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no right answer right now, but if your effective income tax rate (for fed, state and local) is below 20-25% I wouldn't defer.
You all also realize 100% of gains in a 401K are taxed at ordinary income rates when gains in a regular cash account are taxed at 15% (if income less than 200/250K).
I think I'm taking most of my money outside the country. I have access to some international investment opportunities that pretty much guarantee a 9% return. Makes no sense to invest in the US if that opportunity exists. But yes, thanks for the advice...will probably still invest at least a bit in the US in my 401k (maybe once the FICA caps kick in).
healthcare, healthcare and more healthcare will be yours (and most everyone elses) costs when retired
what industry/sector is this?
he's an attorney.
most of the bulge bracket investment banks don't do matching either and just do lump sums
If my crude calculations are correct, a married couple living in DC and making only $91,176.47 taxable income would hit 25% federal+DC tax.
eamhokie94: Is your name Nazi in pig Latin?
Well, to the extent healthcare exceeds 7.5% of my annual draw, it's deductible, further reducing my tax burden. Assuming there's no Medicare as we know it, my $20,000 prostate zapping copay, incurred after a tax-offsetting moderate deductible personally purchased plan, suddenly reduces my withdrawal to an even lower level of taxation. I'm not saying things won't be ugly in the Tax arena.
I think there's two iterations of citizen pain forthcoming. Severe austerity at some point in the next 15 years. Then citizen revolt. Then, right when I turn 59.5, smooth sailing Utopia.
I thought you were a law guy, but not sure if you worked for a legal firm or for an NPO or something else. I thought most legal firms had some sort of cash balance plan and regular retirement savings plan. Not to mention some serious deferred comp if you retire as a partner.
My employer has a pension and no 403b matching. I'm currently putting 10% in, should I switch to a Roth? It sounds like I should based on what I'm hearing.
Medicare covers a fraction of retirees healthcare costs, even today. You also have prescription medicines and home aid (when you get really old).
My advice to anyone is dabble a little in both tax deferred and cash plans. It's not good to put all your eggs in one basket in terms of anything.
People also need to understand the true risks and associated expenses of a 401K plan (higher fees, etc)
your probably about, if you're itemizing deductions your DC income taxes is deductible on your fed so only account for about 85% of the tax rate.
Goterpss, I just think you should be careful about making broad statements that 401k are raping people in fees, will lead to a higher than expected tax situation in retirement, etc. It's been the primary wealth creating vehicle for many millions of people. Yeah, more people need to read the fine print. But all things equal, it can be a set it and forget it net worth builder for 20 somethings who exit college totally bereft of an appropriate financial education. Americans are pretty stupid, we just don't want to admit it. If an employer puts his new hire recent grad in a 2050 target fund up to the match by default, I think it's a good thing. Potentially one less societal leech in 40 years. Libertarian Paternalism saves dumb Americans from themselves while still affording autonomy.
if you're saying a 401K is good investment mechanism for people who are dumb, undisciplined and financially unsophisticated I wouldn't disagre with you. I'm saying if you are savvy, don't want to pay a ton in mgmt fees and want to pay less taxes a 401K may not be a good idea.
Again, the folks that are pro-401K have never pulled out the excel model and proved the case. They are making assumptions that tax rates will remain the same and/or be lower then when you retire.
Also, you def are getting raped in fees. Again, most participants don't even realize how much in fees they are paying (you didn't).
For everyone saying how bad a 401(k) is, where do you suggest the money goes instead? Especially if someone is over the income limits for a Roth IRA?
if your over the Roth limit, you're at least over 166k for MFJ in (modified) adjusted gross income. this discussion is as much tailored to you
This post was edited by longbeachterp 18 months ago
False, i know the net expense ratios of everything in my 401k and Roth. I thought you meant the admin fee which I knew was low for me, but had to look up. The expense ratios are going to be incurred in any mutual fund in any account, pretax or otherwise. You can't unequivocally say 401ks are a bad investment, just like I can't say they're all good and for everyone.
Which for married couples would only be $83k each. Not exactly huge.
Did you mean "this discussion is not as much tailored to you"?
pardon me I apologize, its 183k for 2012 (166k in the past), but the point remains, at that point your taxable income gets into the 28% bracket, which would be similar to future tax rates.. this discussion is moreso about those in the 15% bracket maxing their 401k deferring 15% income.
and yes, it should read not as much tailored to you.
Yeah sure. Second, most firms actually pay the admin fees for their employees (yours is actually high since you have to pay it). Three, mutual funds in 401K plans are often more expensive then the same fund if offered in a non plan asset account and come with more bogus fees, that's fact. Four, there are plenty of options of investing that do not involve management fees. How many investment options in your 401K do you not pay fees on? Not many, if any. You really don't know what you're talking about.
You work in condescension like Michelangelo worked in marble. While I was busy looking for my lost chromosomes, I called my new admin today. My company's employees incur zero expense to have Wells Fargo administer the funds. The only fees I incur are those charged by the funds (Vanguard, Fidelity, Pimco) themselves, which are reported in the net expense ratios. As previously mentioned, I'm mainly in Vanguard which for me are 0.04, 0.04, 0.46, and 0.13. In the three instances where I'm using actively managed funds to see if they beat the indexes, it's 0.84, 0.87 and 0.81. In my Roth I'm exclusively Vanguard, all below 0.15. If I wanted to net it to zero, I could play individual stock picker. But I have neither the time, inclination or market knowledge.
But hey, you're the resident high finance guy and you know everything. Or, alternately, you could swallow your pride and admit you don't know shit about anyone's individual situation. It's one thing to advise people to dig into the fine print and see if they are getting nickle and dimed. It's another to be, well, Goterpss-y about everything, all the time.
This post was edited by PKP 313 18 months ago
again, the fund expense ratios aren't easliy determined by looking at a fund prospectus. Your fees are reported annually in a 401K every August by law (starting this year). The thing with mgmt fees is that you pay them every year.
So let's do this math. On an account with an average annual balance if 250K over 30 years you will pay 45 bps (the average of the fees you just laid out) every year. You're also probably paying $20 per fund per year on top of it. In total, you'll pay $38,700 in fees over 30 years on an account with a 250K averege annual balance with 7 funds in it or over 15% of the actual balance to be in very basic public investment vehicles. If that sounds good to you you have my blessings.
I prefer better investment options and if I'm in public markets to pay zero fees but that's just me.
Or not, considering I mentioned I'm much, much more heavily weighted in the Index funds. The weighted average is just under 0.17%. So you're overestimating the bps by 62%. And furthermore, you're wrong about the $20 per fund fee. Sucks when you make incorrect assumptions, especially when you're viewed as the expert.
Plus the fact that, in a regular IRA that you are touting, people are going to invest in funds that incur expense ratios similar to mine in my 401k --- probably higher unless they're all in on Vanguard or SPDR.
But by all means, keep going down the path of wrongness.
I'm touting regular IRAs? That's the same tax treatment as a 401K. Regular IRA's do offer about 10000x better investment options that a 401K.
I'm highly skeptical of your 401K fees again, they are only published once a year and not in a prospectus, but assuming your 17 bps is accurate you are still paying over 5% of your lifetime average to fees. That's still not even a good deal for very basic public investments.
So what exactly is the approach you are "touting?"
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