# Do you max out your 401k?



## turkel (Oct 21, 2016)

I'm curious what others do. I have always maxed out my 401k (since my divorce 8 years ago) and this year I was able to make the catch up contributions since I'll be 50 this year.
I recommend it to all my fellow co workers. But I have to admit this year I feel the pinch that extra 6 k is squeezing me a little too tight. I still have to fund my Roth, ouch. I may have to wait for my tax return to fund that one.

Maxing out is imperative to me since I have no plans to work till 65, tuggers seem to be great planners.

Do you max out?


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## sue1947 (Oct 21, 2016)

turkel said:


> Maxing out is imperative to me since I have no plans to work till 65, tuggers seem to be great planners.



Some thoughts from somebody who retired at 53:
Maxing out a 401K is an important first step, but not enough.  Make sure you are also making use of other retirement saving options.  
In hindsight I would have put more in Roth IRAs vs regular IRA.  I should have taken advantage of the tax deduction for the regular ones and then put additional money in a Roth.  My goal would have been about 50/50 between regular(which includes the 401K) and Roth.   A regular IRA is taxable income once you start pulling it out so it becomes a management game of taking out enough but not too much to put you into the next tax bracket.  Once you hit age 70.5, if you are lucky and saved well, you may end up with a big tax bill when you run into the required minimum distributions.   The better strategy is to have a mix of Roth and regular IRA/401K so you can manage your tax bills.  I had too much in regular IRA and am now rolling over to avoid future tax hits.   

Sue


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## SmithOp (Oct 21, 2016)

I agree with what Sue said, max out your Roth before the 401k.  


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## Sugarcubesea (Oct 21, 2016)

SmithOp said:


> I agree with what Sue said, max out your Roth before the 401k.
> 
> 
> Sent from my iPad using Tapatalk



Would this be good strategy once you hit 55, 60, and 65.  Thanks


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## WinniWoman (Oct 21, 2016)

My husband and I had access to 401k's late in life and we have always only put in enough for the company match and then we fully fund our Roth IRA's (in the past we funded our Traditional IRA's as much as we could and at one point I even had a nontraditional IRA which I cashed out many years ago from what I recall) and we fully fund our HSA as well. I have a rollover IRA as well from when I rolled over my first 401K plan when I left the job.

This past month due to having extra money in our monthly budget we decided to up my husband's contribution to 25% for the rest of next year and we will try to max it out for 2017.

We also buy I- Bonds every month and we do save money every month for a car and future trips outside of our timeshares.

We just finally finished our savings goal of 3 years expenses (current) for emergencies, etc. Phew!

But we are starting to get company info. on open enrollment and the insurance premiums, deductibles and out of pocket expenses are way up so we might have to reconsider how much my husband can contribute in his 401k. 

My son- as little as money as he makes- always fully funded his Roth IRA (we helped with that in the beginning) with bonuses and gift money, as well as a small monthly investment. But for the past 2 years I suggested he put that money towards saving for a new used car he desperately needs so he can pay cash for it and then resume his Roth IRA contributions. He will also look into his company's 401k which has a discretionary match but they have done the match every year according to other employees. Will have to see what the investments are in it, since he will only be able to do one or the other.


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## SMHarman (Oct 21, 2016)

1 don't leave any 401k match on the table. 
2 Roth vs tradn is nuanced based on your marginal rate of tax. There is a huge older thread on here on the math of this. Many people don't understand both sides of the calculation. 
3 if you have a company with a great modern 401k look into backdoor Roth if you have the dollars to spare. 
4 hsa is a superb generational wealth transfer tool above and beyond its original purpose.


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## WinniWoman (Oct 21, 2016)

Sugarcubesea said:


> Would this be good strategy once you hit 55, 60, and 65.  Thanks



We are 60 and 63 and have been doing it this way since the Roths came out.

And don't forget there are also Roth 401K's if you still have tons of money left over that you also want to invest.


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## rapmarks (Oct 21, 2016)

We were never able to utilize Roth because of income restrictions.  We have been retired 17 years.  The mandatory distribution are really hurting us.  Our friends didn't have as much, and moved theirs into a Roth over three years, paying an additional thirty thousand in taxes each year.  They are in sixties.  I wish we could have done the Roth 


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## natarajanv (Oct 21, 2016)

*use backdoor ROTH*

I max out 401K and do backdoor roth to maximize savings.

http://www.rothira.com/what-is-a-backdoor-roth-ira


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## PigsDad (Oct 21, 2016)

Both my wife and I have been maxing out our 401k and ROTH IRAs (via the "back door" method described above) for the last 15+ years.  For a while, we were doing the ROTH 401k (since our employer offered it), but the tax burden was cutting too deep -- it was pushing us into a higher tax bracket w/o the pre-tax contributions, and since we figured we would definitely be in a lower tax bracket in retirement, it didn't make as much sense to continue w/ the ROTH 401k contributions.

If I were to do it over again, I would have focused more on ROTH 401k earlier in my career when our salaries (and tax bracket) were lower.  In the end, I am happy with our situation, as we have a decent chunk of ROTH funds (between both the IRAs and 401k) to balance out the tax-deferred retirement funds.

Like the OP, both my wife and I just turned 50, but we are still maxing out both 401k and IRA.  That is a good chunk of extra money (+$6K for 401K, +$1K for IRA, for an extra +$14K per year total for the two of us), but we are coping.  Since we have a goal of retiring by 58, putting as much into retirement vehicles is a high priority for us.

Kurt


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## Passepartout (Oct 21, 2016)

I used to. Now my SS covers my expenses and 401k rolled over into IRA and continues to grow. Roth came along too late to do me much good, so is small. I have to start mandatory distributions next year. Wife too. We anticipate a significant lifestyle change. For lifelong savers to all-of-a-sudden have no choice but to take money out of savings will be truly different. We find ourselves looking at Lexuses while the current paid for and perfectly usable Toyota's are just fine. Maybe some more cruises. Maybe not. (shrug) It's all good as long as we're not paying the healthcare industrial complex.

Jim


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## VacationForever (Oct 21, 2016)

We had always maxed out 401K. Due to income restrictions we were unable to make use of Roth IRA. Saving of post tax money should also be included in the retirement strategy.  

We retire early (me early) and will live off a substantial amount of non-IRA savings until all the other income elements fully kick in - Social Security Income, Required Minimum Distribution of IRA and Annuity(funded by IRA).


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## isisdave (Oct 22, 2016)

Considering that RMDs start out at under 4% and don't even hit 5% until age 78, I'm in awe of you folks, as even $1 million in a traditional IRA will only require $40,000 distribution.

This is what my dad used to call a "high-class problem" and if I had it, I'd just divert my other income to another investment.


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## am1 (Oct 22, 2016)

I do not invest anything in retirement accounts.  It is great for people but why does it have to be so complicated?  How much is spend on selling and administrating all of this.  I much prefer allowing every adult to be able to invest a certain amount of after tax dollars each year and the gains are tax free but no early withdraw penalty or need for it to be paid back.


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## ace2000 (Oct 22, 2016)

am1 said:


> I do not invest anything in retirement accounts.  It is great for people but why does it have to be so complicated?



What do you find so complicated about them?  Except for the minor details and differences, you either get a tax break when you put the money in, or when you pull the money out.  I sure wouldn't let any of those details stop me from getting started.


