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  #21  
Old 05-13-2006, 11:54 AM
Samuel Samuel is offline
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I think this is a very good thread.

A couple of things to add: most of us will not be earning "0" in retirement: even if we don't have a part time job or pension, we will (hopefully) be collecting social security. So your 401k distributions will probably not be exempted in whole or in part by the standard deduction, and may not be confined to the lowest tax bracket. In my case, I'd guess that the tax rate of a 401k distribution will be approximately the capital gains rate, and probably a little higher. Since I tend to put my money into relatively tax efficient indexed mutual funds, the tax advantages of a 401k are seriously reduced for me. I do have more ability to reallocate my 401k assets than I would if I simply bought and held a group of stocks, but I have less ability to use my 401k assets to meet emergency life expenses that may come up.

In defense of the 401k, you can roll it into a traditional IRA when you switch employers. A traditional IRA has the advantage over a Roth IRA that you can roll it into a Roth IRA whenever your income drops. There is an option value embedded: you can pay your taxes when you think that you are in the lowest tax bracket you ever think you will be in: in retirement or otherwise.
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  #22  
Old 05-13-2006, 12:54 PM
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Quote:
Originally Posted by Samuel
A couple of things to add: most of us will not be earning "0" in retirement: even if we don't have a part time job or pension, we will (hopefully) be collecting social security. So your 401k distributions will probably not be exempted in whole or in part by the standard deduction, and may not be confined to the lowest tax bracket.
That may be true, but my retirement preparation is based on receiving ZERO Social Security. To do otherwise at my age (35) is being dangerously optimistic. In addition, I am aiming to retire 5 or more years before age 67 (and they'll probably raise the SS age to 70 or 72), which means if I do I would indeed have a number of years of zero SS.

So I won't make any investment decisions now with the expectation of receiving something from Social Security. If I actually collect it at a level that increases my tax rates, it's not a problem, it's a bonus.
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  #23  
Old 05-13-2006, 03:40 PM
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Quote:
Originally Posted by Suthrn
I'll argue that maximizing your 401k contribution makes sense for a nonactuarial reason ... for most people the alternative is spending it.
Exactly. It is truly scary how a lot of people getting near retirement age (a) think SS benefits provide an adequate retirement (maximum now is a little over $2k/month!) and (b) expect that a modest nest egg (one guy actually said $50k would suffice!) will sustain them for life. According to SSA, 2/3 of all SS beneficiaries have no other source of income!

It ain't taxes you really want to worry about. Worry instead about having enough at retirement that you should be reasonably safe from outliving your assets.


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  #24  
Old 05-17-2006, 11:28 AM
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Also any money in a 401k is great for tax inefficient strategies. Like bonds which pay taxable income every year. Or actively managed stock funds which throw of capital gains distribuitions along the way. And lets not forget market timing. If you think the market is in for a crash and want to pull back on stock market exposure, no better place than in the 401k.
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  #25  
Old 07-17-2006, 03:05 PM
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Quote:
Originally Posted by E
I tend to think there's little benefit to contributing more to your 401(k) than is necessary to get your company's match. There are just better alternatives usually. Like someone else mentioned, I don't think my tax rate at retirement will be any lower than it is now. I think tax rates can only go up over the next 35-40 years.

If you're getting your company's full match and want to invest more, put the money in either a Roth IRA or your home. With either investment, you won't have to pay taxes on the gains when you realize them.
The capital gain on your home is not taxed up to $500k per married couple. Above that, you would be taxed.

Also, if one spouse dies before the gain is realized, the remaining spouse has "only" $250k of tax-free gain available.
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  #26  
Old 07-17-2006, 04:00 PM
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if you invest with a paycheck you've cashed instead of putting it in your 401(k), aren't you paying taxes now (payroll) and later (capital gains) instead of now (Roth) or later (traditional)?
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  #27  
Old 03-07-2018, 10:37 PM
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Tax rates went down... for now...
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  #28  
Old 03-08-2018, 09:14 AM
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Why isn't this thread in the Personal investing subforum?
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  #29  
Old 03-08-2018, 11:53 AM
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Why isn't this thread in the Personal investing subforum?
I think it was started before that subforum existed, but Iím not 100% sure if thatís the reason.
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  #30  
Old 03-08-2018, 12:33 PM
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1. Don't listen to my 2006 self's advice on 401k contribution maximization. Definitely max it out to the IRS limit if you can.

2. I still agree with my 2006 self on future taxes and believe the current "tax reduction" is mostly short-term illusion.

3. The internet's memory is amazing.

4. How many people in this thread have retired since 2006?
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