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should 401K limits be raised significantly?
Old 05-03-2011, 07:55 PM   #1
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should 401K limits be raised significantly?

I read about the 100K COLA adjusted public pensions and admit some envy, but I actually would be ok with public employees getting that and their subsidized health care in retirement if those of us in the private sector could contribute more to our 401K plans. $16,500/yr is not nearly enough to create a retirement close to that of a 100K pension.

Say you finish paying off your student loans, saving for a down payment for a home, and get enough experience by age 30 to finally be earning enough to afford 16,500/yr contribution. Maybe you get a match, so call it 20,000. If you do this every year then by age 55 you have 500,000 in contributions. If you got lucky during that 25 years, maybe you have 1,500,000 in your 401K plan (could be much less if you are unlucky which time period you worked). What size COLA annuity can you buy to start paying at 55 with your 1,500,000? I bet it is nowhere near 100K. Probably something along the lines of 50K, and with no COLA.

30 to 35 years work and this is what you get?

401K limit needs to be immediately adjusted up to 30K a year. Then I will quit having my pension envy.
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Old 05-03-2011, 08:00 PM   #2
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I have a 403(b) that I have not contributed to since 1994. This week it is worth about 13 times what I contributed to it (not inflation-adjusted), so maybe your 3 times results is correct, but then again maybe not. And this 403(b) was worth even more in 2007.

Furthermore, there is nothing preventing you from contributing $30K, $50K, $100K, or more to a tax-efficient mutual fund such as a Total US Market Index fund or a Total International Market Index fund. You will pay hardly any taxes over the ensuing years in these investments. Remember: Unrealized capital gains are not taxed at all.
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Old 05-03-2011, 08:08 PM   #3
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I have a 403(b) that I have not contributed to since 1994. This week it is worth about 13 times what I contributed to it (not inflation-adjusted), so maybe your 3 times results is correct, but then again maybe not. And this 403(b) was worth even more in 2007.

Furthermore, there is nothing preventing you from contributing $30K, $50K, $100K, or more to a tax-efficient mutual fund such as a Total US Market Index fund or a Total International Market Index fund. You will pay hardly any taxes over the ensuing years in these investments. Remember: Unrealized capital gains are not taxed at all.
I used our situation. We (single income married) have contributed 16,500 plus match (about 21,000 total) every single year since we were 29 (now age 40). 11 years and the balance is $318,000. Continuing at this rate and with a sideways market I could see us only having $700,000 in there in another 9 years at age 50, and then getting to 1,500,000 by age 55 would require a double in 5 years. May happen but no guarantee. I just think it would be a lot more fair that if we are going to bail out the public pensions via higher taxes or cuts in spending that we should also help out those in the private sector by increasing the 401K limit so they (we) can put more in during our high earning years. To my knowlege there is no way you can spike your 401K....
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Old 05-03-2011, 08:13 PM   #4
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"Furthermore, there is nothing preventing you from contributing $30K, $50K, $100K, or more...."

Yes there is. It is called 30% federal tax, 7% FICA, 3% medicare, 6% state tax. All of this prevents us from contributing significantly more than the 16,500 to a non retirement account, and besides, that type of savings is available to everyone, public or private so does not really apply here. And then of course there is a need to fund retirement healthcare for us since our private sector healthcare will end when we retire.
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Old 05-03-2011, 08:14 PM   #5
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Who gets $100K COLA'd pensions?
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Old 05-03-2011, 08:16 PM   #6
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Who gets $100K COLA'd pensions?

Retire on $100 k a year?

step by step guide here:

Allysia Finley: California Prison Academy—Better Than a Harvard Degree - WSJ.com
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Old 05-03-2011, 08:25 PM   #7
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Really, one anonymous guy on a message board shows up claiming to be getting a $100K COLA'd pension and that is enough to assume his claimed situation applies to public workers generally? I don't doubt some folks manage to get that, but I don't think you can use outlier examples to argue for broad based changes in 401(k) rules.