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## am1 (Oct 22, 2016)

ace2000 said:


> What do you find so complicated about them?  Except for the minor details and differences, you either get a tax break when you put the money in, or when you pull the money out.  I sure wouldn't let any of those details stop me from getting started.



You are right I would not let the details stop me but I have other options that I prefer to use for investments for retirement and everything else.  
Nothing to do with the tax code is simple.


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## pedro47 (Oct 22, 2016)

SmithOp said:


> I agree with what Sue said, max out your Roth before the 401k.
> 
> 
> Sent from my iPad using Tapatalk



Please max out your Roth account. One day you will be 70 1/2 it is better to pay taxes now and not later . At 70 1/2 that Roth account is tax free.


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## Jason245 (Oct 22, 2016)

pedro47 said:


> Please max out your Roth account. One day you will be 70 1/2 it is better to pay taxes now and not later . At 70 1/2 that Roth account is tax free.


I would recommend you consult a fee based certified financial planner.  1 hour of their time would be better than all the advise on this thread, be tailored to all your specifics and probably be less costly than making the wrong choice based on half information or misinformation.  

There is more to this decision than meets the eye. For example,  this year I have been contributing only 401k where as last year I did 401k and Roth. .. I am still in process of making projections for next year.  

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## raygo123 (Oct 22, 2016)

pedro47 said:


> Please max out your Roth account. One day you will be 70 1/2 it is better to pay taxes now and not later . At 70 1/2 that Roth account is tax free.


It depends on your income level. If you make a hundred grand or more, it may be better to defer the tax liability until your income level is ssi and your 401 withdrawal

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## Jason245 (Oct 22, 2016)

isisdave said:


> Considering that RMDs start out at under 4% and don't even hit 5% until age 78, I'm in awe of you folks, as even $1 million in a traditional IRA will only require $40,000 distribution.
> 
> This is what my dad used to call a "high-class problem" and if I had it, I'd just divert my other income to another investment.


Once you become "high class" you have to be thinking about transfer of wealth etc.. 

And 40k today won't buy you what 40k could buy you back in 1990. .

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## Jason245 (Oct 22, 2016)

raygo123 said:


> It depends on your income level. If you make a hundred grand or more, it may be better to defer the tax liability until your income level is ssi and your 401 withdrawal
> 
> Sent from my Nexus 7 using Tapatalk


More nuanced than that.  Much more nuanced. . But that is one scenario to think off. 

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## rapmarks (Oct 22, 2016)

we actually do better income wise in retirement


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## VacationForever (Oct 22, 2016)

rapmarks said:


> we actually do better income wise in retirement



Good for you!  That is called retiring in style/class. 

We will blow through alot of savings before our retirement income (SS, RMD, Annuity) fully funds our retirement.  Our expenditure is in the 6-figure per year and it will be about 8 years before those income fully kicks in. It is an uncomfortable feeeling and while we are still living almost the same way, it makes us rethink about getting that Maserati vs. another Subaru.


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## SMHarman (Oct 22, 2016)

pedro47 said:


> Please max out your Roth account. One day you will be 70 1/2 it is better to pay taxes now and not later . At 70 1/2 that Roth account is tax free.


I have never understood this logic. 

IMHO it is better to pay taxes later when your marginal rate is likely to be lower than pay today. 

Also, if they mess with rules at least you got a certain break today. 

Finally why invest 750 today after tax instead of 1000 pre tax. That 750 has to work so much harder over the cycle. 

Additionally the first retirement vehicle should be an HSA. Triple tax free. In, growth and out (for relevant expenses and in retirement you will have relevant expenses. Sock away the first 6400 there.


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## VegasBella (Oct 22, 2016)

We usually "max out" our retirement savings as much as possible. But we did a recent calculation and it's not going to be nearly enough so we are looking into other investment options for retirement rather than simple savings.


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## VacationForever (Oct 22, 2016)

VegasBella said:


> We usually "max out" our retirement savings as much as possible. But we did a recent calculation and it's not going to be nearly enough so we are looking into other investment options for retirement rather than simple savings.



I turned all my IRA into Deferred Annuities which start paying when I turn 60.  It provides guaranteed growth and eliminates market uncertainty.  I calculated that the deferred annuities grow at about 6+ percent compounded each year and provides more income (growth + principal) than straight withdrawal.  I also bought at the right time as the same annuities that I bought earlier this year are paying 25-50% less if purchased now.


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## lizap (Oct 22, 2016)

As interest rates tick up (which many financial gurus predict), annuity rates will increase..




sptung said:


> I turned all my IRA into Deferred Annuities which start paying when I turn 60.  It provides guaranteed growth and eliminates market uncertainty.  I calculated that the deferred annuities grow at about 6+ percent compounded each year and provides more income (growth + principal) than straight withdrawal.  I also bought at the right time as the same annuities that I bought earlier this year are paying 25-50% less if purchased now.


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## VacationForever (Oct 22, 2016)

lizap said:


> As interest rates tick up (which many financial gurus predict), annuity rates will increase..



Deferred annuities is affected less by current interest rates than immediate annuities.


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## sue1947 (Oct 22, 2016)

SMHarman said:


> I have never understood this logic.
> 
> IMHO it is better to pay taxes later when your marginal rate is likely to be lower than pay today.
> 
> ...



This misses the main advantage of the Roth.  Yes, you pay taxes on the amount put away, but ALL the earnings are TAX FREE.  This is huge.  If you put away $5500/year (the limit for IRA contributions) starting at age 30, at age 72.5, you could easily have around $3.5 million in that account.  You would have paid taxes on $227,000 of it.  The rest is tax free.  That example assumes a 10% return (the stock market average over the last 50+ years).  However, lowering that interest rate to 5% still gives a total of almost $800,000.   With a regular IRA, you didn't pay tax on that 227K, but will pay taxes on the entire 800K later.  With a Roth, you pay taxes on the 227K but have 573K (or up to 3.2 million) not taxed later.   

 At age 72.5, the required minimum distribution kicks in.  That means you CAN'T control how much you pull out (and pay taxes on) each year.  For the smaller amount (800K), the RMD is a little over 32K per year.  Add that to your social security/pension etc and you can very easily be pushed out of the 15% tax bracket.  For singles, that level is a little under $40K.  Once you are out of the 15% bracket, cap gains are no longer taxed at 0%.   As a result, you can end up paying a higher tax rate for more of your money.  With a Roth, since the money is not taxed when you pull it out, it avoids that issue.  

The key here is to save as much as you can starting as early as you can.  That gives you as much flexibility as possible.  Utilize as much of any tax break as you can.  If your 401K is a regular one, than do a Roth IRA on your own.  If your 401K is a Roth, then look at a regular IRA on your own, especially if that deduction will drop you into a lower tax rate.  Running the numbers for your particular situation is important whether you do it yourself or hire somebody to help.  
Keep an eye on the power of compounding.  The earlier you can start, no matter how much, the better.   And the earlier you can start, the more should be in a Roth.  

Sue


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## raygo123 (Oct 22, 2016)

sptung said:


> Deferred annuities is affected less by current interest rates than immediate annuities.


What happens to the left over money if you die early?

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## VacationForever (Oct 22, 2016)

raygo123 said:


> What happens to the left over money if you die early?
> 
> Sent from my Nexus 7 using Tapatalk



I bought 2 term deferred income annuities where my beneficiaries continue to receive the payments for the remainder of the term if/when I pass before end of the term.


