Traditional IRA vs. Roth IRA – It Doesn’t Matter (Tax Rates Do)

Employees often have the ability to contribute to an employer sponsored retirement plan (typically a 401(k) plan) – also known as a Traditional IRA.  To contribute to this plan, the employee selects a percentage of income to contribute each pay period and this amount is taken out of their paycheck and sent directly to the plan administrator to be deposited in the individual’s IRA account.  When contributing to a Traditional IRA no taxes are due at contribution.  When the funds are distributed in the future, typically during retirement, income taxes will be due on the full amount distributed – both the earnings growth and the initial contributions.

Separately from a Traditional IRA, workers can on their own open and contribute to a Roth IRA (subject to income limitations).  In 2019 an individual earning less than $122,000 can contribute up to $6,000 to a Roth IRA.  With a Roth the individual pays taxes up front, when the money is earned, and then contributes the money after taxes have been paid.  When funds are distributed in the future, typically during retirement, there are no taxes on the distributions.

Deciding between contributing to a Traditional IRA or a Roth IRA, or the relative amounts to each, is a frequent topic on personal finance blogs and talk shows.  An important bit that doesn’t get enough coverage is this:

** Income Tax Rate Changes Are What Really Matters **

The are other factors to consider between these types of IRAs outside of tax treatment.  A couple of factors, among others, include:

  • Employer contributions – Traditional IRAs often include employer-matching of employee contributions.
  • Liquidity – Ability to access contributions differ, with Roth contributions being accessible without penalty in some situations.

However, the biggest impact is made by the change in income tax rates between contribution and distribution.  If tax rates are higher in the future at distribution, a Roth IRA is better – you paid at a lower rate when contributing and get to withdraw and avoid taxes at a higher rate.  The converse is also true – lower rates at distribution favor a Traditional IRA.  You avoid higher taxes at contribution and then they are applied at lower rates at distribution. Let’s repeat and then look at a few simple example calculations.

  • Higher income tax rates in future = Roth IRA better
  • Lower income tax rates in future = Traditional IRA better

If there are no changes in income tax rates, there’s no difference between the two types of IRA.  Here’s a calculation example showing the net total distribution is the same if there are no changes in tax rates.

If tax rates are lower in the future than now (lower at distribution) then the Traditional IRA is better and yields a higher total distribution. Here’s the same example, with only the future tax rates decreasing.

If tax rates are higher in the future than now (higher at distribution) then the Roth IRA is better and yields a higher total distribution.  Here’s the same scenario again, but with higher future tax rates.

There are two primary reasons for a change in income tax rates, both of which are difficult to predict over a long-term period.

  1. Changes in Tax Law – changes to the rates and brackets in the IRS Code enacted by Congress
  2. Changes in Income – changes in individual earnings resulting in a change in the applicable tax bracket (whether or not the tax brackets are changed by law)

Planning for the long-term is difficult but remember the impact that tax rate changes can have should be a prominent consideration.

Note: The content of this post is for informational and discussion purposes and is not financial or tax advice. Consult with an advisor before relying on this or any information.

A New Crosswalk Request in North Park at Jefferson Elementary

Let’s make the neighborhood a bit safer and more enjoyable for all

North Park has had a number of crosswalks installed in recent months, including some with push-button flashing lights as you can now see at the corners of 30th Street and Myrtle as well as 30th Street and Polk, as well as other locations.  It has seemed to make a positive impact on the likelihood of drivers that yield to pedestrians at these intersections and hopefully an overall greater awareness for those walking in the area.

This post is to request a new painted crosswalk on the south portion (east-west crosswalk) of the intersection of North Park Way and Utah Street, in front of Jefferson Elementary.  This intersection is just outside the front doors of the school and this three-direction intersection has a stop sign for each direction of oncoming traffic.  There are currently painted crosswalks on the other two crossings at the intersection but just a “No Ped Crossing” sign for the third.

This aerial image shows the existing crosswalks to / from the Jefferson Elementary block in Yellow and the requested additional crosswalk in Red.

With all vehicles already needing to stop at this intersection it seems natural to include a painted crosswalk for pedestrians.  Especially given that the school provides services for children from preschool through fifth grade it seems even more needed to have visible markings and crossings to ensure drivers are aware of the hundreds of small children in the area.

Many parents and children walk to the school from the south and east directions, either from residences or from parking in the neighborhood.  Another marked crossing option would make the journey to school quicker, safer, and more convenient for all.  (And outside of school hours for anyone walking in the neighborhood.)

Below is the current status of this crossing.  Hopefully we can make this small improvement soon, for the use of students and the community at large.