And to the WSJ article, I have a number of prison guards in my family. Any time you want to spend a week on the job with them and see how much better off they are then Harvard grads let me know and I can have it arranged. (And no, none of them are looking to get $100K pensions . . . more like 50% of salary, not fully COLAd)
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Old 05-03-2011, 08:53 PM   #8
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There was another thread questioning your taxes. Your marginal income tax rate may be 30%, but if that's your effective rate, then you are making the big bucks.
And FICA no longer applies at those higher income levels.
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Old 05-03-2011, 08:54 PM   #9
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Someone making $200K a year can pay about 10% effective rate or $20K in Federal income taxes.
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Sure you can, assuming you have $129,450 in deductions and exemptions
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Old 05-03-2011, 09:35 PM   #10
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Many 401(k) plans have "percent-of-salary" limitations. In the old days, the percent-limit for many plans was rather low like 15%. Ask around and you will find many folks who were limited to less than $4000.
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Old 05-03-2011, 09:40 PM   #11
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You will notice that the moderators have removed some posts. Disagree all you want, but please avoid personal attacks. (here's a hint: calling someone a liar is never good form)
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Old 05-03-2011, 09:44 PM   #12
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Many 401(k) plans have "percent-of-salary" limitations. In the old days, the percent-limit for many plans was rather low like 15%. Ask around and you will find many folks who were limited to less than $4000.
Ok, fair enough...it sounded more like you were saying the IRS limit was $4000. $7000 in 1987 is about $14,000 in today's dollars btw, so I guess the situation has improved a small amount from then. It just happens that the late 80s and all the 90s were such a good time to be in the market that even $7000 a year probably was enough to retire 6 figure income in 35 years.

We are being told now not to expect those type of stock returns going foward, but we are not being given any tools to help, even though the public pension sector is getting bailed out (or wants to get bailed out) when their funds did not meet the idealogical investment goals that were probably set in the 90s when things were rosy.

All i am saying is give them their pension and give us a way to repair our 401K balances. What is not fair about this?
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Old 05-03-2011, 09:44 PM   #13
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You will notice that the moderators have removed some posts. Disagree all you want, but please avoid personal attacks. (here's a hint: calling someone a liar is never good form)
Bravo!
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Old 05-03-2011, 09:51 PM   #14
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Sigh! I detailed explicitly how this is done in another thread to you. I used Taxcaster to show you how it is done. I would use the word "Informed".
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Old 05-03-2011, 09:58 PM   #15
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Sigh! I detailed explicitly how this is done in another thread to you. I used Taxcaster to show you how it is done. I would use the word "Informed".
Ok I will look for that thread. I don't remember you mentioning how to pay that little in tax but I just filed for us in early april and we did pay around $34K in federal taxes and did not quite make $200K.

I think after I look for that thread I will drop out of this conversation and this website. The censorship here seems really bad. (this will probably get censored too).
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Old 05-03-2011, 10:08 PM   #16
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Moderation and censorship, it seems to me, are two very different things. Moderation is just keeping things moderate, civil, and respectful. That's a way different thing than censorship. I, for one, plan to stay here all the way through FIRE, if you all will have me. That's why I joined in the first place, and I appreciate the support from members and the people who maintain the site here.
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Old 05-03-2011, 10:11 PM   #17
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Originally Posted by 79protons View Post
I think after I look for that thread I will drop out of this conversation and this website. The censorship here seems really bad. (this will probably get censored too).
Careful of that door knob on the way out...
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Old 05-03-2011, 10:22 PM   #18
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Ok I found the reference to the thread you are talking about here:

"
BTW, we never saw your response to the "make $200K and pay less than 10% in income taxes" post. Are you still paying lots of taxes while working that could be easily avoided? "

I asked you in that thread which post you were talking about because I cannot seem to find anything by that title and when I search for the keywords 200K 10% income taxes I get a zillion posts.

I really would like to know how to have a wage income of 200K and only pay 20K in taxes, being married with no kids, unless you are talking about making a 100K charity donation or something.
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Old 05-03-2011, 10:42 PM   #19
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....I asked you in that thread which post you were talking about because I cannot seem to find anything by that title and when I search for the keywords 200K 10% income taxes I get a zillion posts.

I really would like to know how to have a wage income of 200K and only pay 20K in taxes, being married with no kids, unless you are talking about making a 100K charity donation or something.
Found the post you're looking for here (last one on this thread--it includes link to Taxcaster): 33 y/o, $235K income, $460K NW -- no mortgage, what's next?
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Old 05-03-2011, 10:58 PM   #20
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Ok, yes I never saw that post and did not reply to it then. I do find it curious that it was not deleted since it questioned the validity of my claim of paying 26% tax on 200K with the word "unbelievable", which would seem to be a personal attack on my statement that that is what we paid. Perhaps when you reach 4000 posts you are allowed some flexibility in attacking others that is not afforded to new posters.
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