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It seems to me that tax rates will be higher in the future to cover the expanding government many American want to have. So even though we can save on our 401k contributions today (15-35% federal plus state income tax rates) we have to pay taxes fully on our withdrawals when we retire.
It seems to me that Roth IRA plans should be used to the fullest, that way we do not pay the taxes on any earning or withdrawals.
It seem to me that if we slowly accumulate our savings over the years even in normal account investment accounts some people will come out ahead. For example, if you withdrawal $250,000 out of your 401k to buy a big diesel RV then you're already in a much higher "income bracket". The same would be true if you withdrew out of your 401k to buy your retirement house.
It seems to me that tax rates will be higher in the future to cover the expanding government many American want to have. So even though we can save on our 401k contributions today (15-35% federal plus state income tax rates) we have to pay taxes fully on our withdrawals when we retire.
It seems to me that Roth IRA plans should be used to the fullest, that way we do not pay the taxes on any earning or withdrawals.
It seem to me that if we slowly accumulate our savings over the years even in normal account investment accounts some people will come out ahead. For example, if you withdrawal $250,000 out of your 401k to buy a big diesel RV then you're already in a much higher "income bracket". The same would be true if you withdrew out of your 401k to buy your retirement house.
Thoughts?
You're pretty much correct and there really isn't a perfect solution. Yes, 401(k) and trad IRAs are taxed as ordinary income (and who knows if the tax rates will change).
There are lots of calculators out there but they require lots of assumptions, rate you plan to withdraw, tax rates in retirement, age at retirement.
Who knows if today's capital gain rates will stay like they are.
Who knows if somehow, someway, Roths get taxed in the future.
You all know my opinion from all my previous threads..
i dont see tax rates for middle america being higher with no pay checks or possibly 2 pay checks coming in and little retirement savings to speak of.
every year the past 40 years the tax brackets have been dropping allowing more and more income through at lower tax brackets..
this decade we could see 100k pass through at only 25% marginal rate. most of that would be going through at lower brackets.
with 80 million retiring baby boomers i dont see any political party telling them " by the way we are raising your income tax."
a retired couple today at 65 can pull 35k in retirement income and pay as little as 1500.00 bucks.
the mere fact the gov't is making it easier and easier to convert to a roth now tells me they dont believe most of america will be paying more in tax not working then they are working.
no way will my wife and i be in a higher bracket than we are now with both earning at the peak levels of our career. i think most most of america wont even be close to their working tax brackets unless they have a pension.
Last edited by mathjak107; 05-10-2012 at 09:42 AM..
The Tax Reform Act of 1986 drastically cut marginal rates, but also eliminated many deductions like car loan interest and credit card interest. So the tax rates may be lower, but on a larger number of items.
Good point that 80 million retirees won't want to see their taxes increase.
Why would the government make it easier to convert to Roth IRA if it meant lost tax revenue? It seems to me government wants to grow, not shrink.
The government could do eliminate the tax on social security payments but have higher rates on 401k, or tax retirement at a higher amount.
How can Roth IRA's be taxed in the future? It would seem that the government would never be allowed to tax distributions from Roth's, but could instead eliminate them and replace them with some other retirement savings plan.
I think there's a far greater chance of a federal sales tax than taxing withdrawals on Roth IRA.
If the government didn't like the Roth IRA because of its tax provisions, they would just close the door on future contributions and let everyone use regular IRAs, 401k, or whatever else they come up with.
I don't know that anyone ever paid social security taxes with the "promise" that it wasn't to be taxed, ever?
It seems to me that tax rates will be higher in the future to cover the expanding government many American want to have. So even though we can save on our 401k contributions today (15-35% federal plus state income tax rates) we have to pay taxes fully on our withdrawals when we retire.
It seems to me that Roth IRA plans should be used to the fullest, that way we do not pay the taxes on any earning or withdrawals.
It seem to me that if we slowly accumulate our savings over the years even in normal account investment accounts some people will come out ahead. For example, if you withdrawal $250,000 out of your 401k to buy a big diesel RV then you're already in a much higher "income bracket". The same would be true if you withdrew out of your 401k to buy your retirement house.
Thoughts?
there is alot more tax efficiancy that can be had just by putting the right assets in the right vehicles than worrying about whether to roth or not.
99% of those with retirement money have it invested butt backwards.
they have all their equity investments in a 401k or traditional ira and all their income generating money in their taxable account.
that kills them tax wise.
they can see as much as 30% more as a bottom line by doing the reverse.
the equities should be in the taxable account.
they benefit from capital gains rates , write off losses , pass tax free to heirs and heirs have no manadatory withdrawls like a roth, get special dividend treatment .
401k's and ira's are taxed at regular income rates regardless so you want only the stuff thats taxed at regular rates anyway in them.
the difference can be 1/2 the taxes when local taxes are figured in the equation too.
their are combos of using your taxable account, roths and tradionals that work better than anyone of them individually and thats the strategy that should be pondered and planned around.
putting all your retirement money into a roth and then having that roths investments perform poorly is no benefit either. its the total plan and strategy that counts the most..
Last edited by mathjak107; 05-11-2012 at 03:27 AM..
what do you consider 'income generating money' ... and 'taxable account'
it seems that you're suggesting stocks with low dividends should go into a non-retirement account so you pay only the capital gains rates when you make withdrawals whereas if you put it into a 401k you'll be paying taxes on all that it has become at normal income tax rates. and put everything else into the 401k... maybe put the high dividend stocks into a roth ?
Last edited by md21722; 05-11-2012 at 08:26 PM..
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