I don't disagree. What I need to determine is if it's more advantageous for me to pay taxes in the front end of back end....
Retirement questions & tax liability
- Thread starter dja4260
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I don't disagree. What I need to determine is if it's more advantageous for me to pay taxes in the front end of back end....
Doesn't that matter upon your savings rate plus your income level?
There's no end to the number of advisors out there, but I've been following one show that advocates 25% retirement savings rate. Granted, that counts in employer match, so it's not quite as bad as it sounds. Still. If you get a dual income household with above median incomes, with people interested in saving for retirement, I think quickly one finds no option: they're stuck maximizing both retirement savings vehicles, then saving outside of either, in order to hit a high overall savings rate. The OP isn't there yet but isn't far either.
I sometimes wonder if this tax issue truly exists. One can't get that much into their Roth in the first place. And it's beyond impossible to guess the future.
Now maybe some time later a backdoor Roth conversion could come into play, that is something I don't understand, but one would have to have money in the 401k/403b in order to pursue that.
I would run the numbers both ways. With a conventional tax deferred account, the full amount of what you choose to invest is invested minus whatever fees are charged to manage the account. With the Roth, you are only investing what is left over after the taxes are taken out so you could potentially have more money in your retirement fund in the conventional account. Having it in both could be a good idea depending on your situation.
I always did the conventional because money was tight, and I needed less taxable income. I invested 17% of my own money and my agency matched the first 5%. I wish I could have maxed out my contributions, but life events did not let that happen.
I retired a little over five years ago and I'm in a lower tax bracket now than when I was working. I'm debt free so I can live on just my pension and my TSP is just play money. I take out monthly amounts so that I'm not taxed on huge amounts. I have not worked a day since I retired.
I always did the conventional because money was tight, and I needed less taxable income. I invested 17% of my own money and my agency matched the first 5%. I wish I could have maxed out my contributions, but life events did not let that happen.
I retired a little over five years ago and I'm in a lower tax bracket now than when I was working. I'm debt free so I can live on just my pension and my TSP is just play money. I take out monthly amounts so that I'm not taxed on huge amounts. I have not worked a day since I retired.
Sam_Julier
$50 Site Donor 2024
You are asking the all the right questions. I’ll share my thoughts.
I am 66 and retired 9 years ago. My wife is 67 and will retire next month on January 31. We’ve been married for 41 years.
Our highest priority was saving for retirement. We put away as much as possible as early as we could. Thus leveraging the time value of money.
My company funded a small pension but barely contributed to my 401k. Jennifer works at Yale University which has a generous 403b match.
We funding tax advantaged accounts first (IRA, 401k, 403b); then we funded Roth IRAs.
We did fund whole life insurance, disability insurance and term insurance to provide for Jennifer and the children should I die. After college graduations I cancelled the policies and invested the cash value.
I view insurance as an asset not an investment.
I did not put money into a 529 for many of the same reasons @Astro14 describes. I wanted assets in the market.
Our son went to Carnegie Mellon University. Our daughter went to The University of Texas at Austin.
Over the years I never considered taxable income or tax rates in retirement.
I tried to keep things as simple as possible and save every dollar we could. I kept all our assets in the market and bought into every downturn with as much as we had in hand.
I hope this helps.
I am 66 and retired 9 years ago. My wife is 67 and will retire next month on January 31. We’ve been married for 41 years.
Our highest priority was saving for retirement. We put away as much as possible as early as we could. Thus leveraging the time value of money.
My company funded a small pension but barely contributed to my 401k. Jennifer works at Yale University which has a generous 403b match.
We funding tax advantaged accounts first (IRA, 401k, 403b); then we funded Roth IRAs.
We did fund whole life insurance, disability insurance and term insurance to provide for Jennifer and the children should I die. After college graduations I cancelled the policies and invested the cash value.
I view insurance as an asset not an investment.
I did not put money into a 529 for many of the same reasons @Astro14 describes. I wanted assets in the market.
Our son went to Carnegie Mellon University. Our daughter went to The University of Texas at Austin.
Over the years I never considered taxable income or tax rates in retirement.
I tried to keep things as simple as possible and save every dollar we could. I kept all our assets in the market and bought into every downturn with as much as we had in hand.
I hope this helps.
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Completely agree. When I opened my first IRA, over 30 years ago, the contribution limit was $2,000. Not nearly enough.
Even at triple that, it’s not nearly enough.
Sam_Julier
$50 Site Donor 2024
Agree. A far higher contribution limit combined with mandatory contributions would significantly help under saving.
Unfortunately, mandating contributions will be tough to pass.
Recent legislation from Congress, raising the age for RMD, and updating contribution limits, expanding eligibility for some retirement accounts, and other provisions, did just that, by making 401(k) enrollment a requirement.
Big Changes to 401(k) Retirement Plans Move Ahead in Congress
Congress is on the verge of passing a bill that aims to help Americans save more for retirement, including raising the age people must start withdrawing money from tax-deferred retirement accounts.
www.wsj.com
Sam_Julier
$50 Site Donor 2024
I’ll have to re-read. I thought there was an ability to opt-out after the required 401k enrollment.Recent legislation from Congress, raising the age for RMD, and updating contribution limits, expanding eligibility for some retirement accounts, and other provisions, did just that, by making 401(k) enrollment a requirement.
Big Changes to 401(k) Retirement Plans Move Ahead in Congress
Congress is on the verge of passing a bill that aims to help Americans save more for retirement, including raising the age people must start withdrawing money from tax-deferred retirement accounts.
You’re right, I think there is an ability to opt out, point is that auto-enrollment will greatly increase participation rates, particularly among the groups that have abysmal participation rates now.
Sam_Julier
$50 Site Donor 2024
I’ll add to my comment above.