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## SMHarman (Oct 22, 2016)

sue1947 said:


> This misses the main advantage of the Roth.  Yes, you pay taxes on the amount put away, but ALL the earnings are TAX FREE.  This is huge.  If you put away $5500/year (the limit for IRA contributions) starting at age 30, at age 72.5, you could easily have around $3.5 million in that account.  You would have paid taxes on $227,000 of it.  The rest is tax free.  That example assumes a 10% return (the stock market average over the last 50+ years).  However, lowering that interest rate to 5% still gives a total of almost $800,000.   With a regular IRA, you didn't pay tax on that 227K, but will pay taxes on the entire 800K later.  With a Roth, you pay taxes on the 227K but have 573K (or up to 3.2 million) not taxed later.
> 
> At age 72.5, the required minimum distribution kicks in.  That means you CAN'T control how much you pull out (and pay taxes on) each year.  For the smaller amount (800K), the RMD is a little over 32K per year.  Add that to your social security/pension etc and you can very easily be pushed out of the 15% tax bracket.  For singles, that level is a little under $40K.  Once you are out of the 15% bracket, cap gains are no longer taxed at 0%.   As a result, you can end up paying a higher tax rate for more of your money.  With a Roth, since the money is not taxed when you pull it out, it avoids that issue.
> 
> Sue



But let's compare apples to apples. 

You put $5500 into the Roth that's exactly the same as putting $7333 into their traditional 401k. 

Now those 7333s grow at the same rate as the 5500s so you end up with more in the fund at the back end.  

Finally you may be pushed into the next band but remember that is the marginal rate. The last couple of thousand in your example would be at 25 put so an extra 100 dollars per thousand on the margin. Not the total. And the best news is the fund is bigger.


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## ace2000 (Oct 22, 2016)

SMHarman said:


> But let's compare apples to apples.
> 
> *You put $5500 into the Roth that's exactly the same as putting $7333 into their 401k.*
> 
> ...



Just so you don't confuse anyone here, a 401K could be a Roth or non-Roth.  And as far as which is better, a Roth or traditional, the answer comes down to one question - at what time will you be in a higher tax bracket - now or when you pull the money out?  Answer that and you'll know which is better.  If you're unsure, split your investment money into both types.  Just don't wait!


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## SMHarman (Oct 22, 2016)

ace2000 said:


> Just so you don't confuse anyone here, a 401K could be a Roth or non-Roth.  And as far as which is better, a Roth or traditional, the answer comes down to one question - at what time will you be in a higher tax bracket - now or when you pull the money out?  Answer that and you'll know which is better.  If you're unsure, split your investment money into both types.  Just don't wait!


I added the word traditional to my post. 

You are correct. There is also the question of what rates are now and later. That said most are in a lower band in retirement. Homes paid. No kids in college the income needed is lower.


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## lizap (Oct 22, 2016)

Well said.  I agree it's best to have funds in both Roth and non-Roth accounts.



ace2000 said:


> Just so you don't confuse anyone here, a 401K could be a Roth or non-Roth.  And as far as which is better, a Roth or traditional, the answer comes down to one question - at what time will you be in a higher tax bracket - now or when you pull the money out?  Answer that and you'll know which is better.  If you're unsure, split your investment money into both types.  Just don't wait!


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## MOXJO7282 (Oct 22, 2016)

Max out no, but we were very smart to start young and certainly always made sure to contribute at least enough, often more, to get the company match. 

We've also been lucky that for 23 years I've worked for companies with pension plans as well as a 401k so over that time my employer has been contributing 5% of my annual salary to the pension plan. 

At 52 we're hoping that if I can get lucky and stay employed at my salary level for the next ten years that we could retire at 62.  It won't be easy because my company is moving a lot of people to NC.

I would definitely relocate to NC so we'll see but I've been so lucky for the last 24 years that I'm expecting some adversity soon even though none is apparent but hopefully we can stay on our plan to retire at 62.


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## dioxide45 (Oct 22, 2016)

lizap said:


> Well said.  I agree it's best to have funds in both Roth and non-Roth accounts.



Though if you compare a Roth IRA and a Roth 401k. The Roth 401k is probably a better option, as the contribution limits are the same as a regular 401k, which is much higher than a Roth IRA.


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## falmouth3 (Oct 22, 2016)

SmithOp said:


> I agree with what Sue said, max out your Roth before the 401k.
> 
> 
> Sent from my iPad using Tapatalk



If your company has a match for your 401k, the best thing to do is to put in at least the maximum to get the full match.  It's free money.  Also, there are limits on your income to be eligible for a Roth IRA.  Check out the rules if you are a moderately high income individual, otherwise you'll take a financial hit.


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## normab (Oct 22, 2016)

Getting back to the first question...

I always tell anyone who wants to talk money and retirement to max out their 401k as soon as they can.  Sometimes that means starting out with getting the full match and upping it every year with your raise to get to the max.

Seriously,  it's important to save, and it can be difficult for many to save if you read the statistics.  And, putting as much into a 401k not only gets you automatically saving, but it lets you bring home more money each year you contribute due to lower income tax.  This is important for many people who are struggling to save at all.

I started maxing out 401ks when I was in my late 30s. Before that I couldn't put the max in.  After that  I also saved all my raises pretty much with the exception of the years I paid college tuition for my son. I was able to retire at 58 as the compounded savings and stock market did its magic.  

It's hard to tell anyone else how to invest as each of our circumstances are different. For some people a Roth may not be the best choice.   However, it's important to save and 401ks are a great vehicle for saving.


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## MOXJO7282 (Oct 22, 2016)

Can someone please help me understand something. I don't see how a Roth IRA makes any sense for the vast majority of people.

Am I missing something? Don't most have a lower tax rate when they retire than when they're make peak salary? 

When I retire my salary is going to drop like a rock and isn't then when I should    look to have my profits taxed?


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## Kel (Oct 22, 2016)

Yes.  I contributed the max for my 457(b) for 21 years until I retired almost four years ago at 55.  My husband and I have both maxed out our Roth IRAs for 15 years and we are still contributing the max in retirement/semi-retirement.   Save what you can, payoff what you can, and spend less.

My husband is a General Contractor who worked hard for a lot of years and we rarely over extended our finances.  Although, I admit there were times (when times were really good) that we did spend a whole lot of money on a whole lot of stuff.  After this last recession we simplified, downsized and it made life a whole lot easier.   We have my pension with medical, three rental properties, retirement accounts, savings, my husband’s semi-retirement income  and no debt.  And, we are still SCUBA diving, snow skiing, kitesurfing, SUPing, timeshare traveling and RV camping a lot.  Life is good.


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## Jason245 (Oct 22, 2016)

MOXJO7282 said:


> Can someone please help me understand something. I don't see how a Roth IRA makes any sense for the vast majority of people.
> 
> Am I missing something? Don't most have a lower tax rate when they retire than when they're make peak salary?
> 
> When I retire my salary is going to drop like a rock and isn't then when I should    look to have my profits taxed?


Look up the median income of a family of 4 in the USA and the tax rate applied to that income.  



