regarding 401k, I heard something on the radio that I'd share..

[reaz]

So apparently, the current tax brackets are the lowest it has ever been in the US. so if you not being matched by your employer it's a good idea not to defer your money to your 401k.

the reasoning behind it is that you are lowering your income so that you pay low in taxes, which is already at its lowest.. in times to come you'll pulling this income out and paying much higher taxes.. so it's better not to put money in the 401k plan now and pay off other debts like mortgages and credit cards.

if you are being matched then it's a different deal. does this make sense?

[bender]

So apparently, the current tax brackets are the lowest it has ever been in the US. so if you not being matched by your employer it's a good idea not to defer your money to your 401k.

the reasoning behind it is that you are lowering your income so that you pay low in taxes, which is already at its lowest.. in times to come you'll pulling this income out and paying much higher taxes.. so it's better not to put money in the 401k plan now and pay off other debts like mortgages and credit cards.

if you are being matched then it's a different deal. does this make sense?


That's wrong. Even if your employer doesn't match, it is still a good idea to put money into a 401(k). When times comes to retire, you simply would roll the 401(k) into a Roth IRA.

[reaz]

That's wrong. Even if your employer doesn't match, it is still a good idea to put money into a 401(k). When times comes to retire, you simply would roll the 401(k) into a Roth IRA.

but whenever you pull money out you pay income taxes on the money. if the income taxes are higher at that point you're actually losing money because you're evading low taxes now and spending more on taxes then.

The speaker on Radio assumes that you have other debts you can pay off now with that money.

[bender]

but whenever you pull money out you pay income taxes on the money. if the income taxes are higher at that point you're actually losing money because you're evading low taxes now and spending more on taxes then.

The speaker on Radio assumes that you have other debts you can pay off now with that money.


A Roth IRA allows money you contribute to grow tax free because you are using post tax dollars, with a 401(k) you are using pre-tax dollars. The steps taken are to roll the 401(k) into a rollover IRA than roll it over again into a Roth IRA. The only downside is the pre-tax contributions are going to be taxed as ordinary income, but when you retire the distributions from the Roth are taken out tax free.

[reaz]

A Roth IRA allows money you contribute to grow tax free because you are using post tax dollars, with a 401(k) you are using pre-tax dollars. The steps taken are to roll the 401(k) into a rollover IRA than roll it over again into a Roth IRA. The only downside is the pre-tax contributions are going to be taxed as ordinary income, but when you retire the distributions from the Roth are taken out tax free.


well that doesnt solve the initial problem does it? you're still paying tax if you had a 401k plan.. that's the initial problem i stated.. that since the income tax is at its lowest you'll be evading low taxes and paying more in taxes later... we're assuming you're gonna roll that over into a IRA or get distributions..

[bender]

well that doesnt solve the initial problem does it? you're still paying tax if you had a 401k plan.. that's the initial problem i stated.. that since the income tax is at its lowest you'll be evading low taxes and paying more in taxes later... we're assuming you're gonna roll that over into a IRA or get distributions..


You pay the tax only once when the IRA is converted into a Roth and you don't have to pay tax on the whole amount you can rollover parts and pay lower taxes. Say you have a $100,000 401k rolled into a IRA now being rolled into a Roth. You can roll say $50,000 into the Roth and pay lower taxes (25%) rather than paying a higher tax (28%) rate on rolling the full amount of $100,000.

[reaz]

You pay the tax only once when the IRA is converted into a Roth and you don't have to pay tax on the whole amount you can rollover parts and pay lower taxes. Say you have a $100,000 401k rolled into a IRA now being rolled into a Roth. You can roll say $50,000 into the Roth and pay lower taxes (25%) rather than paying a higher tax (28%) rate on rolling the full amount of $100,000.

I need to read up on the Roth before I make any comments. There are a few things that still remain unclear in my mind.

[reaz]

when you do a conversion from traditional IRA to Roth how much are you taxed?

[sameer]

forgot the rollover stuff. just use the roth from scratch if you believe you will be paying a higher tax rate later.

you also may want to consider that when you are retired your income will be low so you may have a lower tax rate even if tax rates increase overall.