If you’d like to help make this crosswalk a reality please reach out to the San Diego District 3 Councilmember, Chris Ward, at the following email addresses and simply voice your support.  A message as simple as “Crosswalks at Jefferson needed and I support. Thank you.” are great.

Councilmember Ward – christopherward@sandiego.gov

Council Office Representative Tyler Renner  – trenner@sandiego.gov

Transient Occupancy Tax in San Diego – Airbnb Overcharging Visitors

Airbnb has collected and remitted Transient Occupancy Taxes (TOT) for hosts in the City of San Diego since July 2015, making collection of these taxes easier for both hosts and the City Treasurer.  Per the City TOT FAQs, TOT is charged for the following stays:

“If you are renting a room for less than one calendar month, the rental is subject to the TOT.”

The exact rules of the TOT can be found in the San Diego Municipal Code (SDMC) §35.0101.  Here the City states there is a TOT:

“It is the purpose and intent of the City Council that there shall be imposed a tax on Transients”
And to whom that tax applies in the definition for Transient:
“Transient” means any Person who exercises Occupancy, or is entitled to Occupancy, by reason of concession, permit, right of access, license, or other agreement for a period of less than one (1) month. A month is defined as the period of consecutive days from the first calendar day of Occupancy in any month to the same calendar day in the next month following, or the last day of  the next month following if no corresponding calendar day exists.”
This definition does not rely on a strict number of days to qualify as a month – it is dependent on the number of days in each month.  A stay of 28 days (or 29 or 30) in February (of a non Leap Year) are not subject to TOT  but a stay of those durations in July would have TOT since July has 31 days.

The City of San Diego TOT is 10.5% for small short-term rental operators, those with less than 70 rooms.  An additional TMD assessment used to apply to small operators but now applies to large operators only, effective September 1, 2016. Rates and additional information available on City website for TOT.

Airbnb has not correctly implemented the definition of a calendar month in collecting the TOT in San Diego and instead is applying the tax to any stays of 30 days or less.  Per an email from Airbnb this week the company is collecting “10.5% of the listing price including any cleaning fee for reservations 30 nights and shorter”.

The Airbnb site can be used to see how the TOT calculation is being applied by entering dates and then clicking a property to see the reservations details, where the TOT is listed as a separate line as “Occupancy taxes and fees”.  Below are a few sample results showing the TOT being charged when it should not be.  The erroneous TOT charges are for hundreds of dollars each. I also called the TOT help phone number at the City (619-615-1530) to confirm that TOT should not be applied to these specific date scenarios.

This slideshow requires JavaScript.

I’m a big fan of Airbnb both as a host and as a guest.  Having the company collect and remit TOT for hosts is a nice convenience, as previously short-term rental hosts on the platform had to complete and file a monthly return to report TOT.  The incorrect application of the TOT rules and resulting overcharging of customers is not right and needs to be corrected.  I’ve reached out to the company a number of times requesting this and either due to a difference of understanding or other reasons a correction has not been made. I’m hopeful that this article may result in corrective action being taken.

Grade Inflation (Living in a 5 Star World)

42 Years To Live

The passing of another year and another birthday rumination post. (2016 was the last one, featuring Chris Rock.)

I was fortunate this summer to spend a lot of time with our family on a road trip across much of the United States, with lots of stops to visit friends and family.  It was great to mostly unplug and see some of the country that was new to us.  I celebrated a birthday during the trip which was appropriate given some recent thinking about my likely life duration.

Thanks to our friends at Social Security it’s easy to get an estimate of how long you have to live.  This simple table lets you look at your age and see how many years you likely have left.  I’m sitting at 36 so most likely have 42 years remaining – expiring around 78 years of age.  Not too bad.

If I’m lucky enough to have good health and my mental faculties for most of the remaining time, say until 70, that leaves 34 years of good health to enjoy friends, family, and time together like our road trip.  If work and financial circumstances work out we’ll have maybe a maximum of once a year to do a couple of week trip somewhere for an extended vacation.  (I should note that one doesn’t need to go on vacation to make memories or enjoy life.)

So with my time left, in a pretty rosy scenario, I’m looking at 34 chances to do something big or break out of the everyday for a little bit. Not too many.

Hopefully I’ll remember to embrace those opportunities and not shy away.

Where to may the road go

How Many Votes To Win? About 10% Of The Population

Today is a primary election day in California with a host of races from local level to state offices and some federal races as well. California is a large state, with about 37 million residents.  However, less than half of that number are registered voters and turnout – especially in primary elections without a presidential campaign – can be low.  Below is a quick summary calculation of the current population and expected turnout for this election.

