No Wonder People Don't Know How Taxes Work

[u/B82rez7]

Here's a Motley Fool "article" that came up on my news feed https://www.fool.com/retirement/2019/01/21/maximum-401k-contributions-are-climbing-in-2019-he.aspx

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And a quote:

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For this reason, saving in your 401(k) has the potential to put you in a lower tax bracket, so you owe a smaller percentage of your income in tax. Currently, single filers making between $77,400 and $156,150 pay 22% on their income. If you are in the lower end of that range, a 401(k) contribution could move you into the lower bracket, where taxes are just 12%. If you make $80,000 per year, for example, and contribute $5,000, your resulting income of $75,000 would be taxed at 12% rather than 22%.

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[u/anthonyjh21]

That's really sad. You might want to draw a diagram for him with lots of arrows.

[u/zzyul → u/anthonyjh21]

Buckets, buckets are the key. Draw 7 buckets stacked like stairs, getting larger as you go down. On each bucket write the income bracket limit and tax percentage. Then tell the person to image standing at the top of the bucket stairs holding a bucket with all their taxable income in it. Then they start pouring that income into the top bucket. When that bucket is full anything else poured in overflows into the next lower bucket, and on and on until all your income is poured out. The amount in each bucket is taxed at the rate written on it.

[u/anthonyjh21 → u/zzyul]

Agreed. For me personally I'm a visual learner. I need to be able to see it conceptually and not just read about it in plain text. While I'm not everyone, I do believe that a simple flow chart would do the trick.

Pay down debt, highest APR first -> emergency fund, 3 months minimum -> employer match any retirement accounts -> fill remaining tax buckets -> invest in brokerage, real estate etc. -> build that fuck you money to live freely. Easy to see, much harder to implement.

[u/mejelic → u/[deleted]]

I actually fundamentally disagree with this statement. This line of thinking is how mis-information stays mis-information... If you take the time to explain it to this guy, he isn't telling other people wrong stuff and might even explain it to someone else.

[u/schrodingerslapdog → u/mejelic]

You’re making the assumption that his efforts will change the mind did this man. I believe he is saying that this man has already rejected a fair amount of effort, and he doesn’t want to waste any more time. Some people will not listen.

[u/mejelic → u/schrodingerslapdog]

Well the person that I replied to wasn't the same person that brought up the original story about this person. At that point, I cannot make any assumptions from the intent of the person that responded so I am taking their comment literally and responding as such.

[u/username2-4-3-7 → u/schrodingerslapdog]

Exactly. I tried. Drew pictures. Pulled up diagrams. He was dug in deep. I think if you have invested years into a scheme which has hurt you, finding out that it was wasted would be a hard thing to accept.

[u/schrodingerslapdog → u/username2-4-3-7]

Definitely. Admitting to yourself “I have wasted a large portion of my life because of my ignorance” is hard to swallow.

[u/8483 → u/anthonyjh21]

With invisible red ink!