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Re: As I learn more about investing, my 401k DOESNT look so great....
Old 11-01-2005, 03:37 PM   #61
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Re: As I learn more about investing, my 401k DOESNT look so great....

Another ?, sorry...lol

What would YOU ALL reccommend to draw from from age 45 to 60. At 60, my ROTH contributions would be tax free, and THAT'S why I got it.

Using the SEPP plan, I could draw down my 401k (rolled into an IRA). However,it would only let me draw it down enough to take it out til I'm 80 yrs old. I'd rather take it down at a faster rate, and that doesnt seem possible. A faster rate so I dotn have to touch the soon-to-be TAX FREE Roth.

A Taxable account, of course, I could liquidate at will. So is that the ONLY option to draw from 45 to 60, while keeping my ROTH in tact?

I hope someone understands the question... basically, What investment should I deplete from age 45 to 60. ?

I am thinking a combo of a taxable account, and then the 401k(roleld to an IRA) on a SEPP plan. Hopefully that would do it.

Once you hit 60 though, can you adjust that SEPP plan to shorten the total years?
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Re: As I learn more about investing, my 401k DOESNT look so great....
Old 11-01-2005, 03:54 PM   #62
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Re: As I learn more about investing, my 401k DOESNT look so great....

I would think that some aspects of an after-tax account COULD be taxed twice. For example, when you earn the money from wages those wages are taxed. The after-tax money is then invested in equities, bonds, or funds (not RE). All of these except tax-free Munis have taxable aspects to them. Dividends and interest are taxable events on an annual basis that would not be taxed if held in a tax deferred account until they were withdrawn. Capital gains are only taxed (not counting mutual funds) when shares are sold unless held in a tax deferred account. Withdrawls from the tax deferred account would be taxed at the highest marginal income tax rate and would not be taxed as capital gains, divideds or interest; only as income.

There are exceptions of course where after-tax investments might not be taxed twice e.g., RE which would only be taxed on the gain unless rents are obtained as income from use of the RE. Otherwise, only the gain would be taxed and only when the RE is sold. There may be other examples too but the point is that there are cases where there would be double taxes and some where only the capital gain would be taxed. I guess Justin and Nords are both right.
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Re: As I learn more about investing, my 401k DOESNT look so great....
Old 11-01-2005, 03:58 PM   #63
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Re: As I learn more about investing, my 401k DOESNT look so great....

Quote:
Originally Posted by thefed
I am thinking a combo of a taxable account, and then the 401k(roleld to an IRA) on a SEPP plan. Hopefully that would do it.

Once you hit 60 though, can you adjust that SEPP plan to shorten the total years?
After 59.5 or 5 years after you started SEPP, you can modify your SEPP withdrawals, no penalty.

Withdraw from a taxable account to supplement your 401k/IRA SEPP withdrawals, and you may want to take Roth principal withdrawals.

At your age, I wouldn't worry too much about where your cashflow from 45-60 will come from. Save what you can on taxes, and then plan when you get closer to the deadline. Tax laws will change between now and then.
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Re: As I learn more about investing, my 401k DOESNT look so great....
Old 11-01-2005, 04:15 PM   #64
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Re: As I learn more about investing, my 401k DOESNT look so great....

Quote:
Originally Posted by justin

At your age, I wouldn't worry too much about where your cashflow from 45-60 will come from. Save what you can on taxes, and then plan when you get closer to the deadline. Tax laws will change between now and then.
agreed.but since saving now will dicate what i can draw from where in the future, im trying to set up the most accurate/advantageous plan i can


thanks though all of you for your input. youre a lot friendlier bunch than those i talk to on some other financial boards

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Re: As I learn more about investing, my 401k DOESNT look so great....
Old 11-01-2005, 04:50 PM   #65
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Re: As I learn more about investing, my 401k DOESNT look so great....

thefed,

I was also trying to plan out where all of my withdrawals would come from in 20-30 years, and I soon realized the futility of making plans like that. There are so many unknowns - how big is your nest egg, how big are your expenses, what is health insurance and SS like? 20 or 30 years out, who knows? We could have socialized medicine, full SS at 55, and 40% marginal tax rates. Or it could be the polar opposite. Who knows.

