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Old 08-24-2014, 07:26 AM
 
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One of the other considerations about taxes is where do you work and where do you retire. Consider a California worker with a pension and deferring California state taxes on their pension contributions. That employee also contributes tax free to a 401/403 plan. What will be the difference in drawdown between retiring in Calif v Texas in state income taxes?
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Old 08-24-2014, 07:27 AM
 
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Originally Posted by mathjak107 View Post
it isn't about tax rates off in the future.

it is all the decades of ramping up pay that make your average tax rate over your career a lot lower then you think it is just looking at your final years.

those that do a roth early on can see 20% more spendable income at retirement even if rates do not go anywhere.
Are you saying that for most people their average tax rate for most of their career is actually quite low, and so their traditional IRA/401K didn't really "need" all that tax deferring?

Second, assuming you buy and hold in a typical taxable account, that account seems to be somewhat of a Roth equivalent except you're paying LT capital gains which is 15% for most people and actually as I just learned recently, 0% for people in the 15% tax bracket. So isn't a typical taxable account exactly like a Roth IRA for most people who end up in the 15% bracket at retirement where they pay no taxes on money from LT capital gains? So theoretically someone who made a great investment in Google or Apple in their supposedly taxable account could retire with SS and a modest pension and stay in the 15% tax bracket yet sell $200,000 of stock every year at 0% capital gains? Did I miss something because this sounds too good to be true.
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Old 08-24-2014, 07:48 AM
 
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Yep,for most youngins the Roth is a far better choice because of the decades of ramping up income.
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Old 08-24-2014, 07:53 AM
 
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Originally Posted by mathjak107 View Post
Yep,for most youngins the Roth is a far better choice because of the decades of ramping up income.
Age 25, starting out in career a Roth and done can be sweet, lower income lower taxes. Assuming fees don't eat much of it up.
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Old 08-24-2014, 08:06 AM
 
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It was t.rowe that did the white paper and realized that the ramping up of income is a big factor as to your long term average tax rate. As much as we thought deferring taxes was the way to go for most workers it is not going to give you the best deal tax wise.
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Old 08-24-2014, 08:31 AM
 
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Originally Posted by mathjak107 View Post
It was t.rowe that did the white paper and realized that the ramping up of income is a big factor as to your long term average tax rate. As much as we thought deferring taxes was the way to go for most workers it is not going to give you the best deal tax wise.
T.Rowe Price is a Maryland based investment house in a state that is ramping up taxes on the higher income. Raleigh, is in a state that is cutting taxes on the upper income levels. Interstate 95 makes travel so easy.
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Old 08-24-2014, 10:28 AM
 
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I'd be willing to bet that almost anyone who has a 401k who is within a year or two of retiring is keeping a much closer eye on what the stock market is doing.

For someone like me who's over 20 years away from retirement, what my 401k does this year, or what it has done over the last two years or even five years doesn't make that much difference. It's long term strategy. That's the point of a 401k isn't it?
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Old 08-24-2014, 10:48 AM
 
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Originally Posted by lizardspock View Post
I'd be willing to bet that almost anyone who has a 401k who is within a year or two of retiring is keeping a much closer eye on what the stock market is doing.

For someone like me who's over 20 years away from retirement, what my 401k does this year, or what it has done over the last two years or even five years doesn't make that much difference. It's long term strategy. That's the point of a 401k isn't it?
That's a great point and a great question. I suspect a 401/403 tucked away in a three or four fund index portfolio could well be put on the back burner. Another portfolio of riskier active managed funds might bear more watching. Managers change, performance success changes as does the funds investment style. Active funds managed by someone else really gears watching. Overall market performance can be a benchmark to measure active management by. Are the fees worth it and how often did they turn the fund holdings over? Just because you hold the fund long time doesn't mean the fund manager isn't turning over the funds holdings often. Buying Fidelity Magellan managed by Peter Lynch back in the 70's was a great buy. Holding it for thirty years not.
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Old 08-24-2014, 11:32 AM
 
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We feel that we have to plan for our future...20 years from now. Not just for today. We semi-retired a few months ago (due to a lay off) and had to swiftly change our course of action in many areas. We both do not have pensions which means no guaranteed money coming in, other than SS in approx 5 years. We have to think not only of our immediate needs, but for our future needs. We need to be invested. If the stock market takes a hit (as many of you suggest it will soon) then we have to do what we did in 2008. Leave the money alone and let it rebound. Yes, we will be hurting. But, we still need to be in the market or we will not have enough to last us if we are fortunate enough to live a long life. It's really that simple for us. And we have a professional who is handling it for us. So far, we are happy and hopefully I will continue to say that. Sometimes you just have to make the best decision with the information at hand and hope and pray it works out. That's what we are doing.
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Old 08-24-2014, 11:41 AM
 
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^^^^^^ best of luck
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