As the above shows, to win a given office a candidate would likely be able to do so with around 10% of the population voting for them.  Of course this is dependent on the turnout in a given election, how many candidates are in a race, and a number of other variables.  It does seem a relatively useful benchmark for estimating how many votes are needed in a given race to likely win.

If you live in California and haven’t voted yet please consider taking a moment and doing so.  With the increasing amount of mail-in options there has never been an easier time to vote than we have today.

Vote Omar Passons – The Best Choice for Supervisor – Vote Omar Passons

Mail-in ballots for primary races in San Diego were mailed out today, May 7, so if you live here you can expect to see them arriving soon.  The election date is June 5.  Vote next week, or the following, or on June 5 – just remember to vote.

Who to vote for? In the County Supervisor race for District 4 it’s clear:

** VOTE OMAR PASSONS **

I’ve known Omar for a few years and met him IRL (in real life) after starting to use Twitter as a newly established stay-at-home dad and fairly recent arrival to San Diego.  He and others invited me to join them for pick-up basketball in Golden Hill.  I love playing basketball and it was nice to connect with a bunch of people I hadn’t met before.  Especially nice given that many of them were engaged in local issues and care about making this a better place to live.

If you’re engaged in San Diego issues you probably already know Omar (if not, find him on Twitter @omarpassons).  He’s long been involved in city issues with hands-on experience or in policy discussions from graffiti to neighborhood parks to the many stadium debates in San Diego and so much more.  The man is a dynamo of energy and gives frequently and deeply of his time and energy to support a broad range of causes that matter to him.

I’m not a Democrat or a Republican and broadly feel the strict two party system sets up a by-default “Us vs. Them” debate on nearly every issue, often unnecessarily.  I’m a policy and issue voter and if you’re looking for an intelligent and thoughtful person to consider issues and guide the region you’ll find such a person in Mr. Passons.

No other candidate in the race has put forward as detailed of positions and policy ideas as Omar and it’s no surprise – these aren’t “made-to-campaign” platforms put together for the 2018 elections.  They’re policies honed over decades of experience and personal action, wrought from real and deep-seated caring about our region and residents.

Take a look at Omar’s website for more details – www.omarpassons.com.  Or take my preferred route and check out his podcast series for an audio experience on a walk around town.  You’ll get a good sense for Omar as a person and why you should vote for him on June 5.

Omar is the preferred candidate of the Union-Tribune.

Omar is also the preferred candidate of the San Diego Free Press.

Vote for a San Diegan with heart and integrity.

** VOTE OMAR PASSONS **

15 Empty Cars or A Beautiful Public Plaza? Little Italy Opts for the Latter with Piazza della Famiglia

Little Italy continues to grow and become a better place to visit and live.  The most recent addition to the neighborhood is Piazza della Famiglia – a 10,000 square foot public plaza with apartments above and 16,000 feet of retail and restaurant space surrounding.  This plaza was formerly a short block of Date Street but per an agreement between the developer, H.G. Fenton, and the City of San Diego the street was vacated and a beautiful public space was created, paid for by private dollars.

The plaza isn’t fully open yet but a few of the businesses are and when I stopped by today on a sunny, gorgeous day around noon there were people chatting and having coffee, a family walking their baby in a stroller, and a number of passersby traversing the plaza on foot and bicycle.  There’s currently a small tent set up with leasing information for the two apartment buildings that H.G. Fenton built next to the plaza – Vici and Amo – which add 125 units to the area.

Here are a number of photos I took of the plaza.  The Little Italy Farmer’s Market (every Saturday and the best in the region if you ask me) will soon return to Date Street and the scene is going to be better than ever.

It’s awesome to see the neighborhood and the City choosing a public space over a handful of mostly free parking spaces (metered during part of the day) that previously occupied the plaza space.  For a comparison I checked out the two closest similr streets, which are similar size – Cedar and Fir.  When I stopped by Cedar had 10 total vehicles parked and Fir had 20, including one person moving from one meter to another and a parking enforcement vehicle looking for ticketing opportunities.  Needless to say, these streets that are devoted to cars and parking had zero persons enjoying the square footage occupied by the empty traffic lanes and parking spots.

Fir Street – 20 empty cars
Cedar Street – 10 empty cars

Which would you prefer for your neighborhood? 15 empty cars on a block, or a beautiful public plaza with shops, fountains, tables, and a place to sit and enjoy life? This sort of opportunity is available in spaces across San Diego, if we choose to embrace it.  More likely we’ll see massive amounts of additional free street parking across the city, as soon to come to North Park, due to the City making it easier than ever to quickly give over more public land to parking.  I’d prefer more plazas, trees, and life – hopefully you’ll join me in working for the same.  And don’t forget to check out the Little Italy Farmer’s Market – a great start to the weekend for locals and visitors alike.  I’d recommend taking a bike-share bike, hopefully by the time you visit the local business association will have stopped sabotaging those programs in Little Italy.

