Tax Bracket

For Maryland's elite, the whine line is 59.If the number entered on that line of your Maryland tax return is more than $100,000 for an individual or $150,000 for a married couple filing jointly, your fortune has become your misfortune.Beyond that line, your taxable income has qualified you for a posh club of some 25,500 Marylanders who qualify for the state's new 6 percent tax bracket. It's the sky box of Maryland taxation, constructed by the General Assembly for the top 1.2 percent of taxpayers.

After reading The Sun's coverage of the General Assembly session's last day ("Time runs out in capital," April 10), I wonder what it will take for the Maryland voters to throw these over-spending and taxing-to-death politicians out of office. According to The Sun, the last-minute budget agreement would have increased taxes for everyone earning over $100,000 and couples earning over $150,000 if the clock had not run out. Lawmakers also agreed to double the flush tax. Not one comment was made on spending cuts.

You often mention tax brackets in your columns. Can you please explain what they are? My gross income last year was $41,500, and my taxable income was $27,118.How do I figure out my tax bracket, and what are the practical implications of knowing my tax bracket?A tax bracket is another name for a tax rate. The federal government charges progressively higher tax rates on income. As your taxable income increases, so does the tax rate you pay on top dollars of earnings.Here's how it works: For the 1995 tax returns, there are five tax brackets: 15 percent, 28 percent, 31 percent, 36 percent and 39.6 percent.

Is your retirement plan ready for 2009? Whether you're saving for retirement or already living in it, you will need to be aware of the annual adjustments to tax brackets, retirement-plan rules, Social Security thresholds, pension limits and health-care savings plans. Most of those numbers are available, so it makes sense to make some plans for the coming year: IRAs and workplace plans: Individual retirement account contribution limits are holding at $5,000 for 2009 (plus another $1,000 if you are 50 or older)

My daughter, Veronica, a director of curriculum development, is excited about a major freelance project that she will do in addition to her regular job. It will mean more money but, she also realizes, more taxes, including possibly having to make quarterly estimated payments. Ultimately, that might be the biggest long-range financial benefit of her additional work, the incentive for careful tax planning all year. It is something few Americans do, although it could save them hundreds if not thousands of dollars with little effort.

There's never a convenient time for taxes. But for twentysomethings who are saving for retirement, paying tax on contributions now, rather than later, may be the best alternative. In August, President Bush signed the Pension Protection Act, which made permanent the option for employers to offer a Roth 401(k) or Roth 403(b). Like the Roth individual retirement account, around since 1997, contributions to a Roth 401(k) are made after taxes are taken out. Earnings and withdrawals in retirement are tax-free.

It's quite an exclusive club, Maryland's new millionaires' tax bracket. A little more than 6,000 households statewide qualify for the distinction - more than 40 percent of whom reside in Montgomery County. It's a group that includes a Fortune 500 executive in Potomac, an energy company CEO in Roland Park and wealthy retirees with bayside estates in St. Michaels.

I am 65 years old and my wife is 55. We both work part time and jointly earn $12,000 a year; I receive about $1,250 a month from Social Security, and my wife will soon receive about $500 a month from a pension. I have $326,000 in my IRA; my wife has $122,000 in her IRA. We also own a home worth about $275,000, and this presents us with our biggest challenge. We have two mortgages, with a combined balance of $108,000 and combined payments of $1,010 a month. Should we liquidate part of our IRA holdings to pay off the mortgages?

My wife and I are both retired, collecting approximately $35,000 a year on Social Security and one small pension. We have money in an IRA at the bank that we would like to start withdrawing. How much per year can we withdraw without paying an excessive amount of income tax? Do we have to pay federal income tax at the bank when withdrawing, or do we pay at the end of the year? Is there any way of not paying the tax by withdrawing smaller amounts? Do I pay the same amount of tax taking out a small amount as I do a large amount?

There's nothing else on television that allows you to go home with a lot of money with absolutely no skill. You can be a rock and move into another tax bracket."

