vethost.com
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To sum it up, use a Roth when you can. Think of taxes this way. You'll be paying less today then you will when you're a rich old man. And when you're a rich old man you'll even be richer because every last cent you take out of your Roth will be tax-free! 
PS Wish I had one
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Wed Mar 01, 2006 12:33 pm |
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Rolo
Yo' Daddy
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Location: Colorado/Florida
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quote:
Originally posted by Jaszbo
You really have some way of thinking. I don't know how to say it, but here, put in the numbers yourself
Your math only repeated what I had already demonstrated by my math. 
quote:
Originally posted by Jaszbo
You can take some assumption, some people assume they will pay less when they retire, others assume they will pay more, because taxes have been lower now than they ever have.
Most people plan to retire with less income because they will have fewer obligations and will therefore be in a lower tax bracket.
quote:
Originally posted by Jaszbo
"huge front-end load." a front end load means that you pay something before you invest. So are you calling a TSP a huge back-end load? lol
Why are you laughing? That is perfectly analogous. In your heckling, you overlooked the fact that back-end loads are only charged on the portion withdrawn and ONE DOES NOT WITHDRAW ONE'S ENTIRE RETIREMENT BALANCE AT ONCE; THEREFORE, YOU CANNOT DEDUCT TAXES ON THE ENTIRE BALANCE IN YOUR COMPARISONS.
i.e. The 401k person does not have "$10.08" just like the Roth person in your argument since you oversimplified a multi-million dollar balance over years to a single $10 withdrawal.
You keep forgetting the factor of time in the overall formula.
You also ignore the impact of the 401k's higher balance on an annuity (more income).
quote:
Originally posted by Jaszbo
Very very very incorret again,
You failed to show why I was incorrect (Red herrings do not work here).
"Expect me when you see me."
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Thu Mar 02, 2006 3:10 am |
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pandashark
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I don't necessarily agree with the I'll be in a lower tax bracket when I retire logic. It is probably because I am not yet middle-aged, but I can definitely see myself in this tax bracket, drawing at least the amount of income that I have now. I will probably think differently in 10 or 15 years though...
Also, I'm sorry if I am just repeating a previous point, but I think the disconnect between rolo and jazbo might have to do with the much larger amount of money that you will ultimately have to pay tax on when it comes from the 401k? If you are in a lower tax bracket, which could be the case, that helps out.
I had a debate with a friend regarding IRA vs ROTH IRA recently, and one of the big difference makers there, is what rate of return you assume you'll get. I believe as the rate of return goes higher, the ROTH IRA is more favored. The problem is, the IRA has a provision where once your income exceeds some fairly low number (50k i think), the deduction is less. So I realize it's not a perfect comparison, but close enough.
The thing that might clinch it for the Roth is that you have the option of taking out your contributions at any time (of course, this could be a bad thing, in that is is detrimental to saving for retirement). but like I said before, the best route is probably TSP up to matching (if any), and then max out ROTH IRA, then more into the TSP. For the person who started this thread, I think they said they were in the military, and I recently heard that military participants get no matching, so doing the ROTH IRA first would probably be the better choice.
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Tue Mar 07, 2006 6:51 pm |
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Jaszbo
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Ok I thought this was explanation enough for you
quote:
Very very very incorret again, unless you are in the highest tax bracket, which you aren't or you wouldn't qualify for a Roth IRA. If your in a say 28% tax bracket and you withdrew the entier 1.5 million, what do you think your tax bracket will be? Ok Roth IRA was invested with 28% and 1.5 million was taken out at 33% if you take out the entire thing. So this also is incorrect.
Ok you wrote, so you can re-read it a few times
quote:
"However, you won't pay income-tax on the entire amount unless you drain the account completely, which is not something one plans to do, but if you did, the end-result is the same. "
You just said if you drain your account completely then the end-result is the same? Maybe my English isn't understanding you, but is that not what you said?
Ok, let's take a look at a tax bracket, so I can break it down for you. Here's the 2005 tax bracket
http://www.irs.gov/formspubs/article/0,,id=133517,00.html
Your tax bracket most likely is 25% or 28%, well if you have over 326k dollars and you drain it all at once, like you said, then you'll pay 35% in taxes. You are going to pay probably at least 10% more in taxes if this is the case.
