Originally Posted by Schwanker
(Post 2625845)
Apples to apples my friend. Starting with same amount. Question was when to pay the taxes. It took $100,000 income to invest $70,000 to the Roth in the given example. It also took $100,000 to invest $100,000 in traditional. Not going to quibble. Just the facts if you are interested in an honest comparison. I was simply responding to your post below as the numbers don’t support it.
“Because while you are paying a higher rate now, it is on a much smaller sum of money. After 20-30 years of steady investing the vast majority of money in your account will be growth, not what you actually put in. All that growth money is tax free at a cost of paying taxes on a much smaller amount up front.” All that growth money is also much smaller. Again, it’s a wash at the same tax rates. |
WRT, traditional vs roth...it's a tough call and is really a crapshoot. Who knows what taxes will look like in the future, look back at the history of taxes in the 1950s-1970 and you'll see some ridiculously high tax rates. Will we end up back there...who knows? Heck they may even try to tax Roth monies down the road... If that happens, you might be better to invest in gold, guns and bullets. :eek:
Like others have said, I like the Roth IRA option because ease of retirement/estate planning. I figure I'll have quite a bit of traditional 401k via the companies contributions, so I'd like to have some Roth IRA money. Also, I plan to plus up my IRA money so I can use a SDIRA to invest in real estate. I don't like the idea of having so much of my money in the stock market, so this is my way of diversifying. This is great stuff.
Originally Posted by m3113n1a1
(Post 2625812)
Thank you. I wonder why 401a isn't subject to the same individual limits as 401k (traditional and roth)...
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Originally Posted by tennisguru
(Post 2625831)
You're looking at someone investing 65k per year vs someone investing 100k per year. The reality is people put the exact same amount in (the max) regardless of whether it's traditional or Roth.
Let's assume you are in the 35% tax bracket. If you invest $18,500 in a roth 401k, you first have to pay taxes on the $18,500, so you only get to invest $18,500 * 0.65 = $12,025. Investing $18,500 in a roth 401k costs you $18,500 / 0.65 = $28,461.54. If you want to compare apples to apples, you would have to look at investing $18,500 in a roth 401k vs. investing $18,500 in a traditonal 401k and an additional ($24,461.54 - $18,500) * 0.65 = $3,875 in a non tax advantaged account. Once again, it is critically important that people understand this, and it is apparent that many in this thread do not understand this simple math. |
Originally Posted by tennisguru
(Post 2625834)
Also, as you mentioned the 12% tax bracket only goes up to a little over 75K of income (100k with deductions) and someone used to earning 400k+ a year and with 5-7 million in retirement income it's probably not going to live on that small of an income stream,-so realistically they will be at least in the 20% bracket if not higher, as some people have already mentioned. A lot of retirement advisers recommend planning on a 4% withdrawal rate. 4% of 5 million is 200k/yr.
Let's assume a married pilot makes $339,000 per year. His top marginal tax rate is 24%. ($315,000 + $24,000 = $339,000) It is important to note that the first dollar contributed to a traditional 401k gets him the full 24% income tax deduction, and the first $24,000 taken out of a traditional 401k in retirement is taxed at 0%. The next $19,050 ($24,000 + $19,050 = $43,050) is taxed at 10%. The next $58,350 ($43,050 + $58,350 = $101,400) is taxed at 12%. The next $87,600 ($101,400 + $87,600 = $189,000) is taxed at 22%. $189,000 / 0.04 = $4,725,000 That pilot's tax burden in retirement from traditional 401k distributions is $24,000 * 0 + $19,050 * 0.10 + $58,350 * 0.12 + $87,500 * 0.22 = $28,157. $28,157 / $189,000 = 14.9% |
Originally Posted by mispoken
(Post 2625865)
"For someone who is presently in the 35% tax bracket and expects to be in the 12% tax bracket in retirement ($77,400 + $24,000 = $101,400 per year in the 12% tax bracket)."
This is doable provided you have Roth money to live off of. Otherwise, if it's all traditional funds, by the time you hit retirement the RMDs on your account SHOULD far surpass that and force you into a much higher tax bracket. It's all about control of my money in retirement. It's worth pointing out that you can use traditional to roth conversions in retirement to decrease your tax liability. To the more general point of people talking about retiring with $5M or more, unless you have a strong desire to leave a bequest (which I completely understand) or you want to live an extremely lavish lifestyle in retirement (to each his own), I don't understand the point of working to build up that large of a nest egg. I invest over half of my net income, and I feel like I have fantastic quality of life. My current plan is to either retire completely, or bid right seat of a widebody and fly one trip a month once I hit $2.5M. I can live a life of luxury on a beach in Thailand for less than $101,200 a year. |
Here's an even more basic question, how do I set up a 401a with Fidelity?
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Originally Posted by Tummy
(Post 2626022)
Fair enough. My rates were rather arbitrary. I think I gave a better response to tennisguru the second time.
It's worth pointing out that you can use traditional to roth conversions in retirement to decrease your tax liability. To the more general point of people talking about retiring with $5M or more, unless you have a strong desire to leave a bequest (which I completely understand) or you want to live an extremely lavish lifestyle in retirement (to each his own), I don't understand the point of working to build up that large of a nest egg. I invest over half of my net income, and I feel like I have fantastic quality of life. My current plan is to either retire completely, or bid right seat of a widebody and fly one trip a month once I hit $2.5M. I can live a life of luxury on a beach in Thailand for less than $101,200 a year. |
Originally Posted by Sputnik
(Post 2626023)
Here's an even more basic question, how do I set up a 401a with Fidelity?
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Originally Posted by Sputnik
(Post 2626023)
Here's an even more basic question, how do I set up a 401a with Fidelity?
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Originally Posted by Gunfighter
(Post 2626104)
First make sure you know WHY you are doing it and have an understanding of the rules and tax implications. The option is already there in the Delta plan. Login to your Fidelity account - Contributions and designate how you want the money split. There is a 401a section in the mix of options. Once the money is in there, you call Fidelity, move to Traditional IRA and convert to Roth, assuming that is your plan.
The TIRA to Roth is what you need to do to make your contribution to the Roth IRA outside of the DPSP ($5500/yr or $6500 of over 50) |
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