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## dioxide45 (Oct 22, 2016)

----Deleted by poster----


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## DavidnRobin (Oct 22, 2016)

^^^^ how is this not political commentary ? ^^^^
This is opinion... I could easily write converse of this, but will refrain as it would get deleted anyway.  

If I were to listen to the naysayers from 2009 - we would have missed doubling our retirement funds over this time period.

Bottom line is that Fed and State current and future tax rates have to be considered - and this goes for Roth and non-Roth. As well as potential for gains and losses based on investment risk.

Should one max their 401k?  Yes.


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## dioxide45 (Oct 22, 2016)

----Deleted by poster----


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## turkel (Oct 23, 2016)

I like the thought of the Roth and I max out my Roth too. But I will never have the amount of money in the Roth that will make a dent in my taxes or lifestyle. When I was married we rarely qualified for the Roth. Now that I am single and approaching 50 time is running out. At 6k a year it just isn't enough. The 24 k I can contribute in my 401k is making a dent.

My house will be paid for in 4 years if I can keep paying at my current rate which is 1k more a month than my actual payment. I have pretty lofty goals and a nurses salary only goes so far. Thank goodness I live in California and make a living wage. I considered myself blessed but I have to admit I am stretched this year. Saving outside my 401k and Roth is unrealistic for me. I consider the extra $$ I put toward my house to be the savings I can't touch or see!


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## SMHarman (Oct 23, 2016)

falmouth3 said:


> If your company has a match for your 401k, the best thing to do is to put in at least the maximum to get the full match.  It's free money.  Also, there are limits on your income to be eligible for a Roth IRA.  Check out the rules if you are a moderately high income individual, otherwise you'll take a financial hit.


This is where big company modern 401ks allowing the mega back door Roth come in.


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## geekette (Oct 23, 2016)

I have not yet made it to max'ing 401k.  I'm single with a mortgage, so I contribute up to match, then feed Roth, and plow as much as possible into paying off mortgage and fixing the place.  I plan to stay in the house during at least the early years of retirement and maybe decades.  

I don't get too bunched up about taxes, I hold accounts of various taxation to have as many options as possible.  The pre-tax 401k is helpful in the here and now so I can keep as much income as possible.  I'll max it a soon as I'm able, when the mortgage is retired.  I will fully fund Roth first, since I got started late.  I have no plans to convert 401k/IRA to Roth.  What I would pay in taxes to do that I would rather invest and deal with RMD when it comes.  Plenty of time to age 70 to tap IRA to not have too much RMD, although I don't consider having to take too much out to be a terrible thing.  Getting pushed into another tax bracket is not a big deal to me, since it's only dollars past that level that apply to new level.   I guess I'm not too worried about having too much income.  It's instead a problem I aspire to have.


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## WinniWoman (Oct 24, 2016)

dioxide45 said:


> Though if you compare a Roth IRA and a Roth 401k. The Roth 401k is probably a better option, as the contribution limits are the same as a regular 401k, which is much higher than a Roth IRA.



Not necessarily. With a Roth 401k you are required to take distributions at age 70 1/2. Not so with a Roth IRA.

http://www.bankrate.com/finance/retirement/roth-ira-401-k-what-s-the-difference.aspx


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## WinniWoman (Oct 24, 2016)

Kel said:


> Yes.  I contributed the max for my 457(b) for 21 years until I retired almost four years ago at 55.  My husband and I have both maxed out our Roth IRAs for 15 years and we are still contributing the max in retirement/semi-retirement.   Save what you can, payoff what you can, and spend less.
> 
> My husband is a General Contractor who worked hard for a lot of years and we rarely over extended our finances.  Although, I admit there were times (when times were really good) that we did spend a whole lot of money on a whole lot of stuff.  After this last recession we simplified, downsized and it made life a whole lot easier.   We have my pension with medical, three rental properties, retirement accounts, savings, my husband’s semi-retirement income  and no debt.  And, we are still SCUBA diving, snow skiing, kitesurfing, SUPing, timeshare traveling and RV camping a lot.  Life is good.



This is fabulous! The key, though, is you have a pension with medical. If we had that we would have been retired long ago also. Instead, many of us have to wait for Medicare and Social Security to kick in.


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## SMHarman (Oct 24, 2016)

I'm putting it back in here. Anyone healthy, with a HDHP should be maxing the HSA as a priority and investing that not using for medical.   

Tax benefits there are even greater.


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## PigsDad (Oct 24, 2016)

MOXJO7282 said:


> Can someone please help me understand something. I don't see how a Roth IRA makes any sense for the vast majority of people.
> 
> Am I missing something? Don't most have a lower tax rate when they retire than when they're make peak salary?
> 
> When I retire my salary is going to drop like a rock and isn't then when I should    look to have my profits taxed?



Roth IRA is an absolute no-brainer for my situation.  I max out my 401k, and because I have a company-sponsored retirement option (401k), contributions to an IRA are not tax deductible.  So for me, any contributions to either a Traditional or Roth IRA would involve after-tax dollars.  So putting them into a Roth, where the earnings will also be tax-free, is the most logical choice.

BTW, the only way I can contribute to a Roth IRA is via the "backdoor" method where I first contribute to a Traditional IRA, and then immediately do a Roth conversion of those funds to my Roth IRA.  Because I have no other tax-deferred Traditional IRAs, that Roth conversion is tax-free.

So bottom line, for me and people in a similar situation as me, making contributions into a Roth IRA is an excellent choice for contributions above and beyond my pre-tax 401k contributions.

Kurt


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## WinniWoman (Oct 24, 2016)

SMHarman said:


> I'm putting it back in here. Anyone healthy, with a HDHP should be maxing the HSA as a priority and investing that not using for medical.
> 
> Tax benefits there are even greater.



We max ours out but I am afraid to invest the money, so it stays in as cash. Our luck we would nee to use the money for medical expenses just as the market goes down.


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## SMHarman (Oct 24, 2016)

mpumilia said:


> We max ours out but I am afraid to invest the money, so it stays in as cash. Our luck we would nee to use the money for medical expenses just as the market goes down.


Then you use alternate sources of cash (if you have an alternate source of cash, or keep enough in cash to cover one years in network deductible) Point is that it has better tax benefits than a 401k.

Tax free contribution. 
Tax free growth. 
Tax free withdrawal for eligible expenses. 

If you just want the cash out then at 65 plus it is penalty free and works like a traditional 401k. 

Anything left at death is outside the estate so transfers free of IHT.


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## VegasBella (Oct 24, 2016)

SMHarman said:


> I'm putting it back in here. Anyone healthy, with a HDHP should be maxing the HSA as a priority and investing that not using for medical.
> 
> Tax benefits there are even greater.



My impression was that HDHPs aren't really a thing any more. We used to have an HDHP but the premiums skyrocketed after the insurance reforms. So we compared to lower deductible plans and decided to simply get a more comprehensive insurance plan for just a bit more than the compliant version of our HDHP.


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## lizap (Oct 24, 2016)

As you said, depends on your health state and other available plans/premiums. Many of us here are in our 50s and up; so HSAs are not as desirable. The risk of unexpected health care costs rises greatly as we age.



SMHarman said:


> I'm putting it back in here. Anyone healthy, with a HDHP should be maxing the HSA as a priority and investing that not using for medical.
> 
> Tax benefits there are even greater.


