retirement savings in OC
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I know the math depends on age, etc but I find tax free EARNINGS (Roth 59 1/2+, over 5 yrs) way more appealing than tax deferred everything (traditional IRA, traditional 401k). Totally agree on maxing any employer match, but I like the idea of maxing the Roth after that.
Any general rules of thumb which is better or a comparison calculator out there?
Yeah I was going to mention most here don't qualify for Roth IRA contribs on my initial post since the income limit is not too high, but there's no income limit for a Roth 401k contribs I believe per Kiplinger:
Because there are no income limits on Roth 401(k) contributions, these accounts provide a way for high earners to invest in a Roth without converting a traditional IRA. In 2014, you can contribute up to $17,500 to a Roth 401(k), a traditional 401(k) or a combination of the two.
The Roth/Traditional IRA contrib max is pretty low anyway 5-6k lately. When I was younger I'd do the individual IRAs since I wasn't near any income limits and you have that portability and not contributing a ton of $$ to retirement, but without income limits and higher contribution rate as I get older/higher salary, Roth 401k is going to be my new strategy.
Still something about paying taxes on say $10k now, and that growing to say $30k in 20-30 yrs and that 20k is tax free VS shelter that 10k contribution from tax, it growing to $30k in the same time frame, then pay all $30k at some lower rate in the future..... I'm sure it depends if you're saving that money you would pay in tax in a traditional 401k situation in an investment and then paying tax again later anyway?
do the backdoor Roth. This is great if you are phased out for deductible traditional IRA contributions.
make the nondeductible traditional IRA contribution. Convert the next day to Roth. You owe taxes only on any gains (which should be zero since you converted right away). Only, you have to make sure there is no "pre tax" money in there (such as from a deductible traditional IRA), otherwise, the conversion gets taxed at a proportional rate. Many employer 401ks let you roll in "pre tax" money from your traditional IRA. Rinse and repeat every year thereafter.
It's not the "what am I doing anything wrong". We don't have a crystal ball, RE investments can be flattened by earthquake, stock market can crash, and retirement money can become toilet paper from hyper inflation. Folks in Greece didn't plan on having to forage for edible plants in their retirement either [1].
Yes, do plan for your retirement, but look beyond your peers in Irvine and how they're doing financially. Invest some of your time and money in prepping for contingencies.
[1]http://www.bbc.com/news/magazine-35430370
jumpinjacks
New member
DJW1705 said:
I know the math depends on age, etc but I find tax free EARNINGS (Roth 59 1/2+, over 5 yrs) way more appealing than tax deferred everything (traditional IRA, traditional 401k). Totally agree on maxing any employer match, but I like the idea of maxing the Roth after that.
Any general rules of thumb which is better or a comparison calculator out there?
There are income limits on Roth, a lot of folks here no longer can contribute to Roth.
Wonder how withdrawing from traditional ira works if the distribution is taxed based on income. If it's for retiring, and don't take distribution after you stopped working for couple years, tax bracket is much lower...
Wonder how withdrawing from traditional ira works if the distribution is taxed based on income. If it's for retiring, and don't take distribution after you stopped working for couple years, tax bracket is much lower...
jumpinjacks
New member
AW said:
Yeah I was going to mention most here don't qualify for Roth IRA contribs on my initial post since the income limit is not too high, but there's no income limit for a Roth 401k contribs I believe per Kiplinger:
Because there are no income limits on Roth 401(k) contributions, these accounts provide a way for high earners to invest in a Roth without converting a traditional IRA. In 2014, you can contribute up to $17,500 to a Roth 401(k), a traditional 401(k) or a combination of the two.
The Roth/Traditional IRA contrib max is pretty low anyway 5-6k lately. When I was younger I'd do the individual IRAs since I wasn't near any income limits and you have that portability and not contributing a ton of $$ to retirement, but without income limits and higher contribution rate as I get older/higher salary, Roth 401k is going to be my new strategy.