Q. When investing in municipal bonds, how and why do you calculate the tax-equivalent yield? - H.E., via the Internet A. A municipal bond is a debt security issued by a state, municipality or county to finance its capital expenditures. It is exempt from federal taxes and from most state and local taxes. The tax-equivalent yield is the pretax yield that a taxable bond needs for its yield to equal to that of a tax-free municipal bond. "Munis usually make sense for investors in the 25 percent or higher tax brackets," said Mark Balasa, certified financial planner.

My wife and I are both retired, collecting approximately $35,000 a year on Social Security and one small pension. We have money in an IRA at the bank that we would like to start withdrawing. How much per year can we withdraw without paying an excessive amount of income tax? Do we have to pay federal income tax at the bank when withdrawing, or do we pay at the end of the year? Is there any way of not paying the tax by withdrawing smaller amounts? Do I pay the same amount of tax taking out a small amount as I do a large amount?

It's quite an exclusive club, Maryland's new millionaires' tax bracket. A little more than 6,000 households statewide qualify for the distinction - more than 40 percent of whom reside in Montgomery County. It's a group that includes a Fortune 500 executive in Potomac, an energy company CEO in Roland Park and wealthy retirees with bayside estates in St. Michaels.

Legislators took a first step yesterday toward repealing Maryland's new computer services tax and replacing it with an income tax surcharge on millionaires, the most significant victory yet for business groups warning that the levy could destroy the state's high-tech economy. The Senate Budget and Taxation Committee voted 10-5 for the repeal plan, which also calls for cuts to transportation funding and to other state programs. Senate President Thomas V. Mike Miller praised the committee members for a "courageous vote" but predicted a "much more" contentious hearing before the tax-weary lawmakers in the full Senate.

A chance remark on a column about year-round tax savings has prompted a few skeptical, if not downright cynical, responses. I mentioned that my wife, Georgina, and I are in the 15 percent tax bracket, the second-lowest (brackets range from 10 percent to 35 percent). Many readers wanted to know how that could be, thinking we are resorting to tax trickery. "Hmm, let's see," began one e-mail. "You and your wife stash away lots in your pension plan and write off many expenses since you are self-employed.

Last month, I sold all the shares of a couple of stock mutual funds in my traditional individual retirement account and used the money to buy bonds for the IRA. That same day, I used some of my cash reserves to buy the exact number of shares of the same stock funds in a taxable account outside the IRA. While there are no tax consequences now, I figured the switch could save me quite a bit in taxes in the long run. I have since read a paper from a...

Do you buy Treasury bonds or tax-free municipals? "If your tax bracket is high and your inflation expectations low, you absolutely must own some tax-free municipal bonds," says Joseph Deane, manager of the Citi Asset Municipal Bond Fund. "Long-term tax-exempt bonds currently yield 96 percent as much as taxable Treasury bonds of the same maturity. For someone in the top tax bracket, that's a 35 percent yield premium above Treasuries." FACTS & FIGURES: "The average salary and bonus for a mutual fund portfolio manager is $153,000."

Q. When investing in municipal bonds, how and why do you calculate the tax-equivalent yield? - H.E., via the Internet A. A municipal bond is a debt security issued by a state, municipality or county to finance its capital expenditures. It is exempt from federal taxes and from most state and local taxes. The tax-equivalent yield is the pretax yield that a taxable bond needs for its yield to equal to that of a tax-free municipal bond. "Munis usually make sense for investors in the 25 percent or higher tax brackets," said Mark Balasa, certified financial planner.

My daughter, Veronica, a director of curriculum development, is excited about a major freelance project that she will do in addition to her regular job. It will mean more money but, she also realizes, more taxes, including possibly having to make quarterly estimated payments. Ultimately, that might be the biggest long-range financial benefit of her additional work, the incentive for careful tax planning all year. It is something few Americans do, although it could save them hundreds if not thousands of dollars with little effort.

More employers are offering workers the option to save for retirement using a Roth 401(k), a hybrid between a regular 401(k) plan and a Roth IRA. Made permanent by Congress in 2006, the Roth 401(k) allows employees to make contributions with after-tax dollars. There's no tax deduction upfront, but the account grows tax-free. The payoff comes when it's time to use the money: The employee can make withdrawals during retirement tax-free, as long as he or she is 59 1/2 and has held the account for five years or more.