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To be clear….you are only deferring taxes with contributions into a traditional 401K. Ending up in a higher tax bracket in retirement than you are now, (which given today’s relatively low historical tax rates, and the significant amounts you are squirming away) is not implausible. Your total tax bill could well be higher than if you paid the taxes now. This is especially likely if you defer withdrawals until RMDs kick in, or even worse, you keel over any your spouse has to file as a single person on her federal return.
My advice (and it’s free and unsolicited, so buyer beware) is to diversify your current retirement savings. You don’t know what future tax rates will be, so try and have some money in both Roth accounts as well as traditional….in other words, pay some taxes on those retirement contributions now. I’m retired and in the midst of converting some significant traditional IRA funds to Roth. It’s astonishing to see the taxes due on those conversions.
Well for one, I have a healthy mix of Roth as well as traditional, although we've moved more toward traditional as my wife and I have rapidly moved up in the tax brackets. A lot of my early money was in Roth.
Also, keep in mind, one can always fund an IRA (again, Roth or traditional) irrespective of a 401k. So put 23k into the 401k and another 6k into your IRA. These are two separate tax saving vehicles, so go ahead and max out both.
Now think about this. Why are people assuming that their income in retirement is going to be higher than when they're working? I'm planning on my waged income bracket to be zero in retirement, and there's no reason to withdraw large amounts. So I'd rather shave off the top of that 33% bracket now to maybe only have to pay the 12% bracket later (estimating of course), combined with taking strategic withdraws from the Rothies.
one can be in the electricians union with a pension or part of a different division with 401k and non union adjusted raises .
the same positions pay more if you opt for the 401k and don’t go with the union division .
pay for what my wife’s pension is from pays far more in private industry with no city pension.
there is no free lunch …if an employer is socking away money for your pension out of his pocket you can bet it is coming out of your total compensation package.
even teachers here who get decent pensions need a masters degree …the lowest paying jobs around with a masters are teaching and social working .
private industry pays much more if they require a masters but no pension
401k plan is a horrible plan because it has so much limitations. It is essentially like long term CD. What's really bad about it is that you may get locked into a really bad fund and they are eating your portfolio away with fees unless you roll it over to something you can manage. But majority of people who are in some big corps are forbidden from rolling it away.
Now think about this. Why are people assuming that their income in retirement is going to be higher than when they're working? I'm planning on my waged income bracket to be zero in retirement, and there's no reason to withdraw large amounts. So I'd rather shave off the top of that 33% bracket now to maybe only have to pay the 12% bracket later (estimating of course), combined with taking strategic withdraws from the Rothies.
I am in the same tax bracket that I was while working....we are not taking RMDs. When RMDs kick in, we will be in a higher bracket. That's us, but obviously you have planned a more favorable tax situation in retirement. Well done.
401Ks with matches are awesome. Invest enough to get the max matching employer contribution and you are ahead of the game before your investments even earn any money.
If you quit and you are vested in the plan, you can roll the entire 401k balance over into a Roth IRA of your choosing.
I am in the same tax bracket that I was while working....we are not taking RMDs. When RMDs kick in, we will be in a higher bracket. That's us, but obviously you have planned a more favorable tax situation in retirement. Well done.
We retired very early, and are now taking RMDs. Our income and income taxes are higher today than when we both were working.
one can be in the electricians union with a pension or part of a different division with 401k and non union adjusted raises .
the same positions pay more if you opt for the 401k and don’t go with the union division .
pay for what my wife’s pension is from pays far more in private industry with no city pension.
there is no free lunch …if an employer is socking away money for your pension out of his pocket you can bet it is coming out of your total compensation package.
even teachers here who get decent pensions need a masters degree …the lowest paying jobs around with a masters are teaching and social working .
private industry pays much more if they require a masters but no pension
I think you may have miskeyed some of the above...I'm not following. But to limit everyone from having to continue scrolling past any further back and forth between us, I give. Uncle.
401Ks with matches are awesome. Invest enough to get the max matching employer contribution and you are ahead of the game before your investments even earn any money.
If you quit and you are vested in the plan, you can roll the entire 401k balance over into a Roth IRA of your choosing.
I'm not seeing the downside here.
If the 401K is a Roth, you can do that without a tax consequence. If it a traditional 401K, then there are tax consequences to that conversion.
I have the bulk of my retirement funds in traditional 401K's and traditional IRAs. For me, the only downside was I should have paid taxes when I earned the income and put more money into a the 401K. I anticipate ending up in an equivalent or higher tax bracket in retirement than in my working years. Tax-wise, I think I would have been better off incurring the tax hit when working---not just because of potential higher marginal rates, but because we will likely end up paying more in medicare premiums because our income will be elevated due to RMDs. Kind of a double whammy which was due to my less than ideal tax planning.
If the 401K is a Roth, you can do that without a tax consequence. If it a traditional 401K, then there are tax consequences to that conversion.
I have the bulk of my retirement funds in traditional 401K's and traditional IRAs. For me, the only downside was I should have paid taxes when I earned the income and put more money into a the 401K. I anticipate ending up in an equivalent or higher tax bracket in retirement than in my working years. Tax-wise, I think I would have been better off incurring the tax hit when working---not just because of potential higher marginal rates, but because we will likely end up paying more in medicare premiums because our income will be elevated due to RMDs. Kind of a double whammy which was due to my less than ideal tax planning.
this is true for most of us that have had normal careers , meaning over decades of time we ramp up from very low pay to much higher pay .
over a life time that makes our long term average tax bracket lower then just our final years earning . had we had roths back then we would have benefited big time from roths .
but most people look at things wrong . they only look at their final years pay and go we will be in a lower tax bracket in retirement.
wrong , it isn’t about the final years , it’s about decades of working and that average bracket that has to be compared.
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