I really would suggest you read more about the Roth IRA and taxes, because these posts are getting a bit old. If you don't understand something, then just ask, because I see this argument going nowhere
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Wed Mar 08, 2006 12:57 am |
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nick_alan79
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quote:
Originally posted by surfer
I don't think active duty folks get matching funds, which is why many don't participate. I'm sure he was comtemplating the Roth IRA because he could use that money to help with his home purchase a couple years away. However, my suggestion would be to save up about 5% of home purchase to put down, and then fund the TSP (or Roth IRA) as much as you can. You might be able to save up 20% of home purchase in the next 2 yrs, but your investments will perform better hopefully than you'll be paying in interest.
You're right, active duty do not receive matching funds, although civilian government workers do - go figure!
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Thu Mar 09, 2006 1:13 am |
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Rolo
Yo' Daddy
Cash: $ 309.70
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Location: Colorado/Florida
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quote:
Originally posted by Jaszbo
Your tax bracket most likely is 25% or 28%, well if you have over 326k dollars and you drain it all at once, like you said, then you'll pay 35% in taxes. You are going to pay probably at least 10% more in taxes if this is the case.
Why are you arguing about a scenario that will never happen? That is not how retirements are planned. Your opinions aren't based on anything pragmatic.
FACT: The member here will 'earn' 15/20% of his contributions to TSP by avoiding income tax for ~30 years.
FACT: That 15/20% can also be invested and compounded over those 30 years.
FACT: A large portion (almost all) will be left to an heir AND NOT WITHDRAWN AS INCOME AND THEREFORE NOT TAXED but rather converted into an insurance product.
FACT: Most people can outperform the TSP funds with quality funds in a Roth IRA, where the returns will be greater; however you lose the tax break.
FACT: Cash-flow (and consequently, tax-breaks) are more critical starting out/early on.
FACT: It's not just what you make, but also what you keep!
Your problem is that you do not see the gestalt.
"Expect me when you see me."
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Sun Mar 12, 2006 4:46 am |
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geese4u
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Location: Washington State
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If someone accumulates over a million $$ in an IRA or other Qualified Retirement plan, they more than likely won't be spending it down enough over the ten years they have until RMD's begin. If the account value is still large (and growing), this could create an Income Tax train wreck. I have clients that have to pay taxes in the highest bracket because of RMD's even though they need way less $$ to live on. They are forced to withdraw $$ and reinvest it in a retail account every year.
To avoid this for new clients, we fund their Qual. Plans to the employer match, and then fully fund their ROTH IRA's. Anything left over to invest gets allocated back into the Qualified plan, or for some clients we have used VUL. If I find that my clients are investing in the "Floating Rate Funds", or fixed accounts in their Qualified Plans (You'd be surprise how many actually are), I suggest allocating those $$ into Whole Life, or Universal Life.
Flame on, but answer these three questions first:
When do you spend more $$ on vacation, or when you are at home?
Do you think tax rates will be higher or lower in 20-30 years?
What are your largest write-offs?, (hint--kids, and home), and do you think you will still be able to take them at retirement age?
Deferring taxes until retirement was a great strategy during the 70's and early 80's, just ask the people who are retiring now. In my opinion, it doesn't make as much sense today because tax rates are so low. It is tough explaining to a client that they might be better off paying more now, but I don't use high pressure to sell. I let the numbers do the job for me, and if you take the time to calculate it out, even with equal tax rates, alot of the time, there are more SPENDABLE $$ using ROTH and VUL than just a Qualified Plan.
Never speak in absolutes!!!
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Mon Mar 27, 2006 10:53 am |
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SkyPilot
Senior Member
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The problem for financial advisors is that TSP removes them from the equation.
Geese, are you really advising people to take out whole or univeral life insurance policies? These kind of policies are (as opposed to term life) expensive insurance policies and poor investment tools.
Remember, it's not just the tax you pay, it's the money you make.