Where one retires has a big impact on retirement income taxation.
We are moving to Lancaster PA from Connecticut in 2023.
CT taxes all retirement income.
PA does not tax pension income in any way.
Where one retires has a big impact on retirement income taxation.
We are moving to Lancaster PA from Connecticut in 2023.
CT taxes all retirement income.
PA does not tax pension income in any way.
the former conventional wisdom that one’s personal income, and thus taxes, decrease in retirement is doubtful now. i probably should have done roth retirement accounts over the years, but needed the tax deductions when i was working and heading a one-income household. i’m withdrawing retirement funds now, before my rmd, although with a couple of pensions, i don’t really need these withdrawals to live on. a lifetime grounded in necessary frugality doesn’t disappear in retirement, it seems.
You can run the numbers pre-tax and post-tax for the 403-B vs. Roth and make your decision.
Personally, I would fund the Roth IRA first, either way, do NOT wait until near retirement to convert into a Roth.
IRMAA is not often spoken about, and is a $ killer. Just like the one responder mentioned about where you retire as a financial factor, medical insurance premiums are a factor when you are not salaried. Be advised.
Personally, I would fund the Roth IRA first, either way, do NOT wait until near retirement to convert into a Roth.
IRMAA is not often spoken about, and is a $ killer. Just like the one responder mentioned about where you retire as a financial factor, medical insurance premiums are a factor when you are not salaried. Be advised.
Ric Edelman crunched the numbers on whether traditional IRAs/401(k)s or the Roth versions are more advantageous, and he has said it's a wash. He has also warned repeatedly that you might not be in a lower tax bracket after all in retirement. With those observations and his warnings about possible rule changes on Roths, I'm not so sold on Roths. His point with crunching the numbers is that you might as well take the tax break now, instead of relying on the Roth break to remain.
I cite Edelman because he's among the most respected investment advisors. Others are saying much the same things as him.
I cite Edelman because he's among the most respected investment advisors. Others are saying much the same things as him.
Maybe in the near future the folks in charge will see the crazy amount of money sitting in Roths and pass some silly law and have an ‘IRS distribution fee’ cause that money is no longer taxed ?
IRAs should have a $30K contribution limit and $35K catch up contribution limit.
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I am retiring soon. I've invested since the start of my career. My early investments were wiped out in the 80's, the 90's, and in 2008, never to recover. I lost 100% of my GM stock and my GE stock declined to worthlessness as did my Sears stock and a bunch of other strong stocks.
Despite contributing the max to my IRA every year, I currently have $35K in there. The idea that it will grow is in error. Especially if you use a company like Ameriprise that invests your money in the exact thing you tell them not to.
You'll hear plenty of people telling you how much money they've made. They all dismiss my points. The reality is that there are plenty of losers too.
I learned my lesson early on and only "invest" money I'm willing to watch disappear.
I'm now using UBS now for my investments. Whoa man did they screw me by selling one particular stock without telling me. The tax implications were EPIC. My advisor was in the hospital and nobody else bothered to let me know what was happening. Without getting into the specifics, I ended up paying $150K in addl tax, and the stocks they invested in crashed 40%, more recently. This is how you turn a large fortune into a small one. Flippin unreal. Add in their annual fees and inflation and I'm $500K behind where I started.
The good news is, I have safe funds that earn little, but don't "disappear".
There are more that a few people in the industry that need some frontier justice.
Despite contributing the max to my IRA every year, I currently have $35K in there. The idea that it will grow is in error. Especially if you use a company like Ameriprise that invests your money in the exact thing you tell them not to.
You'll hear plenty of people telling you how much money they've made. They all dismiss my points. The reality is that there are plenty of losers too.
I learned my lesson early on and only "invest" money I'm willing to watch disappear.
I'm now using UBS now for my investments. Whoa man did they screw me by selling one particular stock without telling me. The tax implications were EPIC. My advisor was in the hospital and nobody else bothered to let me know what was happening. Without getting into the specifics, I ended up paying $150K in addl tax, and the stocks they invested in crashed 40%, more recently. This is how you turn a large fortune into a small one. Flippin unreal. Add in their annual fees and inflation and I'm $500K behind where I started.
The good news is, I have safe funds that earn little, but don't "disappear".
There are more that a few people in the industry that need some frontier justice.
$100 invested at 7% interest for 100 years will become $100,000, at which time it will be worth absolutely nothing.
Ouch. That's why I'm almost entirely in index funds, save for company stock that was given to me.
I'm curious how index funds will work out, 20-30-50 years from now. I didn't get into investing until I saw how my portfolio recovered from the the Great Recession. Seriously, it was parabolic before that, and the it promptly returned to that parabolic curve. No joke. I could put my thumb over the drop and not see anything other than parabolic. Thing is, I was 100% in target or index funds then (as now).
I'm curious how index funds will work out, 20-30-50 years from now. I didn't get into investing until I saw how my portfolio recovered from the the Great Recession. Seriously, it was parabolic before that, and the it promptly returned to that parabolic curve. No joke. I could put my thumb over the drop and not see anything other than parabolic. Thing is, I was 100% in target or index funds then (as now).
Just a quick note:
People think that if you invest in a Dow index, and the Dow is at 1000, when the index reaches 10,000 in 25 years, you will have 10X your money.
NOT SO. The Dow today does not have the same stocks you invested in.
Famous companies removed for poor performance:
GE (on the Dow for 100 years) (now near worthless)
GM (worthless)
Bank of America
HP
Alcoa aluminum
Exxon Mobil
Kraft Foods
Citigroup
Pfizer
AT&T
Can you elaborate on this? You’ve contributed the max to a 401k or a Roth IRA and are nearing retirement and somehow only have $35k. I feel like that would almost be impossible unless you had everything tied up in one or two individual companies and they went under.