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## Brett (Oct 24, 2016)

MOXJO7282 said:


> Can someone please help me understand something. I don't see how a Roth IRA makes any sense for the vast majority of people.
> Am I missing something? Don't most have a lower tax rate when they retire than when they're make peak salary?
> When I retire my salary is going to drop like a rock and isn't then when I should    look to have my profits taxed?



true, most people have a lower tax rate after retirement but like others have indicated the earnings and distributions in a Roth IRA accumulate tax free and this applies to beneficiaries, first a spouse and then the children.  *This can potentially have tax free earnings and distributions for a hundred years !!!*
There's an excellent article about Roth IRA's in today's Wall Street Journal 10/24/2016


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## SMHarman (Oct 24, 2016)

lizap said:


> As you said, depends on your health state and other available plans/premiums. Many of us here are in our 50s and up; so HSAs are not as desirable. The risk of unexpected health care costs rises greatly as we age.


Yes, and available free cash. Part of my point here is you may be better off putting 12 in the 401k, 6 in the HSA.  

I'm younger but with a child with chronic medical conditions HDHP and HSA socks.  I'd love to follow this advice but my HSA is a cash pipeline not a pool where it can sit. 


VegasBella said:


> My impression was that HDHPs aren't really a thing any more. We used to have an HDHP but the premiums skyrocketed after the insurance reforms. So we compared to lower deductible plans and decided to simply get a more comprehensive insurance plan for just a bit more than the compliant version of our HDHP.


I wish. My employers 20,000 employees were all moved to HDHP only plans this year. Either with a 6500 or 3500 in network deductible and an 18k out of network!


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## lizap (Oct 24, 2016)

It's best to diversify with Roth and non-Roth investments. Impossible to predict future tax rates. However, individual income tax rates are historically low, especially for those in upper brackets.



Brett said:


> true, most people have a lower tax rate after retirement but like others have indicated the earnings and distributions in a Roth IRA accumulate tax free and this applies to beneficiaries, first a spouse and then the children.  *This can potentially have tax free earnings and distributions for a hundred years !!!*
> There's an excellent article about Roth IRA's in today's Wall Street Journal 10/24/2016


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## Ron98GT (Oct 24, 2016)

I have the Government equivalent of a 401K: a 457(b).  And yes, I max it out, including the catch-up: $36,000/year for the three years prior to retirement (May 2018 :whoopie.

https://www.irs.gov/retirement-plan...ee/retirement-topics-457b-contribution-limits


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## geekette (Oct 24, 2016)

VegasBella said:


> My impression was that HDHPs aren't really a thing any more. We used to have an HDHP but the premiums skyrocketed after the insurance reforms. So we compared to lower deductible plans and decided to simply get a more comprehensive insurance plan for just a bit more than the compliant version of our HDHP.



I'm on employer plans.  $40/mo is not skyrocket to me, but is more than I paid at the small company I left.  Sure, no copays, I pay full freight when I see doc for non-included visits, but there didn't used to be any free visits so I come out ahead.  The HSA seals it for me, and now I have an employer that contributes to it also.  HDHP is most definitely A Thing, but, for all matters insurance, depends on what is available in your area and how much shopping around one wants to do.


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## geekette (Oct 24, 2016)

lizap said:


> As you said, depends on your health state and other available plans/premiums. Many of us here are in our 50s and up; so HSAs are not as desirable. The risk of unexpected health care costs rises greatly as we age.



Well, sure, that's why you put it in and let it sit to use later.  I may never develop chronic illness, despite the risks that age brings.  I won't quit contributing to HSA as I get older (I am 50+) but I might start using the money vs let it grow if I have a pricey illness (I pulled from it once as PT is very expensive).  The joy of cheap premiums and medical money set aside is for me best of both worlds.  I have years of deductibles stashed away, what more peace of mind could I want?


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## SMHarman (Oct 24, 2016)

geekette said:


> I'm on employer plans.  $40/mo is not skyrocket to me, but is more than I paid at the small company I left.  Sure, no copays, I pay full freight when I see doc for non-included visits, but there didn't used to be any free visits so I come out ahead.  The HSA seals it for me, and now I have an employer that contributes to it also.  HDHP is most definitely A Thing, but, for all matters insurance, depends on what is available in your area and how much shopping around one wants to do.


Mine rolls in at 786 a month for a family. But that's the rate for all our plans.


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## WinniWoman (Oct 24, 2016)

SMHarman said:


> Yes, and available free cash. Part of my point here is you may be better off putting 12 in the 401k, 6 in the HSA.
> 
> I'm younger but with a child with chronic medical conditions HDHP and HSA socks.  I'd love to follow this advice but my HSA is a cash pipeline not a pool where it can sit.
> 
> I wish. My employers 20,000 employees were all moved to HDHP only plans this year. Either with a 6500 or 3500 in network deductible and an 18k out of network!



Same with my husband's employer. No choices but 2 HDHP plans with high deductibles and out of pocket costs, and worse for out of network.


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## turkel (Oct 24, 2016)

SMHarman said:


> I'm putting it back in here. Anyone healthy, with a HDHP should be maxing the HSA as a priority and investing that not using for medical.
> 
> Tax benefits there are even greater.



This isn't an option for me. I am one of the rare people that have a Cadillac health plan. Costs nothing for me + 2 kids, and $5.00 co pays. Company values these benefits in the 20 k range. Ouch. ( and outrageous in my opinion).

Of course the kids and I are healthy so we rarely use these benefits. I am not gonna be too happy when I have to pay taxes on these benefits. (Not intended to be a political statement).


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## geekette (Oct 24, 2016)

turkel said:


> This isn't an option for me. I am one of the rare people that have a Cadillac health plan. Costs nothing for me + 2 kids, and $5.00 co pays. Company values these benefits in the 20 k range. Ouch. ( and outrageous in my opinion).
> 
> Of course the kids and I are healthy so we rarely use these benefits. I am not gonna be too happy when I have to pay taxes on these benefits. (Not intended to be a political statement).



Yes, rare.  I have had a lot of jobs and never a paid health plan.  Paying tax on the benefit is better than footing the bill for the benefit.  I'd say you come out well ahead.  Not political, financial.


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## turkel (Oct 25, 2016)

I admit that it is rare to have full paid coverage but since I work for the HMO I have less "choices" than employees that have a choice of plans through their employer.

I truly can't imagine a family of 3 paying over 20 k a year just for health insurance. The thought of being taxed on this benefit is quite frankly ludicrous insurance premiums if memory serves me correctly were deducted on a pretax basis. I will be taxed on money I don't ever receive. Makes a high deductible plan in which you can save money and taxes look even more attractive to a healthy family.

As a nurse I can tell you this is the first hospital I have worked for in 26 years that offers coverage from date of hire. All others had a 3 to 6 month waiting period prior to getting any coverage. Now that was ridiculous.


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## Cyberc (Oct 25, 2016)

Hi

I'm not from the US, but from Denmark.

How much money is it expected that you save up, one way or another for your retirement in the US?

I expect it is different from person to person, but are there a rule of thumb?

Here in Denmark some "experts" says that you need to save up 4-5 mio DKK before taxes thats a 580.000$ - 730.000$ this includes both your own savings but also the interests and the return of investments from the pension company.


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## Jason245 (Oct 25, 2016)

Cyberc said:


> Hi
> 
> I'm not from the US, but from Denmark.
> 
> ...


