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Old 09-28-2017, 06:03 PM
 
32,607 posts, read 16,672,021 times
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Quote:
Originally Posted by oldsoldier1976 View Post
I for one think it is a good idea and worthy of investigation. It gives the federal government the current income it needs and allows the employee the future tax exempt income they surely can use.

What does everyone else think?
I think I'd like to still have the choice, thankyouverymuch.

As for the government getting "current income", yes - but only at the expense of future income.
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Old 09-28-2017, 11:23 PM
 
Location: Future Expat of California
602 posts, read 328,258 times
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No, because some ppl need the pre-tax option and some ppl need the post-tax Roth option. I feel have enough money right now in my traditional 401k which I rolled over to a IRA and now putting some in the Roth 401k.

Like others have said, that eliminating the pre-tax option would reduce the number of ppl putting away money for retirement when they need to do it right now.
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Old 09-29-2017, 11:58 AM
 
Location: VT; previously MD & NJ
2,214 posts, read 1,354,565 times
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Quote:
Originally Posted by Peasy973 View Post
No, because some ppl need the pre-tax option and some ppl need the post-tax Roth option. I feel have enough money right now in my traditional 401k which I rolled over to a IRA and now putting some in the Roth 401k.

Like others have said, that eliminating the pre-tax option would reduce the number of ppl putting away money for retirement when they need to do it right now.
Agree. A lot depends on your situation. Having both Roth and Traditional available is a good thing, in my opinion.
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Old 10-01-2017, 03:52 AM
 
Location: Sierra County
271 posts, read 117,105 times
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Quote:
Originally Posted by jghorton View Post
The primary difference is only when taxes are paid. In the long run, it looks like the government collects significantly more in taxes on deferred tax 401K's/403B's/ IRA's etc..

On the other hand, most earners would rather pay taxes later, at a time when they are likely to have more discretionary income -- which is why the majority opt for 401K's rather than Roth IRA's.
Actually the difference is that taxes get paid. Otherwise if you have a couple who gets $1600 month in Social Security and choses to withdraw $3800, there is no taxes paid. That's an extra $318 per month this couple could have tax free.

Just one example. Also with Social Security being favorably taxed, it is often wiser to wait until your Senior years to withdraw as you'll pay so much less.
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Old 10-01-2017, 07:41 AM
 
2,697 posts, read 1,549,530 times
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Quote:
Originally Posted by SierraCountyMtnBiker View Post
Just one example. Also with Social Security being favorably taxed, it is often wiser to wait until your Senior years to withdraw as you'll pay so much less.
Given the complicated way SS is taxed, there can be non-obvious, non-intuitive interactions between SS income and other income. As a result, some of us have a higher marginal tax rate retired than working, and RMD make it even worse.
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Old 10-01-2017, 08:35 AM
 
Location: RVA
2,172 posts, read 1,270,926 times
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Mandatory is a negative for much of the public. It makes great sense to Roth when income is lower, and a boon to be a tIRA when income is higher later. The reality for many boomers was Roths didn’t exist when we were starting our careers, and when they did come out, they were not embraced because we had been brainwashed with the “lower taxes when retired” mantra. When in your 20s & 30s the concept of how much taxes will be or taxes even being a consideration when you wonder if you would be alive is so low on the totem pole as to be a non consideration. The tIRA gives the illusion of saving a lot more for a small effect on ones paycheck, so I do believe it fosters more participation. Maybe 10 years ago I switched to all Post tax deductions at work, as the company match is always pretax 401k, and once a year I roll it over to my Roth IRA, because it became apparent due to pensions, that our taxes rate would be the same or possibly higher in retirement, and RMDs would get out of hand.
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Old 10-01-2017, 04:09 PM
 
Location: Sierra County
271 posts, read 117,105 times
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Quote:
Originally Posted by bigbear99 View Post
Given the complicated way SS is taxed, there can be non-obvious, non-intuitive interactions between SS income and other income. As a result, some of us have a higher marginal tax rate retired than working, and RMD make it even worse.
SS isn't taxed, for a couple, until it hits 32K per year. That is about 9K more than the younger people are allotted. And when it is taxed, it isn't to the extent other income is. That is the jist of it.

My comment is just pointing out to that one poster - that not everyone will be taxed. Those that need the money more while they are working and afterwards, can put it away pre-tax and never be taxed on it at all.

It isn't always a pay the tax now or pay it later.

