"Jim" wrote in message
...
nom=de=plume wrote:

"Jim" wrote in message


Bad advice. With catch-up he can put $22k this year in the 401k.
He should be maxing that to shelter it from taxes.

Nope. Right now, taxes are low, so it's doubtful that a it'll push him
into a higher bracket, and even if it does, you're talking about a couple
of percent. The future is much more uncertain, but it's very clear that
taxes will likely go up, and as a retired person, he should be minimizing
his tax exposure.


From what he's said he's in the 25-28% range already.
Why do you suppose he'll be in a higher bracket when retired?
The flies against most experience.

Unless he's right at the line, he won't be bumped to a higher one. He won't
be taxed at a higher rate, but he'll be withdrawing much less if he wants
his money to last. So, what comes out will be taxed.

So, let's say he's making $120K filing a joint return. We'll use the current
tax table. That's near the top end of the 25% range. He'd have to earn more
than $17K to put him into the next range, and he said that his employer does
some matching. Worst case he'd pay another 3%, assuming the same deductions,
etc. So, just quick figures means paying $39.2K vs. $30K (diff is $9.2K).

Now let's look at what he will be withdrawing after he retires. What's a
reasonable number? No idea, but let's say $75K (about $25K from SS). So,
$50K of taxable income. At the current rate, that's 15%, which means after
tax money is $42.5K. Not too bad, but can he live on it? Let's say yes.
You're giving the gov't at least $7500/yr, and it's likely that the 15% is
not going to be 15% in 15 years. It's going to be higher, almost certainly.

On the other hand, let's just take the $17K and put that it into a
non-taxable insurance plan. $17K x 15 years = $255K plus a modest rate of
return, say 6%. He'd have something on order of $400K cash surrender value.
He's now 70 and stops paying the premiums. The longer he waits before
withdrawing money, the bigger the surrender value grows.

Now, let's look at when he starts withdrawing money. He could pull out
$50K/yr for quite a while, have use of more of his money, and still have a
cash surrender amount available for the last years of his life. His heirs
would still get a decent chunk upon his death.

Even if it's money market with no return.

?? That makes no sense at all.

Pretty simple. You can't lose your contribution money as you could in
equity funds.
Remember, this is retirement money.

And you're earning hardly anything or nothing? Seems like a bad deal except
for a mad money source.


The feds won't let MM go below par because the economy would collapse.
That tax savings is money in the bank.

?? There tax savings of investing in a 401K is minimal at this point.


Don't know what you're talking about there.

I don't understand what you meant by "tax savings" is money in the bank.
What tax savings?


Maybe about 5 grand for him.
When he takes it out upon retirement he'll be in a lower or no-tax
bracket.

Actually, that's doubtful and thee money he'll be taking out will be much
less than he's likely to be used to living on. By putting money into
something that basically gives you back your own money, you can take it
tax free and mitigate what will have to come out of your 401k/ira and be
taxed.


Not doubtful at all. It's all very simple.
Put $22k in the 401k and pay no taxes on it.
Or don't and give the feds 25% ($5500.)
That's not financial advice, and it's not voodoo economics, or financial
adviser mumbo jumbo.

But, as I said, you'll have to pay the taxes at some point. See above.

It's plain old taxes that anybody can quickly test with TurboTax or tax
tables.
He didn't spend $22k and he didn't pay $5500 in taxes on it.
That's $27,500 more he has for retirement - at a lower tax rate too.
Nothing could be simpler.

Not necessarily at a lower rate, and he won't be getting that much to live
on.

Save, save, save. Then you die.

Amend this with, save, save, save, spend, spend, spend, die, get a death
bene for your heirs.

Or you could gamble with equity funds. But don't cry about it.

Jim - Financial whiz kid. Hey, I ain't broke or complaining.

I'd suggest talking to a qualified financial advisor who gets a fee vs. a
percentage, and not listen to me or anyone else on this newsgroup. I also
wouldn't rely on "fund" managers. They've got an axe to grind also.


You don't need to pay a financial adviser to make simple risk decisions
for you. None of this is rocket science.

You'd rather have him listen to someone on Usenet? Professionals are
professionals. They have lots of suggestions.

The way he talks he listened to people who told him Wall Street equity
mutual funds were a sure way to get rich.
So he got suckered.
But since he's part of the "middle class" he can probably do simple math
and see the tax savings in maxing 401k contributions at his stated
income level, which I think was about $150k.


Jim - Surprised I'm having trouble getting this understood.

If he's making $150K that would mean he's already in the 28% range, and he'd
really have to boost his income to get into the next bracket.

I understand you perfectly, but I don't think you understand the tax
benefits of paying now vs. paying later. That's the Roth idea, except this
one would give him a guaranteed income (vs. at the whim of the market) and a
death benefit.