Big investment banks recommend at least 10 times your salary in order to maintain your standard of living in retirement.  

Sent from my SAMSUNG-SM-N910A using Tapatalk


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## geekette (Oct 25, 2016)

turkel said:


> The thought of being taxed on this benefit is quite frankly ludicrous insurance premiums if memory serves me correctly were deducted on a pretax basis. I will be taxed on money I don't ever receive.



It's like a company car - instead of giving you the money they gave you the benefit.  Folks that walk away from their mortgage are taxed on the forgiven loan, as if they received the money to pay it off.  Income requires taxation.  Even what seems to be intangible income because the benefit is real; someone paid it on your behalf and you get to enjoy it.  

Everyone has a choice and you could change jobs to be back to a premium from pay vs fully paid.  Cost vs benefit is something we all have to evaluate for ourselves.    Given that it seems you aren't thrilled with the health plan, I can see how you feel irritated.


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## geekette (Oct 25, 2016)

Cyberc said:


> How much money is it expected that you save up, one way or another for your retirement in the US?


This varies by who you ask.  As with most things in life, there is no one size fits all.  

Since my plan is living off of dividends, I'll retire when that income is sufficient vs attempt to amass a certain amount in nest egg.  There aren't a lot of us going that route but it is suitable to me and my situation.  Many others are shooting for being able to sell 4% of nest egg to start out and have that first year be the baseline income from investments.

For most people, there is no One Number to aspire to.  It has to do with your retirement expenses and working salary, and pension, if entitled to one.  It's not reasonable to expect a CEO's savings goal to be same as retail mgr, and it's unlikely they would have the same post-work expenses.


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## sue1947 (Oct 25, 2016)

MOXJO7282 said:


> Can someone please help me understand something. I don't see how a Roth IRA makes any sense for the vast majority of people.
> 
> Am I missing something? Don't most have a lower tax rate when they retire than when they're make peak salary?
> 
> When I retire my salary is going to drop like a rock and isn't then when I should    look to have my profits taxed?



This is exactly what I used to think.  However, the Required Minimum Distribution at 70.5 can bump you up.  The amount required is based on your IRA's so if you have saved well over the years, it can end up being enough to bump you up into the higher tax bracket.  For me, it will put me into a tax bracket that will match the highest I paid in my working career.  If I had taken advantage of the Roth more when I was a young teacher, I would be better off now.  However, I'm not complaining.  It's a good situation to be in.  As a result of saving early and a thrifty lifestyle, I was able to retire early and do what I enjoy including travel.  I have several friends who gripe about the RMD, but it's better than not having enough to live of and needing to get a job at age 70+.
There are so many variables so it is best to run the numbers for your situation using your best guess.   Speaking from the advantage of hindsight, save as early as possible and take advantage of as many tax advantaged options as you can.  

Sue


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## VacationForever (Oct 25, 2016)

Cyberc said:


> Hi
> 
> I'm not from the US, but from Denmark.
> 
> ...



Your last sentence has the word pension.  Pension constitutes part of your income.  So depending on how large is the pension amount and if it is large enough to cover expenses, then one does not require additional savings.  You need to figure out the expenditure amount in retirement and work backwards, first deduct off pension income and the gap is what savings will need to fund.  If you are conservative, you need 33.3 times of that amount in savings, which is based on 3 percent withdrawal, or 25 times, based on 4 percent withdrawal.


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## VegasBella (Oct 25, 2016)

SMHarman said:


> Mine rolls in at 786 a month for a family. But that's the rate for all our plans.



Ours is similarly priced. We're self-employed so no employer plans. We shop and choose based on a number of factors. None of the high deductible plans make much sense even though we're healthy etc. They just tend to cost about the same as the plans with much lower deductibles. 




Cyberc said:


> How much money is it expected that you save up, one way or another for your retirement in the US?
> 
> I expect it is different from person to person, but are there a rule of thumb?


I don't know if there's a real rule of thumb. I know that there are formulas that 'financial advisers' use to convince you to give them your money.

For us, we talk with our accountant about tax issues and then at tax time we contribute to our accounts. Earlier when I said we calculated it and it wasn't nearly enough - we just used an investment calculator to estimate the amount we'd have at retirement age if we kept contributing the same as we've been contributing and then we looked at that number and said, "hmm, that's probably not enough." We based that on how we currently spend and judging by our mothers' retirement needs and being conservative in our estimate of annual return (seems crazy to me to use 10% - way too high).

I also think it's a bit silly to assume that the only way to view taxes is to think about income. Although we all likely have higher incomes before retirement than after that doesn't necessarily mean our tax rate will be lower in retirement. There is plenty of reason to believe that tax rates will increase significantly enough in the future that the tax rate on our lower retirement income may be the same or higher than our current tax rates. It all depends on many factors, but we shouldn't be making any assumptions about the future.


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## Elan (Oct 25, 2016)

If I read the RMD tables correctly, it looks like for every $1M one has in their IRA, they'll have to withdraw roughly $36K/yr starting at age 70.  

  I must also be missing something, because saving $1M on a $36K salary would be pretty impressive.  $36K currently puts one in the 15% federal tax bracket.  

  Someone help me out here.............


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## Jason245 (Oct 25, 2016)

Elan said:


> If I read the RMD tables correctly, it looks like for every $1M one has in their IRA, they'll have to withdraw roughly $36K/yr starting at age 70.
> 
> I must also be missing something, because saving $1M on a $36K salary would be pretty impressive.  $36K currently puts one in the 15% federal tax bracket.
> 
> Someone help me out here.............


Help you out how?

Sent from my SAMSUNG-SM-N910A using Tapatalk


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## am1 (Oct 25, 2016)

Like I said earlier it is very complicated.  

How much is taken off by the top financial advisors or left on the table by people not know what they are doing, or money subsidized by the government? 

This cannot me the most efficient way to save for retirement.  

Are retirement accounts protected from bankruptcy and lawsuits?  Should they be?


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## SMHarman (Oct 25, 2016)

am1 said:


> This cannot me the most efficient way to save for retirement.
> 
> Are retirement accounts protected from bankruptcy and lawsuits?  Should they be?


It's not but think of all the lovely fees on those AUM.  

Yes pension funds in pension and 40n plans are protected in bankruptcy of the individual. 

Though look at enron and see how the assets in the fund can be decimated (in the true sense of the word) in corporate bankruptcy. 


Elan said:


> If I read the RMD tables correctly, it looks like for every $1M one has in their IRA, they'll have to withdraw roughly $36K/yr starting at age 70.
> 
> I must also be missing something, because saving $1M on a $36K salary would be pretty impressive.  $36K currently puts one in the 15% federal tax bracket.
> 
> Someone help me out here.............


Add in your SS payment / income. That's taxed.  Now you are moving through the tax bands.


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## turkel (Oct 25, 2016)

geekette said:


> I'm on employer plans.  $40/mo is not skyrocket to me, but is more than I paid at the small company I left.  Sure, no copays, I pay full freight when I see doc for non-included visits, but there didn't used to be any free visits so I come out ahead.  The HSA seals it for me, and now I have an employer that contributes to it also.  HDHP is most definitely A Thing, but, for all matters insurance, depends on what is available in your area and how much shopping around one wants to do.