The easy part is getting to your money once you've earned it. The hard part is earning it and making it grow. Between SEPP's and withdrawing from taxable accounts, you should be able to have plenty of money to live off of, assuming you aren't eating in to your principal too much during withdrawal.
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Re: As I learn more about investing, my 401k DOESNT look so great....
Old 11-02-2005, 09:58 AM   #66
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Re: As I learn more about investing, my 401k DOESNT look so great....

Quote:
Originally Posted by justin
Nords, you already conceded that the small error I made did not change the outcome of the analysis I presented.*
Yes. In the context in which you asked the question, you win despite the error.

The question has to be asked, though, how you reassure yourself that your spreadsheet doesn't have other errors in its assumptions or its logic. And if I had one error pointed out to me, no matter whether it's big or small or irrelevant, I'd feel a lot less inclined to argue the rest of the topic.

Quote:
Originally Posted by justin
It may be semantics as to whether one is taxed once or twice in an after tax account...
Heck yeah, that's why we disagree. This reminds me of the perpetual reciprocated diatribes on how to calculate net worth or savings rates.

Quote:
Originally Posted by justin
... but the end result is you'll pay more tax and have less money if you invest in an after tax account instead of a tax deferred account. That is, assuming:

- same tax rate on earned income today and in the future.
-non-zero tax rate on capital gains
-identical investment options in tax deferred and after tax account

I may be a dunce for making a mistake in my earlier calculations, but If I'm missing something that changes the conclusion, please post it. Post a copy of your excel analysis if you want. I'm curious to see where you're coming from.
Sure, the assumptions make all the difference, but it's difficult to decide which assumptions are more "valid" than others.

I think that we're not going to see taxes get any lower than the current rates, just like we're gonna have to wait quite a while to see 2004-5 mortgage interest rates again. So if I have a choice of paying less taxes now or more taxes later, I'm more likely to go against dogma and pay them now. This choice brings tears to the eyes of my BIL-the-CPA and we have many wonderful discussions on the discount rate of our future-value calculations.

Getting back to the topic, there aren't identical rates in thefed's 401(k) & taxable accounts. It's not that easy to analyze the difference between: (1) a high-cost 401(k) that rolls to a low-cost IRA and then converts to a Roth versus (2) an after-tax account. This two-part choice is further complicated by the source of the money to pay the conversion taxes-- from the IRA (especially after age 59.5) or from other after-tax investments.

And while that after-tax account may lose out in the previous scenario, an after-tax account could actually do better than a 401(k) portfolio that rolls to a conventional IRA and whose RMD is then taxed at regular income rates as well as taxing Social Security income. If the IRA performs unusually well (resulting in higher RMDs) then thefed could be pushed well into a higher marginal tax bracket. That's why conventional wisdom limits 401(k) contributions to the employer's match.

I suspect that if I was in thefed's position that I'd max out the 401(k) match, max out the Roth (if qualified) or conventional IRA, and then think about my future. If I expected a long low-income period between ER and Social Security, then I'd be tempted to put additional savings in the 401(k) and gradually convert to a Roth when I ER. I'd definitely do it if my pension income plus RMDs was going to boost me into a higher tax bracket than I'm in now. But I'd also have to determine my Social Security start date (62? 65? 70?, an issue complicated by longevity expectations & spouse income needs) and the amount of that SS (earnings history). Social Security taxation isn't a very significant issue for a 40-something ER with a puny earnings record compared to a 60ish ER with decades of six-figure incomes.

These types of choices ensure that this topic is another eternal reciprocated diatribe, as well as fodder for not one but TWO of Ed Slott's books plus a couple dozen websites on where to invest and whether to convert. And that's assuming everyone's spreadsheets are correct.

Whether it's correct or not, when the subject is this complicated a spreadsheet just won't cut it. I've tried and I'm not there yet.
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Re: As I learn more about investing, my 401k DOESNT look so great....
Old 11-02-2005, 10:30 AM   #67
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Re: As I learn more about investing, my 401k DOESNT look so great....

Quote:
Originally Posted by Nords
Whether it's correct or not, when the subject is this complicated a spreadsheet just won't cut it. I've tried and I'm not there yet.
We can agree on that for sure. As my Vietnamese in-laws like to say, "there's more than one way to skin a dog".

The main point for thefed to take from this discussion is to save as much as you can now, and realize that you can't get a 100% certain answer as to what your future plans for tax strategy or withdrawal methods will be.

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