Monday, March 23, 2009

Jonathan Clements is doing well

JLM and I always enjoyed the personal finance writing of Jonathan Clements in The Wall Street Journal. About a year ago he jumped to Citibank, as JLM reported. What's that job pay? More than $250,000, so Clements reports he will be hit by the 90% tax on bonuses.

Clements points out that many people with salaries way below the cap could be hit by the 90% tax based upon a spouse's income, or investment earnings. Good point. He also says that some people defer much of their bonus into a 401(k) plan, and that has already happened for the January payments (which would be hit by the new tax). Apparently the 401(k) tax deferral does not extend to this 90% bonus tax. Wow. So those people will be required to come up with 90% of their deferral to keep the 401(k) contribution, or ask for a premature distribution. Super idea!

The Clements plan for avoiding the problem is to take an unpaid sabbatical, beginning about October, to keep his non-bonus income below the magic $250,000 level. He'll have to curtail spending to make this work. As he says, good for him, not so good for the economy.

I suspect cooler heads will prevail this week.

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