Another retirement investment question

[grizzly_]

I put half my 401k deposits as pre-tax and half as post-tax. I don't know what tax rates will be, what some future Congress may do with retirement income trying to pay for government spending or how much money I may need year-to-year in retirement and what bracket that may put me in.

I figure by splitting my investments into both allocations, I'll be able to play it whichever way is best at the time.

I agree with what's said above, "That only real mistake would be to not save."

Start early and save 15% of your income and, statistically speaking, you'll be alright.

 

[SAJ-99]

Your math is correct but I would rather give the government $220 over $570

Maybe a dumb way to look at it but that’s what I think.

And this is why Financial advisors can charge 1%+ fees, because someone will tell you this is genius.

 

[npaden]

Your math is correct but I would rather give the government $220 over $570

Maybe a dumb way to look at it but that’s what I think.

My thoughts were/are pretty much the opposite. When I retire the government is going to need a set amount of money and they are going to get it through hook or crook.

Maybe by me investing that money wisely and paying more tax in the future it could help my kid not have to have as big of a tax burden. Based on the math it really doesn't cost me anything to pay the extra tax, just investing it for Uncle Sam because he sure can't seem to keep from living hand to mouth.

 

[JBS]

Npaden, that is an interesting way of looking at things, I have spent way to much time looking at tax rates and investment strategies and have never thought about the government needing the money in the future and taking it one way or another.

 

[npaden]

Npaden, that is an interesting way of looking at things, I have spent way to much time looking at tax rates and investment strategies and have never thought about the government needing the money in the future and taking it one way or another.

I'm not saying I'm wanting to voluntarily pay more than my fair share of taxes, but in this one instance where it really doesn't cost me anything extra, I think it is something to think about for sure.

 

[Blackcats06]

I'm not saying I'm wanting to voluntarily pay more than my fair share of taxes, but in this one instance where it really doesn't cost me anything extra, I think it is something to think about for sure.

It is an interesting way to think about it. I just can’t wrap my head around the tax rate being lower or the same in 30 years. Which is what needs to happen to make what you laid out work.

 

[npaden]

It is an interesting way to think about it. I just can’t wrap my head around the tax rate being lower or the same in 30 years. Which is what needs to happen to make what you laid out work.

My example just showed that the Roth vs. Pre-Tax discussion really comes down to whether you think you are going to be paying more or less taxes in the future than you are now. The way the earnings work if the rates are the same the net after tax is the same. The Roth does give more flexibility though.

For me personally, I'm planning for my income in retirement to be around half of what my current income is. That would put me in a lower tax bracket than I am in now by around 10% if they keep the graduated tax rates around and everyone seems to love the idea of taxing people more if they make more so I think that will continue to be the case.

To confuse things even more, I'm still putting money into Roth investments but that is after I'm maxing out my pre-tax options first.

 

[Blackcats06]

My example just showed that the Roth vs. Pre-Tax discussion really comes down to whether you think you are going to be paying more or less taxes in the future than you are now. The way the earnings work if the rates are the same the net after tax is the same. The Roth does give more flexibility though.

For me personally, I'm planning for my income in retirement to be around half of what my current income is. That would put me in a lower tax bracket than I am in now by around 10% if they keep the graduated tax rates around and everyone seems to love the idea of taxing people more if they make more so I think that will continue to be the case.

To confuse things even more, I'm still putting money into Roth investments but that is after I'm maxing out my pre-tax options first.

You probably make way more than me thus your tax rate will probably be lower. I'm hoping to make the same in retirement, trying for more as I don't make a lot of money doing what I do, so if nothing changes my tax rate would be the same.

 

[Archeryonly]

I am in strong favor of as much $ you can put into a roth as possible. (I will be doing roth conversions for the next 5 or so years to up my allocation.)
Although it may not feel like it, (adjusted for inflation) tax rates are at historic lows. Government debt is at historic highs. Something will have to change in the future to address this inequity. Having tax exempt growth is the ultimate hedge. IMHO

 

[Mallardsx2]

Roth all the way for me. Except for the company match (which cannot be put into a Roth..) I like to know what I am paying taxes on NOW not in 30 years to pay for other peoples reckless spending sins.....The Tax rate will be outlandishly high when I am 65 to cover all of this reckless spending.

I would like to do some conversions now but It doesnt make much sense for me with where I am at.

 

[AvidIndoorsman]

sounds like tomayto/tomahto then

and given those unknowns about future tax brackets, not a bad idea to hedge a little?

I kinda think along the same lines...

My assumption is that my wife and I will make way more working then in retirement. I'm just kinda guessing my wife's last year of work and first year of retirement will be a dramatic tax bracket drop.