Making less money so as to reduce your tax burden is truly "cutting off the nose to spite the face".
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Mon Mar 27, 2006 1:57 pm |
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geese4u
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I am not advising anyone with the shotgun approach as you are. I give each client individual attention without trying to fit the person to the plan. Skypilot, we have a difference of opinion, and that's fine.
If you have 1,000,000 in a qualified plan, and 800,000 in a combination of ROTH IRA and CVLI, which account has more spendable dollars (assume a tax rate of 21%)
What happens when the Qualified Plan is still 750,000 - 1,000,000 at age 70 1/2? I have had clients do a ROTH conversion with similar amounts, and pay over 200,000 in tax. That does not make them happy.
If there are other sources of retirement income, spending down the Qualified Plans first to maintain control of the RMD situation is often the best way to approach it. I would argue that having more in accounts you can access tax-free is better than having a forced income that jacks up your taxes, without a need to.
Never speak in absolutes!!!
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Mon Mar 27, 2006 5:34 pm |
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SkyPilot
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The real differnce is, I am not an adviser, as you suggest. I am a consumer/investor, and do not relate to this issue as one who makes a living earning a commission.
And, what I do is not "shotgun", but rather, intentional and specific to my own circumstance.
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Mon Mar 27, 2006 8:15 pm |
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geese4u
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Fair enough, but why would you assume that whatever is good for you is good for everyone else? I don't consider commissions when making a decision what to recommend to a client, if I did, my book of business would be full of Annuities rather than Mutual Fund accounts. I agree that there are some advisors that calculate the commissions, before the returns, but I make it a point to treat each client as I would want myself, or my family treated. It does get old reading these boards, and seeing people throw what I do for a living "under the bus", but you have to learn early in this industry that you have to have a thick skin.
Never speak in absolutes!!!
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Mon Mar 27, 2006 10:06 pm |
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SkyPilot
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Geese,
If you even casually read my last post, you would not have made the assertion that what I carefully stated as a personal strategy was meant for anybody else. And that may be at the heart of the matter.
Careful listening.
As far as members of your profession, it's like any others, some good, some not so much. If you feel that your offerings are often "thrown under the bus", then maybe an objective review of why so many people feel that way would be in order.
Positing that Whole or Universal insurance is good for anybody but the salesman goes to the root of why this kind of advice would erode credibility.
Ultimately, you would not be in buisiness if there was not an intent to make a profit. That's fair, but let's be honest about it. My goal it to keep the money in my account, and not in yours. And the numbers and scenarios you put forward look an awful lot like the salesman training a friend of mine went through, (he's still a friend, but he also dropped the business).
For some investors who have a great deal of market savvy, other investment options may be justified after the TSP 5% matching but only if this is related to investments not readily or specifically available as TSP funds (QQQQ, FOREX, Precious Metals, Energy, etc.).
Any discussion regarding possible tax advantages is really speculative (at best) and must also factor in the expenses of fees, commissions and trading delays associated with outside funds.
All that competes with the lowest cost (fees) 401k in the world, and the option to transact changes on a day to day basis without a "manager" in the middle, especially those who want to market other products.
It seems there are more and more who would like to tap into the TSP participants nest egg (including Congress).
So, don't have hurt feelings. If you are a salesman, then one must accept a 96% rejection rate, especially among an educated demographic.
A great target might be for those TSP participants who might be considering a TSP annuity. Now, there's a scam, and you no doubt have many fine products that would be far superior to the 4-5% return that is offered.
Best of luck.
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Mon Mar 27, 2006 10:34 pm |
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geese4u
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No hurt feelings here, but the "salesman training" that you refer to is more of a philosophy/strategy of investing than a sales track (I have never used a script or sales track in my career). If I were trying to fit all of my clients into the same plan, then that would be a different story, but by looking at each situation individually, I feel confident in the service that I am providing. I offer fee based planning as an option, but only have 2 clients out of a large book of business that chose that account structure. If you feel that by purchasing a commission based product, that you are giving up some of your gains, then don't do it.
Never speak in absolutes!!!
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Tue Mar 28, 2006 7:20 am |
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