Do you max out your 401k?

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?

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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?

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.

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

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.

Elan · Oct 25, 2016

Jason245 said:
Help you out how?

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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.

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.

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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.

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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.

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

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.

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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.

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?

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.

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?

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.

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.

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?

1st world problems..

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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

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!

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..

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

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

).

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.

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.

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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.

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.

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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! :banana:

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

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

Do you max out your 401k?

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