Want To Be An Airbnb Host in San Diego? Good Luck – You’re On Your Own

The City of San Diego continues to discuss options for regulations and rules around short-term rentals on sites like Airbnb.  Short-term rentals are rentals for less than a full calendar month and have been the topic of discussion at a number of City Council and committee hearings over the last few years.

I recently received an inquiry from a San Diego resident that would like to rent out one or two bedrooms in the home they live in – sharing a room or home with guests is often referred to as “home-sharing”.  Home-sharing is frequently brought up in the short-term rental debate with both sides typically saying there is no issue with this type of activity.  (However, home-sharing is the only type of short-term rental I’m aware of that the City of San Diego took to court, and ultimately the judge decided that this type of activity is not allowed under current rules and issued a fine to that host.)

The prospective host in this case was looking to do the right thing and get clarity from the City before hosting on Airbnb.  They contacted several City departments regarding how to fill out the right information for the Transient Occupancy Registration Certificate( “TORC”), if a Business Tax Certificate is required, what taxes they need to pay, and if there are other regulations they need to follow for lawfully renting out rooms via platforms such as Airbnb. 

 

On the response to the prospective host, the city was clear and straight-forward in providing the process to register for the TORC, what kind of taxes the host would need to pay, etc.  The Transient Occupancy Tax (i.e. hotel tax) is not part of the debate and proposed short-term rental rules – it is already in place and collected (and in the case of Airbnb remitted for all hosts on the platform each month by the platform itself).

However, in regard to other requirements for operating an Airbnb, the prospective host was directed to consult the Development Services Department (in charge of Land Use and Development). Surprisingly, when the host reached out to Development Services they were told  that since there are no official regulations or rules around short-term rentals, this kind of activity is currently not allowed in San Diego.  That’s when the host reached out to me, as part of my efforts with the Short-Term Rental Alliance of San Diego (STRASD) – seeking clarity the city couldn’t provide and how they should proceed.

The contradiction between the responses from different City departments is confusing but accurate.  Yes – you can register and pay the taxes for this sort of activity.  No – you can not engage in this type of activity in the first place.  This is the current status of short-term rentals in San Diego, at least for home-sharing situations.  It still seems that whole-home short-term rentals may be on firmer ground, although the current City Attorney has declared all short-term rentals illegal. [Note: the previous two City Attorneys held a different position, that short-term rentals were not illegal.]

This sort of lack of clarity is harmful to potential hosts like the one highlighted in this post – a San Diego resident seeking to improve their economic position and do so in a straight-forward and compliant manner in the type of short-term rental that is roundly approved of and supported.  We need clarity to support residents like this and should encourage this type of widespread entrepreneurial opportunity to give citizens more options and ability to chart their own desired course.  Hopefully in the months ahead we will see clarity that gives certainty to current and potential hosts and guests and that supports the opportunity that platforms like Airbnb and others gives to many thousands of San Diegans.

A screen shot of some home-sharing options currently available on Airbnb (taken 4-19-2018)

29th Street – North Park’s Newest (Free) Luxury Parking Lot

Thanks to a request from the Mid-City Parking District a number of streets in North Park will likely soon be converted from parallel on-street free parking to head-in on-street free parking.  The following list of requested changes will result in an increase of 254 parking spaces, using more of our public land to store empty automobiles.  The proposed changes were discussed at the March meeting of the North Park Planning Public Facilities and Transportation Subcommittee – minutes including discussion can be found here.  The proposed changes are on the agenda for the North Park Planning Committee consent agenda for Tuesday, April 17.

The proposed changes are spread across a large section of North Park, but the stretch of 29th Street is particularly interesting to me.  29th Street is the site of the North Park Parking Garage – a 100% taxpayer funded parking garage with low rates that rarely breaks even (and in the most recent year likely lost money due to popularity of biking, walking, and Uber / Lyft – financials aren’t yet out to verify performance).  Here’s a map of the blocks of 29th Street and cross streets proposed to be converted to head-in parking (identified in red).

