BoatBanter.com - ah, yes, the latest on my company 401K

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

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).

No. Let's say he runs his actual income through a tax program with and
without maxing his 401k, and sees the difference in the wealth he has
locked into the 401k money market, which is the only part of a 401k
that has a glimmer of guaranteeing his contributions.

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.

You're speculating about future taxes with no basis for the speculation.
But you're a speculator.

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.

6% "modest?" Where have you been? All of these investment/retirement
vehicles are based on equity indices or government paper.
The latter type might be safer, but forget about 6%.
Besides that, you're paying billionaire insurance company execs to buy
government paper you can buy yourself.
TIPS should be looked into too. Treasurydirect.gov Inflation beater.

snip

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.

Money markets provide some return. I have some money in one that pays
1.3%
But I repeat, if your listening.
Many people have LOST their actual contributions into equities.
LOST THEIR RETIREMENT MONEY. DIRECTLY FROM THEIR PAYCHECK.
This comes down to philosophy about what income is desired in
retirement, risk and sacrifice.
bpuharic has already suggested he can't max his 401k because of expenses.
He's 55, making a good buck, and can't max his 401k?
Tough. He's either living beyond his means and is the biggest crybaby
in rec.boats or has some problems he hasn't discussed here.
You and him don't think how I do.

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?

As I said, run his taxes with and without the $22k 401k contribution.
Not guessing his salary, but running the facts through the tax mill.
But only he can do that, and only he can see the money on the 401k
bottom line.

snip

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

I can tell you I was paying 25% before I retired, and 10-15 now.
And that 25% doesn't do justice to all the other taxes and hits I was
taking on gross when employed.
My standard of living is the same or better.
But I'm not exactly a spendthrift and never have been.
It's silly to compare gross taxable income when employed to what you
live on when retired.
You might look at your employed net and expenses, and expected
retirement net get a handle on it.
Some people expect to be spending all kinds of money when retired, and
some don't. I'm the latter.

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.

See above.

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

Thinking adults with a measure of math skill are better off looking on
the internet than going to any financial adviser.

snip

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.

"Brackets" should be understood.
Say $149,999 is the limit of the 25% bracket.
Say $150k starts the 28% bracket.
You made exactly $150k.
How much extra did hitting that 28% bracket cost you?
3 cents.
Only the dollar above the the 25% bracket gets taxed at 28%.
And if the lowest bracket is 10% up to 15k, you only paid 10%
on the first 15k of your 150k income.
Maybe you knew that, but talk about bumping into the next "bracket"
is often from the uninformed.
I knew a guy who wouldn't work Saturdays at time and a half only because
he feared being bumped into a higher tax "bracket."
So he gave up a 50% hike for fear of losing 5% of the Saturday pay in
taxes.
I didn't know that myself back then, but still thought he was wacky
turning down a Saturday. What he said didn't smell right.
It's a common misunderstanding of the tiered tax system.

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.

Tax tables and retirement income projections can answer those questions.
And the tax exclusion benefit from maxing his 401k is easily found.
I won't argue more about that.
bpuharic can do as he pleases.
And if he's subject to NJ tax law he better look at that too.
One thing we haven't discussed about 401k deductions is psychology.
Won't go into it, except to say once you make the contribution election,
you've locked in savings and adjusted disposable income.
And that simple commitment can be a big life style change for some.
Never was for me though. Saving came naturally.
My main point is savings is savings.
Money ain't free, and doesn't materialize from thin air.
In my world you work for your money, save it and then protect it.
That's what I did, and I'm doing just fine.
It's all about moderation.
Wall Street and equities never directly entered into it.
Nor did financial advisers or insurance company annuities.
It was always a simple spending versus savings equation.

Not saying financial institutions and their effects on the economy
didn't play into it, just that I didn't speculate and always took the
safest and most guaranteed course in protecting my retirement money.
The money grew from simple accretion and prevailing interest rates.
I've always avoided debt, and always thought about effect on savings
before spending.
It was never hard to do. Never.
And I never made the salary bpuharic says he makes.
But I'm content and secure and happy to just be alive.
Maybe that's the difference. What you expect from life.
Hard for me to understand him whining about his 401k.
But I don't believe he never heard "A sucker is born every minute."
And he's not naive.
So he's just using the 401k BS to make his larger political point
about wealth redistribution, with which I agree.
That's my conclusion for now.

Jim - Speculation of my sort.

As correct, 6% is pie in the sky. And Annuities come out as ordinary
income. If any is left when you die, your heirs pay ordinary income on
the remainder and you may be able to balance that against inheritance
taxes. Buy a good dividend paying stock. PM for example. Pays 4.6% and
is taxed as a dividend which is about capitol gains rate. You have the
advantage of price appreciation likely also. When you die, the stock is
valued as the day you die for your estate and your heirs get it at the new
value. If your estate is less than the exemption, no taxes are due on the
money. Annuities grow tax free, but get the maximum rate you pay. And if
you die, that tax is on an amount as if you made that every year. Maximum
rate. 35% now, 50% or more if congress raises the max rate. 70% goes to
the government if they roll the max rate back to Ike's time. annuities
are good for about one thing. Make the financial planner a huge
commision.

Not an annuity, so perhaps you should read what I wrote and try again.