76.8% Return on 401K

[MoKelly]

Don’t forget that by paying taxes on the front end, let’s say it’s 20%, you get 20% less seed to plant, meaning your harvest gets cut by a whopping 20% as well. So really the question would be “do you want an 80% harvest that is tax free, or do you want a 100% harvest that is taxed?” Whether one is better than the other mostly just depends on what your top bracket is today vs what you think it will be come harvest time.

You are a very smart man.

That indeed is the question - in addition to whether your tax rate is higher now v. when the harvest happens.

Plus - (depending upon your age) investing $100 for 30 years v. $80 for 30 years will result in a rather meaningful difference.

MoKelly

 

[MossRoad]

Do any of you think taxes in the future will be less than taxes today?

I don't pay 20% income taxes now. Not even close.

 

[PuffyC]

Do any of you think taxes in the future will be less than taxes today?

I don't pay 20% income taxes now. Not even close.

It’s not total tax, it’s what you pay off the top. If you’re single and make more than $40,000 a year, your top bracket is already 22%. By the time you’re up over $160k they’re taking a third. Personally I have no doubt that my top bracket will be less when I retire because not all income is taxed the same and I will be showing little generated income, at least compared to what it is pulling a regular paycheck.

 

[MossRoad]

It’s not total tax, it’s what you pay off the top. If you’re single and make more than $40,000 a year, your top bracket is already 22%. By the time you’re up over $160k they’re taking a third. Personally I have no doubt that my top bracket will be less when I retire because not all income is taxed the same and I will be showing little generated income, at least compared to what it is pulling a regular paycheck.

We're in the 12% tax bracket.

 

[Larry Caldwell]

The key question here: "Unless the government changes the laws"!

They changed the laws long ago. 401k earnings are taxed as income when you withdraw them, not as capital gains. Plus, that counts against your SS, so you get to pay income tax on 85% of it.

Gotcha.

Go with a Roth if you can.

 

[MoKelly]

Do any of you think taxes in the future will be less than taxes today?

I don't pay 20% income taxes now. Not even close.

I pay more than 20%.

A bigger factor (for me) is compound interest on the full contribution or compound interest on 60% of the contribution.

Compound interest is your friend long term. Maybe your best friend.

Everyone is different. That is why there are choices.

MoKelly

 

[PuffyC]

They changed the laws long ago. 401k earnings are taxed as income when you withdraw them, not as capital gains. Plus, that counts against your SS, so you get to pay income tax on 85% of it.

Gotcha.

Go with a Roth if you can.

But we’re supposed to assume social security won’t be there when we retire

 

[fried1765]

They changed the laws long ago. 401k earnings are taxed as income when you withdraw them, not as capital gains. Plus, that counts against your SS, so you get to pay income tax on 85% of it.

Gotcha.

Go with a Roth if you can.

They have not changed the law for Roth accounts...YET......but they surely WILL, when they decide they must have more tax revenue, and look around for a fresh source .

 

[p0opstlnksal0t]

my company doesnt match, there are better incentives that outweigh the tax break with other investments out there.

 

[Richard]

I'd suggest that's not accurate.

If someone puts $5,000 into an IRA, they get a $5,000 reduction on their income and might pay less tax 'today'.

If that same person puts $5,000 into a Roth IRA (or 401K) then the account is STILL receiving $5,000 BUT now their take home pay will be reduced....by the amount of the tax.

The respective accounts though, would have the same amount of capital put into them. If they're invested the same, the end results would be the same however, 100% of the Roth account would be tax free and 100% of the taxable account.....would be taxable.

The real difference is during their contributory years, their "take home/spendable" funds would be lower.....by the amount of the tax that they paid on the seed.