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Old 04-22-2011, 06:27 PM   #21
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@kaneohe: No worries about not understanding 72t, I used an online calculator to get the numbers

All of my research so far hasn't really considered taxes very much, and I'm not sure how they will affect my assets 20-60 years from now. I get how taxes affect me today, as a 25-year old, but I don't know their impact on my assets when I retire. Is there a good summary somewhere so I could educate myself?
My personal opinion is that tax considerations are quite important.
Taxes affect you when you retire because your income is taxed or not depending on their source. That's why some folks like to have different sources of income (hedging) so they can control their taxes.

I don't know of a summary......though you might try this one.....it talks about Roth conversions but the analysis is very similar to the contribution question you are asking: Roth Conversions: Pulling It All Together

you might also benefit from this forum
Bogleheads Investing Advice and Info

Digesting all of this is kind of like drinking from a fire hose but you have decades to go and a lot of energy........just take it a step at a time
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Old 04-22-2011, 10:34 PM   #22
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Thanks so much kaneohe! I've gone through about half of the links and they've been very helpful.

I'm starting to think that although the calculations show that I'll get more money (and get it all sooner) with a traditional 401k, the difference isn't humongous, and the Roth gives me flexibility, since most(all?) of my other investments will be taxable.
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Old 04-23-2011, 12:37 AM   #23
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one incorrect assumption studbucket is making is that you can withdraw roth 401k funds penalty free. it is true for IRAs, but not neccessarily for your 401k. check with your plan rules. if i was a betting man, i would say there is some penalty associated with early withdrawl of roth 401k funds unless under a special rule (e.g. 72(t)).

as kaneohe says, hedging is where most people end up. I'm almost exactly 50% roth and 50% trad. this is because i started contributing when i was 20 as an intern and had a few years of full time work under my belt before a roth 401k was available, in addition to my company's generous 8% immediately vested match.



that's only true if the person has the discipline to do so. my highly unscientific research shows this to be highly unlikely amongst those in their 20's. this is what i mean when i say someone is able to invest "more."

Since you can roll over a regular 401 to an IRA, I would think you can roll over a ROTH 401 to a ROTH IRA and then you do not have the issue you speak....
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Old 04-23-2011, 12:41 AM   #24
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Another thing to think of....

Lets say that you put all of your money into a ROTH.... then when you retire you do not have ANY taxable income... it does make sense to put some in a regular 401 or IRA to get some tax savings now.... since you are at the 25% rate it does make sense...


I did not see anybody answer you question about what a taxable account means (or I skipped over it)..... it is where you put your money that is not in one of the other 'tax advantaged' accounts... 401 and IRA are tax advantaged in one way or another... they have rules... a taxable account is just any regular account where you pay income tax every year on any income or cap gains... you can take it out whenever you want etc. etc.... this is where you should have you 6 or more months or ready cash that many people speak....
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Old 04-23-2011, 10:05 AM   #25
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Another thing to think of....

Lets say that you put all of your money into a ROTH.... then when you retire you do not have ANY taxable income... it does make sense to put some in a regular 401 or IRA to get some tax savings now.... since you are at the 25% rate it does make sense...


I did not see anybody answer you question about what a taxable account means (or I skipped over it)..... it is where you put your money that is not in one of the other 'tax advantaged' accounts... 401 and IRA are tax advantaged in one way or another... they have rules... a taxable account is just any regular account where you pay income tax every year on any income or cap gains... you can take it out whenever you want etc. etc.... this is where you should have you 6 or more months or ready cash that many people speak....
Thanks, appreciate the help!

Based on what I'm looking at right now, it seems like I'm headed toward something that's 25% tax-advantaged and 75% taxable. I have no clue if that's good or bad, but I imagine I should read some more books on retirement
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Old 04-28-2011, 07:25 AM   #26
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Since you can roll over a regular 401 to an IRA, I would think you can roll over a ROTH 401 to a ROTH IRA and then you do not have the issue you speak....
i'd rather take a beating than attempt to interpret the IRS' website.

but, here are my learnings....

*you need 5 consecutive years of ROTH contributions into the plan, or you seem to run into trouble.
*you can then roll over to another plan's ROTH account (not sure why one would do that) or an IRA account
*when you roll over, you have to take both the contributions and earnings pro rationed?

Retirement Plans FAQs on Designated Roth Accounts

it's confusing (for me) and early!! maybe we can get this solved opposed to speculating. I am encouraged that ROTH 401k contributions is good for the young dreamer....
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Old 04-28-2011, 10:07 AM   #27
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i'd rather take a beating than attempt to interpret the IRS' website.

but, here are my learnings....

*you need 5 consecutive years of ROTH contributions into the plan, or you seem to run into trouble.
*you can then roll over to another plan's ROTH account (not sure why one would do that) or an IRA account
*when you roll over, you have to take both the contributions and earnings pro rationed?

Retirement Plans FAQs on Designated Roth Accounts

it's confusing (for me) and early!! maybe we can get this solved opposed to speculating. I am encouraged that ROTH 401k contributions is good for the young dreamer....

Thanks for the link... here is one Q&A that I found interesting:

Can I contribute the maximum, including catch-up contributions, to both a designated Roth account and a Roth IRA in the same year?
Yes. if you are age 50 or older, you can make a contribution of up to $22,000 in 2011 to your 401(k), 403(b) or governmental 457(b) plan ($16,500 regular and $5,500 catch-up contributions) and $6,000 to a Roth IRA ($5,000 regular and $1,000 catch-up IRA contributions) for a total of $28,000 for 2011.



Sounds like you can put a lot in the plans if you wish...
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Old 04-28-2011, 07:31 PM   #28
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by age 50, i hope to be withdrawing money, not contributing.

further research has indicated that if you roll into roth ira, it's fair game and there are very little restrictions. if you leave in 401k account, you have to take contributions and earnings in proportion. for example, you contributed $10k and you have $10k worth of earnings. you withdraw $5k, you owe taxes on $2.5k (+10% penalty). you can't pick and choose with the roth 401k. while the roth ira you don't owe taxes until you have withdrawn all your contributions.
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Old 05-06-2011, 10:12 PM   #29
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Thanks for doing the research, that meshed with what I found as well.
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