Still something about paying taxes on say $10k now, and that growing to say $30k in 20-30 yrs and that 20k is tax free VS shelter that 10k contribution from tax, it growing to $30k in the same time frame, then pay all $30k at some lower rate in the future..... I'm sure it depends if you're saving that money you would pay in tax in a traditional 401k situation in an investment and then paying tax again later anyway?
eyephone said:
do the backdoor Roth. This is great if you are phased out for deductible traditional IRA contributions.
make the nondeductible traditional IRA contribution. Convert the next day to Roth. You owe taxes only on any gains (which should be zero since you converted right away). Only, you have to make sure there is no "pre tax" money in there (such as from a deductible traditional IRA), otherwise, the conversion gets taxed at a proportional rate. Many employer 401ks let you roll in "pre tax" money from your traditional IRA. Rinse and repeat every year thereafter.
qwerty
Well-known member
@jumpinjacks - i would argue you should look at the % of tax that you are paying. If i contributed to a roth 401k now i would pay a blended rate of about 42-43% for state and fed. If i pay it later, im probably going to pay a significantly lower blended rate. Have you acrually run a real scenario to approximate under which method you are better off? Everything ive read pretty much says a regular 401k works out better.
Ready2Downsize
Well-known member
You never know for sure what you'll pay. We were getting so much in our retirement accounts we'll end up paying a good amount of tax when we withdraw it.
Add to that my feeling is social security will eventually be means tested with those who have significant retirement accounts getting their social security benefits whacked.
We don't need the money now but there was no way we'd be able to spend what we have in the retirement accounts if we kept maxing out our contributions so we actually cut our contributions.
Add to that my feeling is social security will eventually be means tested with those who have significant retirement accounts getting their social security benefits whacked.
We don't need the money now but there was no way we'd be able to spend what we have in the retirement accounts if we kept maxing out our contributions so we actually cut our contributions.
Ready2Downsize
Well-known member
We have more in retirement accounts that will be mandatory distributions than we earn in yearly salary now. Add in Social Security (assuming it hasn't been yanked) and we definitely have more income in retirement than we make now.
We don't have a lot of deductions since we have no mortgage.
We don't have a lot of deductions since we have no mortgage.
Irvine Dream
New member
OK, I give up. Me and my wife are professionals yet compared to lots of the TI members we don't have much assets. We have no debt other than housing and even for the houses that I am looking to purchase my Debt ratio is significantly higher than lots of the members here. Eventhough we will be working lot more years I can't ever imagine our retirement account would pay us more than we currently earn. We don't have lots of money to invest in stocks like other members here. We drive modest cars and spend thriftly. I can't figure our what we are doing wrong?Ready2Downsize said:
Ready2Downsize
Well-known member
We have had a long time to accumulate what we have......... in fact we started our retirement accounts when IRAs started (Ronald Reagan pre market crash). We put the maximum we could in the 401K's and iras early on and bought as much company stock in the employee stock purchase plans as we could which helped with the down payment on the last house.
During that time there was significant inflation which helped real estate (bought the first place with everything we had and lived paycheck to paycheck, trading up a few times).
We also benefitted from employee stock options for almost a decade and two accelerated stock option grants from company buyouts that paid off big time (thank you yahoo for buying geocities and cmgi for buying adforce) during the bubble of 2000.
Just don't spend more than you can afford, save some for a rainy day and you will be fine.
During that time there was significant inflation which helped real estate (bought the first place with everything we had and lived paycheck to paycheck, trading up a few times).
We also benefitted from employee stock options for almost a decade and two accelerated stock option grants from company buyouts that paid off big time (thank you yahoo for buying geocities and cmgi for buying adforce) during the bubble of 2000.
Just don't spend more than you can afford, save some for a rainy day and you will be fine.
Irvine Dream
New member
true. words to live by, thanksbones said:
momopi
Well-known member
Irvine Dream said:
It's not the "what am I doing anything wrong". We don't have a crystal ball, RE investments can be flattened by earthquake, stock market can crash, and retirement money can become toilet paper from hyper inflation. Folks in Greece didn't plan on having to forage for edible plants in their retirement either [1].
Yes, do plan for your retirement, but look beyond your peers in Irvine and how they're doing financially. Invest some of your time and money in prepping for contingencies.
[1]http://www.bbc.com/news/magazine-35430370
irvinehomeowner
Well-known member
@IrvineDream:
There is a seat next to me in the 99%er room. I think I'm the only TIer here.
There is a seat next to me in the 99%er room. I think I'm the only TIer here.