Welcome to City-Data.com Forum!
U.S. CitiesCity-Data Forum Index
Go Back   City-Data Forum > General Forums > Economics > Personal Finance
 [Register]
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
View detailed profile (Advanced) or search
site with Google Custom Search

Search Forums  (Advanced)
Reply Start New Thread
 
Old 03-01-2013, 10:15 AM
 
105,720 posts, read 107,700,939 times
Reputation: 79350

Advertisements

NOT QUITE! it is not tax free . You just pay the taxes up front and that money is out of play and can not and gone! the results will be identical to deferred given same tax rates and gains.
Reply With Quote Quick reply to this message

 
Old 03-01-2013, 10:16 AM
 
Location: NJ
31,771 posts, read 40,472,612 times
Reputation: 24590
Quote:
Originally Posted by mathjak107 View Post
NOT QUITE! it is not tax free . You just pay the taxes up front and that money is out of play and gone!
you pay the capital gains and future dividend taxes up front?
Reply With Quote Quick reply to this message
 
Old 03-01-2013, 10:17 AM
 
105,720 posts, read 107,700,939 times
Reputation: 79350
you don't pay them up front but you give them up by paying up front . that pretax money is money you could have put in the 401k is now gone
Reply With Quote Quick reply to this message
 
Old 03-01-2013, 10:20 AM
 
Location: NJ
31,771 posts, read 40,472,612 times
Reputation: 24590
Quote:
Originally Posted by mathjak107 View Post
you don't pay them up front but you give them up by paying up front . that pretax money is money you could have put in the 401k is now gone
you are only giving up the portion that would be earned on the portion that exists due to tax not being taken out.
Reply With Quote Quick reply to this message
 
Old 03-01-2013, 10:26 AM
 
105,720 posts, read 107,700,939 times
Reputation: 79350
you are confused , do the math on your own.

figure a 25% marginal tax rate, make it easy , have them double over time .
use 5 k in a roth which cost you 6666.00 pretax ...... vs 6666.66 in the 401k.


your balance will be identical.

5k doubling is 10k in the roth tax free .

6666.66 doubling is 13,333.00 in the 401k ,less 25% tax = 10k after tax .

the same in either case.

do not be fooled because one is tax free and one is deferred, the tax free eats the money up front and kills the goose laying the golden egg .
Reply With Quote Quick reply to this message
 
Old 03-01-2013, 10:27 AM
bUU
 
Location: Florida
12,077 posts, read 10,651,100 times
Reputation: 8793
The part of the equation that Roth enthusiasts often leave out is this: Making a Roth contribution instead of a deductible contribution to a 401(k) or tIRA, you have to pay tax on that amount of money. If that money was invested instead of being used to pay the tax (which would be possible if it was made as a deductible contribution to a 401(k) or tIRA), then you could realize gains and earn dividends on that money, compounded for all the years between the date of the contribution and the withdrawal (when, likely, only a portion of that money will be needed to pay the tax on the withdrawal, for reasons outlined earlier).
Reply With Quote Quick reply to this message
 
Old 03-01-2013, 10:36 AM
 
1,784 posts, read 3,446,935 times
Reputation: 1295
Quote:
Originally Posted by CaptainNJ View Post
the roth ira is clearly the better choice. it doesnt offer tax deferral, its offers tax free money.
Quote:
Originally Posted by mathjak107 View Post
NOT QUITE! it is not tax free . You just pay the taxes up front and that money is out of play and can not and gone! the results will be identical to deferred given same tax rates and gains.
Quote:
Originally Posted by CaptainNJ View Post
you are only giving up the portion that would be earned on the portion that exists due to tax not being taken out.
Quote:
Originally Posted by mathjak107 View Post
you are confused , do the math on your own.

figure a 25% marginal tax rate, make it easy , have them double over time .
use 5 k in a roth which cost you 6666.00 pretax ...... vs 6666.66 in the 401k.


your balance will be identical.

5k doubling is 10k in the roth tax free .

6666.66 doubling is 13,333.00 in the 401k ,less 25% tax = 10k after tax .

the same in either case.

do not be fooled because one is tax free and one is deferred, the tax free eats the money up front and kills the goose laying the golden egg .
Yup, someone didn't read page 1 !

If the tax rates are the same now as at retirement when you're pulling money out, there's no difference.

(T*A) * r^n = (A*r^n) * T

Every time.


T = (1 - tax rate); A = initial money to be used, r = return, n = # years
Reply With Quote Quick reply to this message
 
Old 03-01-2013, 11:07 AM
 
Location: WA
5,640 posts, read 24,856,716 times
Reputation: 6573
I am now withdrawing funds from my savings as I retired eight years ago. You can work the math yourself but I can tell you that for me paying the taxes when I contributed and was working was a hell of lot easier than paying the taxes on withdrawals when I have no other income.

Just got done with my 2012 taxes and suffered more than the normal frustration as we had to cover large medical expenses this last year. The additional distributions from the IRA put us in higher tax brackets and the higher taxable income reduced the medical deduction which requires more distributions which creates a bit of an expense spiral.

Tax laws change and taxes generally don't go down.
Reply With Quote Quick reply to this message
 
Old 03-01-2013, 11:33 AM
 
Location: Central Massachusetts
6,552 posts, read 6,989,911 times
Reputation: 9249
Quote:
Originally Posted by cdelena View Post
I am now withdrawing funds from my savings as I retired eight years ago. You can work the math yourself but I can tell you that for me paying the taxes when I contributed and was working was a hell of lot easier than paying the taxes on withdrawals when I have no other income.

Just got done with my 2012 taxes and suffered more than the normal frustration as we had to cover large medical expenses this last year. The additional distributions from the IRA put us in higher tax brackets and the higher taxable income reduced the medical deduction which requires more distributions which creates a bit of an expense spiral.

Tax laws change and taxes generally don't go down.

And all that on the federal side since WA don't have income tax.
Reply With Quote Quick reply to this message
 
Old 03-01-2013, 11:47 AM
 
105,720 posts, read 107,700,939 times
Reputation: 79350
Quote:
Originally Posted by cdelena View Post
I am now withdrawing funds from my savings as I retired eight years ago. You can work the math yourself but I can tell you that for me paying the taxes when I contributed and was working was a hell of lot easier than paying the taxes on withdrawals when I have no other income.

Just got done with my 2012 taxes and suffered more than the normal frustration as we had to cover large medical expenses this last year. The additional distributions from the IRA put us in higher tax brackets and the higher taxable income reduced the medical deduction which requires more distributions which creates a bit of an expense spiral.

Tax laws change and taxes generally don't go down.
so far for middle america all income taxes have done is go down. each year allows more and more income through with less tax. for 40 years now income taxes have been less and less.
it will not be much longer before 100k will be the 25% MARGINAL BRACKET WITH MOST GOING THROUGH EVEN LOWER.

i don't really care if i had to fill out a tax form in retirement if it is to my benefit

Last edited by mathjak107; 03-01-2013 at 11:59 AM..
Reply With Quote Quick reply to this message
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.

Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.


Reply
Please update this thread with any new information or opinions. This open thread is still read by thousands of people, so we encourage all additional points of view.

Quick Reply
Message:

Over $104,000 in prizes was already given out to active posters on our forum and additional giveaways are planned!

Go Back   City-Data Forum > General Forums > Economics > Personal Finance
Similar Threads

All times are GMT -6. The time now is 10:55 PM.

© 2005-2024, Advameg, Inc. · Please obey Forum Rules · Terms of Use and Privacy Policy · Bug Bounty

City-Data.com - Contact Us - Archive 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37 - Top