The plan is good, no complaints, love my job. But for comparison sake you pay $40/month pretax. I will be taxed on $1851.28/month or over 22k in additional income a year. And I am not in a low tax bracket before this addition. It's gonna hurt


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## Elan (Oct 25, 2016)

SMHarman said:


> Add in your SS payment / income. That's taxed.  Now you are moving through the tax bands.



  Adding in another $36K in SS income bumps total up to $72K.  So that's now the first $37.5K at 15% and the next $34.5K at 25%.  So, roughly, a 20% tax bracket for retirement income.


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## Elan (Oct 25, 2016)

Jason245 said:


> Help you out how?
> 
> Sent from my SAMSUNG-SM-N910A using Tapatalk



  In thinking that one has to have savings disproportionate to salary to have a higher tax bracket in retirement than than they do while working.


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## SmithOp (Oct 25, 2016)

Elan said:


> Adding in another $36K in SS income bumps total up to $72K.  So that's now the first $37.5K at 15% and the next $34.5K at 25%.  So, roughly, a 20% tax bracket for retirement income.





Thats for a single person and you forgot standard or itemized deductions and personal exemption, taxes are assessed after deductions.  There could also be tax credits.


Sent from my iPad using Tapatalk


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## Jason245 (Oct 25, 2016)

Elan said:


> In thinking that one has to have savings disproportionate to salary to have a higher tax bracket in retirement than than they do while working.


Depending on how you manage it.. saving 4k a year for 47 years at 6 percent equals  over 1 million.  Not hard.  Just start when you are 20.. all of a sudden someone making 36k is a millionaire and has 40 to 50 k of interest coming a year.. no home interest deduction,  no dependents so std deduction comes into play..  add in social security and all of a sudden they have 60k per year in retirement income available as compared to the 36k a ear they were earning.  

Sent from my SAMSUNG-SM-N910A using Tapatalk


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## Elan (Oct 25, 2016)

SmithOp said:


> Thats for a single person and you forgot standard or itemized deductions and personal exemption, taxes are assessed after deductions.  There could also be tax credits.
> 
> 
> Sent from my iPad using Tapatalk



  Yes, I was keeping it simple to illustrate the point.  Too many variables to cover them all.


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## Elan (Oct 25, 2016)

Jason245 said:


> Depending on how you manage it.. saving 4k a year for 47 years at 6 percent equals  over 1 million.  Not hard.  Just start when you are 20.. all of a sudden someone making 36k is a millionaire and has 40 to 50 k of interest coming a year.. no home interest deduction,  no dependents so std deduction comes into play..  add in social security and all of a sudden they have 60k per year in retirement income available as compared to the 36k a ear they were earning.
> 
> Sent from my SAMSUNG-SM-N910A using Tapatalk



  I'm not saying it's not possible, just that it's not likely for most.  

  The RMD on an IRA worth $2.5M still places one in the 25% (or 3rd lowest) tax bracket.


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## geekette (Oct 25, 2016)

turkel said:


> The plan is good, no complaints, love my job. But for comparison sake you pay $40/month pretax. I will be taxed on $1851.28/month or over 22k in additional income a year. And I am not in a low tax bracket before this addition. It's gonna hurt



We are apples and oranges apart, indeed, but I insure only me, while I think you insure Family?  I work for a provider, you work for an insurer (HMO?)  Your visits are cheap or free, outside of preventive, I am paying full freight.  I have the option the PPO plan with copays and more expensive premiums but I am generally healthy and want the increased coverage in case of really bad stuff.  

I think there is point at which you get screwed, which is somewhere above my single person max out of pocket and your 22k.  Presumably you fund every tax shelter you have access to as I'm not sure how else to defray it.  At least you have some peace of mind that what would cost me thousands in hospital stay to out of pocket max would be nothing for you to worry about, it's covered, go on and look after your loved one with no money problems.  I don't worry because of HSA but out of pocket max is a creepy large number keeping me looking both ways before crossing the street! 

In theory you could bypass company insurance and find cheaper but not sure the peace of mind factor holds?


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## VacationForever (Oct 25, 2016)

Elan said:


> Adding in another $36K in SS income bumps total up to $72K.  So that's now the first $37.5K at 15% and the next $34.5K at 25%.  So, roughly, a 20% tax bracket for retirement income.



For what is considered high income, 15% of SS is non-taxable.  For low income, a larger chunk of SS is non-taxable.


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## geekette (Oct 25, 2016)

Elan said:


> I'm not saying it's not possible, just that it's not likely for most.
> 
> The RMD on an IRA worth $2.5M still places one in the 25% (or 3rd lowest) tax bracket.



Agree on possible, I began investing when I made much less than 30k and was under age 30.  Agree on not likely for most.  Many cannot keep their hands off retirement savings or feel like playing casino with it.

not so much response to you, Elan, but generally to the crowd:
The RMD thing is just a little weird to me -- if people fear the RMD so much, the taxation, that is, move money out before the RMD.  There is a solid decade in which to do so, from 59.5 to December of The Year In Which One Turns 70.5.  If it's so heinous to pay taxes on RMD, then do it as Roth conversion ahead of time instead.   

I'm not sure what everyone else has planned, but I'm living off of my nest eggs.  Having to take more out than I need is not a bad thing, especially if one has had the tax shelter over 50 years!  The piper has to be paid sometime, no tax shelter is forever.  

I don't know what the tax brackets will be, have not ever bothered to care what they are currently,  and won't care at retirement.   I plan to enjoy retirement and pay what I owe, when I owe and not be upset about having too much coming out of IRA.  I live life, taxes fall where they may.  

I can always do in-kind right over to taxable portfolio, stepping up the cost basis and keeping the companies I like and letting the divvies continue to roll.  It's all good, considering the decades of untaxed growth I get to benefit from, even on employer money.  Yeah, earnings on free money growing for decades and I have to eventually pay tax on it?  It will take a lot more than that for me to be upset about cracking it out of shelter.  Even 90% tax rate on free money sitting there for 30 years ... I can't even find the short end of the stick...  the math is very very good to me even if crazy tax rates visit.

I get that I'm in the minority on this, but to me it is a success tax.  I wouldn't be paying it if the dough wasn't the 3-4% calc'd RMD of assets at 12/31.  Wouldn't taking out more than you wanted allow plenty of room to pay the tax out of it and have remainder for whatever purpose?  I have never turned down a raise at work because it meant I would pay more in taxes.  It's difficult for me to understand how more from IRA to my pocket is not better, even tho the more may have a larger tax obligation.  Still there is remainder from the dollar taxed higher than the previous dollar taxed lower.    There won't be more bottom line $ in tax than there is $ removed from account.  

What is the big problem I seem to be missing?  Why are people so freaked out about tax brackets?   Why is the first dollar over the line to be so avoided?


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## Elan (Oct 25, 2016)

geekette said:


> What is the big problem I seem to be missing?  Why are people so freaked out about tax brackets?   Why is the first dollar over the line to be so avoided?



  I don't sweat taxes either.  It is what it is.  I was simply attempting to point out that for most folks, their retirement income will place them in a lower bracket than their working income.  Or certainly not higher.  Of course, there will be exceptions.  I've done a decent job saving (max 401K, contribute to IRA and HSA, etc) on a pretty decent wage, and I won't have anywhere near the retirement income that I do now, working.  