To that end traditional all the way, right?.. but if in retirement we want to buy a car something big basically make a one year large withdrawal we can do so without bumping ourselves into a higher bracket with a Roth.

My thinking thus far has been 50/50 split between traditional and roth, then at some point I will go 100% traditional and that roth becomes the contingency fund.

But kinda to your point I can play out both scenarios given our situation so I hedge.

 

[TOGIE]

I kinda think along the same lines...

My assumption is that my wife and I will make way more working then in retirement. I'm just kinda guessing my wife's last year of work and first year of retirement will be a dramatic tax bracket drop.

To that end traditional all the way, right?.. but if in retirement we want to buy a car something big basically make a one year large withdrawal we can do so without bumping ourselves into a higher bracket.

My thinking thus far has been 50/50 split between traditional and roth, then at some point I will go 100% traditional and that roth becomes the contingency fund.

But kinda to your point I can play out both scenarios given our situation so I hedge.

yeah exactly. it seems that flexibility aspect of having a cash reserve that won't count as income if you pull it can be hugely beneficial.

which honestly, i didn't even know/think about that part of until pretty recently.

 

[AvidIndoorsman]

yeah exactly. it seems that flexibility aspect of having a cash reserve that won't count as income if you pull it can be hugely beneficial.

which honestly, i didn't even know/think about that part of until pretty recently.

Yeah like you could use it to pay off your house right before you retire and then use your traditional for actual retirement income.

 

[SAJ-99]

Roth all the way for me. Except for the company match (which cannot be put into a Roth..) I like to know what I am paying taxes on NOW not in 30 years to pay for other peoples reckless spending sins.....The Tax rate will be outlandishly high when I am 65 to cover all of this reckless spending.

I would like to do some conversions now but It doesnt make much sense for me with where I am at.

This comment applies to everyone that prefers Roth due to the belief tax rates will be higher because of reckless spending or whatever. Quoted you as to not scare the newer guy (@Archeryonly). Have you ever considered that one of the future changes to get some tax revenue might be to change the Roth tax status and make gains all taxable?

 

[BigHornRam]

This comment applies to everyone that prefers Roth due to the belief tax rates will be higher because of reckless spending or whatever. Quoted you as to not scare the newer guy (@Archeryonly). Have you ever considered that one of the future changes to get some tax revenue might be to change the Roth tax status and make gains all taxable?

I have considered it, nothing that goes on in Washington surprises me anymore.

 

[Pucky Freak]

I have substantial required pre-tax pension contributions deducted from my paycheck. In order to balance this out I have my personal retirement savings all as Roth/post-tax. Forced to take a guess, I’d say I’ll be in a higher tax bracket in 20+ years because my wife is a stay-at-home mom and is more likely to work full time after our kids are grown up, and if I double dip pension + second career I’ll be making more just by myself.

Lots of moving parts and it’s a crapshoot. I do know that I can easily afford to make after-tax contributions today, so it’s an easy decision.

I tend to favor the Roth for the withdrawal flexibility factors. It’s a great tool but not the best for everyone’s situation. Actually setting money aside can be more important than the combined decisions of which securities and which tax shelters to pick.

 

[Mallardsx2]

This comment applies to everyone that prefers Roth due to the belief tax rates will be higher because of reckless spending or whatever. Quoted you as to not scare the newer guy (@Archeryonly). Have you ever considered that one of the future changes to get some tax revenue might be to change the Roth tax status and make gains all taxable?

IMO they wont. Too many powerful players in GOVT have their money wrapped up in ROTH accounts. Same reason the S&P 500 will always prevail.

I do feel that they will increase taxation on traditional 401K's though.

Just my opinion.

 

[Mrc]

I started young.Roth wasn’t available. When Roth became available I put the max in both. I had a big lump in the regular ira when they started allowing conversions. I didn’t do it because the tax hit would have been big and the taxes would have had to be paid out of a non retirement mutual fund that would have incurred capital gains. Having money in regular Ira’s,Roth IRA‘s,and taxable accounts gives me great control in retirement. Retired at 58 and am 65 now and have payed no taxes yet. Also Obamacare subsidized 1,600 or 1,700 a month of my health insurance because I could control my income. Non retirement accounts are good too. Put the money in an index fund and don’t move it around.Capital gains can be tax free if your income is under $70,000. If you have $35,000 in social security you could draw $70,000 out of the taxable mutual fund. If the money is 50% capital gain your taxes would be 0. Lots of options having money in different pots.

 

[Mrc]

Correction. No capital gains on income under $80,800.