[jspot]

simple rule.

the more money invested now, the more money you will have later.
compounded interest is strongest when you invest early and if you put more in early.

laws also change. so your taxes might be less when you take it out, or more. there might be more protections for your money in place then too. you also got to consider you are talking about 30-40 years from now.

[bender]

when you do a conversion from traditional IRA to Roth how much are you taxed?

It's tax as ordinary income. So, 15% to whatever the highest bracked a person falls into.

[reaz]

forgot the rollover stuff. just use the roth from scratch if you believe you will be paying a higher tax rate later.

you also may want to consider that when you are retired your income will be low so you may have a lower tax rate even if tax rates increase overall.

yea. after reading up about roth ira i figured that if the income tax is going to be higher I might as well start off with the Roth.

yes. you're right about post retirement.

[sameer]

not sure if you understood about the post retirement thing. because of that it may be better to use a regular 401k even if u think taxes will go up.

[bender]

Start a Roth IRA with Vanguard. $1,000 to start $100 minimum contributions, and their funds have low fees. I have a Roth with them and I bought the Target Retirement Fund that adjusts the asset allocation as you age. At this point its mostly in equities as you get older it moves into bonds.

[reaz]

not sure if you understood about the post retirement thing. because of that it may be better to use a regular 401k even if u think taxes will go up.

no i get it. there is however a problem. what if you have external income other than with your employer. in that case it could be that you were earnings peanuts from your job so you dont go into a different tax bracket. in that case the post retirement case you mentioned is not true.

[DasaniPurified]

work illegally. cash under matress. ehh. eh eh ehh. eh. eh.

[thefinanceman]

http://www.moneysavingfreetips.com/roth-ira-contribution-limits.html
IRA contribution limit schedule

Year Ages 49 or Less Ages 50 or More
2002 - 2004 $3000 $3500
2005 $4000 $4500
2006 - 2007 $4000 $5000
2008 $5000 $6000

[FatGeezer]

this is all gobledeygook to me.

sum desi please teach me how to launder money.

[imaginasian]

Does anyone know how much one can deposit into a SEP IRA (for self-employed individuals) per year? (I'm looking for something similar to what thefinanceman posted.) Thanks in advance.

[reaz]

Does anyone know how much one can deposit into a SEP IRA (for self-employed individuals) per year? (I'm looking for something similar to what thefinanceman posted.) Thanks in advance.

I think you're talking about a regular IRA. Isn't it?

[bender]

Does anyone know how much one can deposit into a SEP IRA (for self-employed individuals) per year? (I'm looking for something similar to what thefinanceman posted.) Thanks in advance.


Look here:
http://flagship5.vanguard.com/VGApp/hnw/content/AccountServ/Retirement/ATSSEPIRAEligibilityContContent.jsp

[BlueDukie]

Honestly, it makes no sense to invest in a 401(k) unless your company is matching (and if they do, get the free money!).

The United States currently has the lowest tax rate in its history. The United States also has one of the lowest tax rates in the world. Our debt is spiraling out of control- almost 10 trillion dollars. At some point, we're going to have to pay the piper. Our generation is going to get reamed with taxes eventually, thus you might as well avoid it now and just max the hell out of your Roth.

Who thinks they're going to spend less money later in life than they are now? Once we're 65, we're gonna want bling. Right now we're struggling to make rent. Thus, it makes sense to pay the damn taxes now and get it tax free later

[reaz]

Honestly, it makes no sense to invest in a 401(k) unless your company is matching (and if they do, get the free money!).

The United States currently has the lowest tax rate in its history. The United States also has one of the lowest tax rates in the world. Our debt is spiraling out of control- almost 10 trillion dollars. At some point, we're going to have to pay the piper. Our generation is going to get reamed with taxes eventually, thus you might as well avoid it now and just max the hell out of your Roth.

Who thinks they're going to spend less money later in life than they are now? Once we're 65, we're gonna want bling. Right now we're struggling to make rent. Thus, it makes sense to pay the damn taxes now and get it tax free later


yea. that's pretty much what I was saying.