  My retirement "plan" is to adjust my lifestyle to fit my income.  I'm not a big "needs" guy, so it will be easy.  If I have money falling out of my pockets, I might travel the world, play Pebble Beach and drive a Land Rover.  If I don't, I'll travel my home state, play the local muni and drive an F150.  It's all good, either way.


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## Jason245 (Oct 25, 2016)

geekette said:


> Agree on possible, I began investing when I made much less than 30k and was under age 30.  Agree on not likely for most.  Many cannot keep their hands off retirement savings or feel like playing casino with it.
> 
> not so much response to you, Elan, but generally to the crowd:
> The RMD thing is just a little weird to me -- if people fear the RMD so much, the taxation, that is, move money out before the RMD.  There is a solid decade in which to do so, from 59.5 to December of The Year In Which One Turns 70.5.  If it's so heinous to pay taxes on RMD, then do it as Roth conversion ahead of time instead.
> ...


1st world problems.. 

Sent from my SAMSUNG-SM-N910A using Tapatalk


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## sue1947 (Oct 25, 2016)

geekette said:


> What is the big problem I seem to be missing?  Why are people so freaked out about tax brackets?   Why is the first dollar over the line to be so avoided?



No freaking out, just pointing out all the various issues that need to be taken into account.  Those who paint things as all black and white; i.e. only do traditional IRA vs Roth etc are missing the point.  There are lots of variations because we have so many variations of jobs, incomes etc that will impact planning.  The old thinking was that post-retirement would be less income and lower taxes.  However, that isn't always true.   I am offering advise based on my experience and with my post-retirement hindsight.  I am rolling over as much as I can into a Roth, but can't do enough before I hit 70.5.  It would have cost me less in the long run if I had done more Roth when I was younger.   Your situation may be different but it's worth running the numbers to see what is best and ignoring those who think they know what's best for someone else.  
I am offering my perspective; take it or not, it's up to you.  Financial planning is not a once size fits all issue.  There is plenty of 'conventional wisdom' that works for some but may not work for you.   If I had followed 'conventional wisdom' I'd still be stuck in a job I hated because I would think I didn't have enough to retire.  Ten years into retirement, I beg to differ.  

Sue


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## geekette (Oct 26, 2016)

sue, agree with everything - there is no one size fits all, conventional wisdom has not kept up with current worker realities, etc., and especially about the black and white.  There is a lot of gray to consider!


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## 1Kflyerguy (Oct 26, 2016)

I max out my 401K, plus the catch-up contribution now that i am over 50.  We had stop funding our IRA while our son was in school, but we back maxing those out as well.

My company is offering an after-tax 401k option starting in 2017, i need to figure that out.   It sounds good, but not sure how much more i can handle cash flow wise..


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## PGtime (Oct 26, 2016)

Elan said:


> I don't sweat taxes either.  It is what it is...
> 
> My retirement "plan" is to adjust my lifestyle to fit my income.  I'm not a big "needs" guy, so it will be easy.  If I have money falling out of my pockets, I might travel the world, play Pebble Beach and drive a Land Rover.  If I don't, I'll travel my home state, play the local muni and drive an F150.  It's all good, either way.



This where I am too.  I max my 401K, and add in my pension when I look at my future retirement projections a couple of times per year.  And meet with a trusted financial planner from time to time to try to stay on track.

Paul


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## Elan (Oct 26, 2016)

1Kflyerguy said:


> It sounds good, but not sure how much more i can handle cash flow wise..



That's the other thing.  Everyone can preach about "maxing out" this or that, but by the time one maxes out 401K, IRA, HSA and 529's etc, etc, etc, there still has to be enough cash flow to put food on the table (and have some fun along the way  ).


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## SMHarman (Oct 26, 2016)

Elan said:


> That's the other thing.  Everyone can preach about "maxing out" this or that, but by the time one maxes out 401K, IRA, HSA and 529's etc, etc, etc, there still has to be enough cash flow to put food on the table (and have some fun along the way  ).


So true, I think this will be the first year I'm a while I'm not, but the mortgage principal is also down by many thousands.


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## Elan (Oct 26, 2016)

SMHarman said:


> So true, I think this will be the first year I'm a while I'm not, but the mortgage principal is also down by many thousands.


Just to do something different, I paid my house off earlier this year.  So, that's my other retirement "ace in the hole"; the ability to downsize and/or relocate and pocket a few hundred thousand from the house sale.  

Sent from my Nexus 5 using Tapatalk


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## geekette (Oct 28, 2016)

Elan said:


> Just to do something different, I paid my house off earlier this year.  So, that's my other retirement "ace in the hole"; the ability to downsize and/or relocate and pocket a few hundred thousand from the house sale.



Congrats!

I have been reasonably aggressive in the paydown but have been slowed by needing HELOC for major repairs the past few years.  Once the mtg is paid off, I can be more aggressive in other investments (Roth is the only "Fully Fund Annually" at this point), with the plan of having no mortgage and HELOC available for credit if needed when retired.  Ins and taxes are cheap enough to stay put in at least the early years of retirement and the ability to sell and walk with cash when/if I want to.  

I'm trying to strike the right balance in improving the place, paydown, maintaining cash savings at appropriate level and investing.  The recipe changes almost monthly, as prop taxes are due now, ins is due now, maint fees for one ts due now, next ts mf next month ...  Oct and Nov are the most expensive months for me so contributions to investment accounts slow.    Except 401k, which I always keep at match level, and sometimes amp up for the last 2 paychecks of the year just to tamp down my income tax liability a bit more.  

When the mtg is gone, it's going to be a lot easier to feed the investment accounts at higher levels than happens now.


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## turkel (Oct 28, 2016)

Elan said:


> Just to do something different, I paid my house off earlier this year.  So, that's my other retirement "ace in the hole"; the ability to downsize and/or relocate and pocket a few hundred thousand from the house sale.
> 
> Sent from my Nexus 5 using Tapatalk



This has always been a primary goal for me. There is no way I can ever retire if I still have a house payment. I pay an extra 1 k a month on my mortgage 4 years left at this rate. I can't wait!

I don't ever plan to sell. I might rent it out since the income generated would be like having a small pension.


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## Conan (Oct 28, 2016)

A couple of points about IRA and 401k that I think haven't been mentioned here yet:

1.  Because everything in your (non-Roth) IRA and 401k comes out as ordinary income, it's better to buy stocks and municipal bonds in your personal non-IRA non-401k accounts and buy the taxable bond portion of your portfolio in the (non-Roth) IRA and 401k.  

2.  If you're self-employed, you can put much more into a self-employed 401k plan.  It takes a net business profit of about $195,000 to generate the maximum $59,000 tax-deductible contribution for someone over age 50. If you have more profit than that and you're married, you can also contribute for your spouse, so a married couple with about $390,000 of net business profit can contribute and deduct $118,000.  Those are the maximums - - if you have $100,000 of self-employment net business profit and you're over age 50 you can contribute and deduct about $40,000. https://personal.vanguard.com/us/SbsCalculatorController


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## WinniWoman (Oct 28, 2016)

We paid our house off after the market crash after the World Trade Center bombings. Our technology fund sank to an amount that was the equivalent of our mortgage pay off. Rather than lose any more money, I decided to take it and pay off the mortgage. Best thing we ever did. We have been mortgage free all this time now. 

Too bad our property and school taxes in NY have skyrocketed to what is like a mortgage payment now.


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