bozo99

I hear this argument all the time: “tax rates are going to go up in the future, so I shouldn’t defer taxes in my MBCBP/401k/TIRA, etc.”

The general problem with this line of thinking is: it isn’t an actionable insight to actually save pilots money on taxes.

Specifically, you can’t do anything today that actually reduces taxes on a hypothetical future. The only things that can actually save money today are doing what the Internal Revenue Code currently permits.

Additionally, if federal income tax rates do increase in the hypothetical future, then the tax deferral strategy may be even more beneficial than it is under current law depending on the breakdown of the marginal tax brackets (especially if you pursue some of the tax mitigation strategies I previously listed).

Also, if federal income tax rates are increasing, alternatives to tax deferral would be at risk to increase as well (such as increasing LTCG, increasing NIIT, reducing RE/MLP depreciation, eliminating Section 179, etc).

Finally, if and when the tax code changes, new planning opportunities will be available for people who are tax diversified.

Therefore, hypothetical future federal marginal tax brackets are not a primary concern in actionable tax planning today.

Trip7

Tax planning is a big part of building wealth, but it should not be the primary goal, it should be icing on the cake. Giving up control of one's investment to save an unknown amount of taxes decades into the future doesn't sit well with many, especially after the Pension debacle. If the MBCBP gave investment control to the pilot I'd be all for it but since it doesn't I find the HSA, Roth IRA, 529 plan and Real Estate to be far better uses of spill cash. But that's just me. I do think your point that the MBCBP works well for someone who allocates 10-20% of their Retirement in bond like investments is very good advice, especially if they are completely passive in index funds/target date fund etc. Also it's a great option for those retiring within 10 years with increased visibility on their tax rates and state residence in retirement

Gunfighter

Yes, the bonus depreciation is sunsetting, but cost segregation and accelerated depreciation are still in the tax code. It extends the timeline for the deductions, but they remain. As you pointed out real estate consists of two distinct components, operation and ownership. The only fair financial comparison would be LP interests because of the management component. Combining an already established real estate portfolio with MBCBP can be a great tool. The flip side is the MBCBP limits capital available for building the portfolio. It further restricts the few who want to also build the management business (or any outside business).

​​​​​Overall it's a decent plan and as we both agree there is a lot of misunderstanding. The biggest downside I see is the lack of mid career liquidity. Looking back over many different 30 year periods, there are plenty of examples where current needs eclipsed long term needs. While saving for retirement is necessary, there are financial needs before 59 1/2 that are equally worthwhile.

As a mid 50s pilot who dislikes dues and taxes, the MBCBP will pair nicely with a CRE portfolio for tax deferral and timing income recognition.
*My pronouns are opt and in.

Gunfighter

PIling on...
Control of your money is offense, it's where you score. Tax planning is defense, it's how you keep the lead. Not since the 85 Chicago Bears has defense alone been enough to win the game.

Jdub2

Super Bowl 50, 2016

notEnuf

I think this is bickering over pennies but I'll join in. Spill cash is an accidental anomaly. The intent of the funds by negotiation and agreement was to be TAX SHELTERED FOR RETIREMENT. Earnings outside of retirement funds are more than enough to start and grow your empire/enterprise. For a union benefit to shelter more in a high earning chosen career is a great accomplishment. The opt out beneficiaries will be VERY few. The present benefits far outweigh the future potential for gain or loss.

NuGuy

To pile on, it's the union's responsibility to provide pay and benefits for THIS job, and shouldn't make any assumptions about any other side gigs, military service benefits, lotto winnings, rich spouses or second jobs. While those things are nice, and certainly can lead to financial independence, they shouldn't be a requirement or used as a crutch or excuse why this job can't provide.

I got into a "discussion" with one person I flew with about improving the medical coverage. His position was that Tricare was enough, and that if someone wanted health coverage they should have served. While I appreciate GF's zeal to improve himself and others, those endeavors should be considered a bonus and shouldn't drive decisions we make collectively for our contract, including assumptions what someone may or may not do in their spare time

My $0.02.

crewdawg

True. But I'd rather they spent more effort on increasing company 401k contributions, earlier in the contract and left it at that. This would have had a greater impact on the majority of the pilot group than MBCBP and they could have spent this negotiating capital elsewhere. Not a big deal to me really, I only wish we had the opportunity to opt-in/out at a later date, and new hires should have the option to opt in/out (I get this is the IRS).



They are an idiot. I served 20+ years and I don't get Tricare (for a few decades anyway). Good medical is important to us all, even when I had access to Tricare, I was a big proponent of increasing our health care affordability.

Planetrain

What negotiating capital? This is cost-neutral/slight cost-beneficial to the company. This wasn’t a hard item for the company to agree to, we didn’t waste capital here.
Sure, higher 401k contributions would have helped all a lot more, but the MBCBP and even a paltry 1% DC increase aren’t remotely close in expense to the company.

crewdawg

IDK how much they did or did not use. If they didn't use any, then that's great.