- Judgments/structured settlements
- Gold bullion
- Automobile paper
- Factoring investments
- Equipment leasing
- Below is a service provider.
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