I'm sorry RT, but neanderthal gibberish is all I know!
Yellow | Yet Another Bankruptcy Court Hearing Scheduled On Yellow Corp/Pension Plans Withdrawal Liability
- Thread starter Freightmaster1
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Brackets are progressive. Only a small amount of your income is taxed at the higher rate when you jump into a new tax bracket.
That is exactly correct, let’s say I go from
12 % to 22% bracket because my RMD plus pension income puts me over. Let’s say I go over by 10,000 that means I pay 2,200 on that amount vs 1,200 in lower bracket, that is 1,000 or 10% more that I may have been able to eliminate by early withdrawal under the 94k for married couples. Why would I put money in a 401 k and save 12 to 15 % in taxes my younger years and then pay %22 percent when I retire. I seriously don’t think enough people look big picture, long term, or be proactive in financial planning and taxes. I try and look at all the angles. We worked hard for it why give it to the government. Yes I would love to have enough money that I was in top bracket, I would still work hard to eliminate taxes in every way I could.
Dokman, I believe you may have failed to consider the time value of money in your analysis. The funds you leave longer in your account have the potential to grow more than the higher amount of tax you might pay. The calculation is slightly more complex.
Let's assume you get a return of 5% on your retirement funds. Leaving that $10,000 in your retirement account means you will earn an additional $500 per year just on that amount. So after only 2 years that gain will have already made up the difference in taxes that you are trying to avoid. Correct me if I am wrong, but it certainly makes more sense to skip the early withdrawal just for tax reasons.
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Because maybe you're in the 32% or 35% tax bracket in your younger years and will be thrilled to pay 22% later.
Or you're in the 24% tax bracket today and am loving the idea of being in the 15% tax bracket later.
Keeping the math simple.
Assume option (A) a tax-deferred 10,000 annual contribution growing at 5% a year for 30 years. All while paying an effective income tax rate of 15%.
You will accrue $707,342.14 with a LTGC tax liability of $106,101.32 = 601,240.82*
Now option (B) take that same 10,000 in earnings, pay your 1500 income tax, investing the remaining 8500 annually, tax-free at 5% for 30 years in a ROTH. You'll end up with $601,200.96*
*These numbers are essentially the same, and would be, except for rounding in the compounding calculator.
The commutative property tells us that it doesn't matter what order you multiple numbers in, the answers are the same.
As I said in an earlier post “ move funds to another ( investment)vehicle “ I don’t plan on taking money out and unnecessarily spending it. Let’s say I put that same 10k in stocks that pay a “ qualified dividend “ of
5% which are subject to capital gains, the rate for married couples under 94k amount is 0%.
So I reinvest the dividends and my money grows. Or I put the money in a cd at 5% and pay ordinary income rate of 15% as long as I don’t get over 94k. Or I buy tax free municipal bonds.Now which one makes more sense. Remember when I said pro active and not wanting to pay the government more tax. When the day comes that I am gone and I have made choices that don’t pass a huge tax burden on to my kids I think I have succeeded. Things change I understand, currently a 401 k left to a non spousal beneficiary has 10 years to move that money out and pay the taxes. That same money left in a regular brokerage account is not taxed, currently. Nor is it taxed as inheritance unless if gets to a huge amount. Remember what I said long term, proactive.
Roth rates have not reached 8,500, yet. Load 401 k up to drop down in lower tax bracket while working, then dump max in Roth. You mention LTCG on tax deferred, correct me if I am wrong. 401 k with draws are taxed as ordinary income not capital gains?
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Yea I think he is saying that is his bracket.32% or 35% bracket for driving a truck? Holy crap, sign me up!!
That almost sounds like something a red neck would have for supper “gibberish “I'm sorry RT, but neanderthal gibberish is all I know!
Songremainsthesame
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Can’t you just withdraw it and sock it right back into another investment account? You’re not liable for capital gains taxes until you sell shares of the fund.
ROTH 401(k) limit is 24,000.
ROTH IRA limit is 7,000.
Depends. Company stock held in a non-ROTH 401(k) are subject to capital gains.
I was just answering as to why somebody might prefer to save taxes now and pay later. Everybody who feels they are in a higher tax rate now than they will be at retirement should at least consider it.
You sold it before you socked it into another account. If you're pre RMD age you can roll it over.
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No. Withdrawing is selling. Moving from one fund to another is selling. You don't even have to touch it. Anything other than doing nothing is a taxable event.