There are a number of reasons to oppose these conversions:

  • Climate change and health – Increasing automobile parking runs counter to the city’s Climate Action Plan goals to move mode share away from automobiles.  Bringing (and parking) more cars in North Park brings more air and noise pollution to the neighborhood, in addition to the potential fatalities and injuries that are common from automobile use. Giving away even more of our public realm to parking is a bad idea.  Increasing and encouraging more automobiles in North Park also runs counter to the promotion of the area as a walkable neighborhood. At a time when bike-share, scooter-share, and ride-share options are plentiful and increasing we shouldn’t be increasing the amount of parking for private vehicles.
  • Aesthetics and safety – This stretch of 29th Street is full of beautiful Craftsman homes.  The average age of the homes on the block is around 90 years old.  Parallel parking creates a standard car edge so visibility down the street for pedestrians, drivers, and residents is clear.  Head-in parking creates large variances (think of an extended cab pick-up, which are for some reason incredibly popular in San Diego despite the urban environment lacking steers and I-beams to carry around, parked next to a small sedan).  Pulling in and out becomes more dangerous for those traversing the street.  Additionally, the headlights from the vehicles at night are aimed directly into homes which are mostly at street level. I can’t imagine most residents would enjoy the additional lighting from the street.
  • Unneeded and counter-productive – Most of the houses on these streets already have off-street parking, many have full length driveways and garages.  The housing density (number of residents per unit) is almost certainly less than it was 50 years ago, as the average American household size has fallen almost by half.  If the housing is nearly a century old and the households are smaller than they have been in the past it seems unlikely that residents are clamoring for more parking on the street to bring in more traffic and noise.

Here’s a photo gallery of each block of 29th Street to get a sense of the housing and parking.  The street is very wide but as you can see, there is hardly a lack of parking although this may vary according to time of day.

Perhaps the worst bit of all is residents have basically no say in this process.  The parking changes were requested by a parking agency and I don’t believe any residents of any of these streets were part of the application – apparently the mission of parking agencies are to maximize the amount of parking for vehicles.  Residents will have a chance to respond negatively to the proposals, a written notice will be sent out.  Who does the notice go to – property owners or residents? (Not sure.) Are the mailings certified delivery to ensure receipt by intended recipients? (Guessing no.)  Even if the letters are addressed properly, and received what are the odds they are read or understood? (Not likely.)  The standard to oppose is that a majority, more than 50%, of the notices sent out must be returned in opposition.  If you’ve ever done a survey or mail response campaign you probably understand there is essentially zero chance of ever seeing a 50% response rate to any issue.

If there is demand from the residents on the impacted streets then an Opt-In approach would pass with flying colors.  I suspect that there is not support from the residents given the above many reasons this is a bad idea.  In either case, I believe the North Park Planning Committee has discretion on this matter to evaluate as they deem most appropriate. I hope they’ll opt to consider the impacts of yet more automobile-focused use of our land in this urban environment and reject this proposal to bring yet more traffic and parking and associated ills to the area.  For reference, here’s the evaluation policy for this sort of proposal.

Loader Loading...
EAD Logo Taking too long?

Reload Reload document
| Open Open in new tab

Download [349.41 KB]

In addition to this conversion being a bad idea there are better options for the excess roadway that does exist.  Some of those better options are:

  • Reduce the road width and increase the size of the housing parcels (increase the public right-of-way usable by property owner) – this would increase home values and the tax base, bringing in funds via property taxes, and allow for planting of trees or other use.
  • Install a bike lane to enable more residents to bike to work or school.
  • Do nothing. The status quo, although mostly a vista of asphalt, has real potential and we shouldn’t discard it for more unneeded free parking. Not to mention that once granted it is very difficult to repurpose parking area to other uses, as recent debates in Hillcrest and elsewhere have underscored.
  • My favorite – Dreaming big I’d love to see Balboa Park connected to the new North Park Mini-Park, located at 29th Street and North Park Way via a beautiful greenscape.  My proposal would greatly reduce the street size of both 29th Street and Granada Avenue to something like below – going from 54 feet of street space to 16 feet (paired one-way streets, one North-bound and one South-bound with one side of parking) and adding 19 feet of green space to either side of the two streets.  That’s a lot of additional greenery, quieter roads, and an increase in parking on each lot of one space per driveway. (Although I would guess many residents would do as they currently do and opt for more productive uses of their land than parking vehicles and utilize for gardens, play areas, chicken coops, hop scotch, and other options.)

If you have an opinion on this proposal you can attend the North Park Planning Committee Hearing on 4/17 or contact the group via email at info@northparkplanning.org.  Additionally, on my street – Granada Avenue – I’ll be working with the other residents to proactively state our opposition to this sort of conversion.  You can consider doing the same as it seems likely the many over-sized roadways in San Diego will likely follow 29th Street in becoming a parker’s paradise.