For lower income folks, the standard deduction+ exemption EVEN WHILE drawing SS, could mean the funds are never taxed. Going in or coming back out.
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Old 10-01-2017, 04:22 PM
 
2,697 posts, read 1,549,530 times
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SCMB, of course low income SS recipients escape tax on SSA. But it is not governed by your SSA amount. It's controlled by your total amount. Yes, letting 15% go untaxed is better than nothing, but not by much.

Where things get complicated is the space between 32K and 44K, and even more complicated because the calculations are rather convoluted.

I do not understand your comment "That is about 9K more than the younger people are allotted." Can you explain?
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Old 10-01-2017, 09:12 PM
 
Location: Sierra County
271 posts, read 117,105 times
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Quote:
Originally Posted by bigbear99 View Post
SCMB, of course low income SS recipients escape tax on SSA. But it is not governed by your SSA amount. It's controlled by your total amount. Yes, letting 15% go untaxed is better than nothing, but not by much.

Where things get complicated is the space between 32K and 44K, and even more complicated because the calculations are rather convoluted.

I do not understand your comment "That is about 9K more than the younger people are allotted." Can you explain?
Sorry I am often not clear.
Regarding taxes, the Standard deduction + personal exemption ads up to about $22,500 a year (last time I checked for a married couple)
YET this ISN'T the formula followed for taxing social security checks.
Senior married couple can make up to $32,000 per year in Social Security checks and not be taxed.

EXAMPLE-
$32,0000 earnings in combined social security checks
-$22,500 standard deduction+ Personal exemptions (for married couple)
-------
$9500 remaining. That $9500 isn't taxed but if this were wages earned by younger people, it would be taxed.



Something more to consider regarding the low income seniors with a traditional 401k

A Senior married couple gets $1700 a mo./$20,400 yr combined in Social Security checks
$22,500 Standard deduction+ personal exemptions for married couple
-$20,400 Social Security Checks
--------
$2100 yr/ $175 mo left to take from the Traditional 401k tax free.

To throw a zinger into it.... they wouldn't want to take out $2100 yr/$175 month because they wouldn't qualify for the Q1 Medicare savings program which pays for their part b premiums of $134 month x 2= $268 mo. By taking that extra $50 mo from 401k, they loose $268 month

So this couple would essentially do better to withdraw just $1875 a year/$125 month from the Traditional 401k to stay within the $1825 month income limit to get their medicare part b premiums covered.

$1700 Social Security
$125 month withdraw from 401 (or $1800 yr divided by 12 months)
$268 money saved not paying part b premiums
-----------
$2093 per month

VERSUS

$1700 Social Security
$175 month 401k distribution
------------
$1875
-$268 Medicare Part B premiums taken out of SS checks
--------
$1607 per mo

OR another zinger...they could keep getting $1875 mo in social Security checks+401K withdraw(s) and pay $50 month towards 2 dental plans or medigap plans maybe

$1875
-$50 month dental plan premiums
----------
$1825 and that qualifies to get medicare part b premiums free


So you see, a Senior (or 59 1/2 yrs+) making min wage who has a PRE-TAX contribution taken from their paychecks in the past can take the $$ out slowly via distributions and STILL not pay tax on that $$. So that $$ was never taxed when it was removed from their paycheck nor when it was distributed

Again, those who say pay taxes now or pay later are not taking into account low income people who may pay NO taxes on it at all. This is just one example of why that is not a true absolute.

Last edited by SierraCountyMtnBiker; 10-01-2017 at 09:21 PM..
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Old 10-02-2017, 07:03 AM
 
2,697 posts, read 1,549,530 times
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SCMB, I see your thinking on younger people. Your math is off a bit though, because you neglected to consider Provisional Income. Kiplinger's says it better than I can, and you can see the complexity.

Quote:
You’re among the 18 million or so who aren’t so lucky, though, if your “provisional income” is more than $25,000 on a single return or $32,000 on a joint return. Provisional income is adjusted gross income (not including Social Security) plus 50% of your benefits plus any tax-free interest from municipal bonds.

If that income is between $25,000 and $34,00 on a single return or between $32,000 and $44,000 on a joint return, up to 50% of your benefits can be taxed. The rest is tax-free.

Now, if your provisional income is more than $34,000 on a single return or $44,000 on a joint return, it’s likely that 85% of your benefits will be taxed....use the IRS’s 18-line worksheet to pinpoint exactly how much is taxed and how much is tax-free.
18 lines! And that's where strange interaction effects lie.
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